A question for tax day: "Do you regard the income tax which you will have to pay this year as fair?"

[randomness]

Charles Franklin, on The Irony of Tax Cuts:

The Republican driven tax cuts have worked. Voters now have more faith that the federal income tax system is fair than at any other time since World War II. Moreover these changes in public opinion coincide with the Republican capture of the House in 1994 and accelerate with the Bush tax cuts. But the irony of this success is that the GOP finds it hard to claim credit for a job well done. Once the tax monster is slain, who do you fight next? Once the people are no longer grumpy about unfair taxation (tea parties notwithstanding), how do you keep the issue alive? By successfully shifting public views of the fairness and burden of federal income taxes through repeated cuts, Republicans inadvertently also reduced the salience of their best issue of the 29 years since the Reagan Revolution. The public now agrees that tax cuts are good, but they are no longer particularly angry about taxes.

Today Ari Fleischer, former press secretary to President Bush, offered an interesting proposal in the Wall Street Journal: raise income taxes on those who currently don't pay. That is a rather shocking proposition from the party that has spent nearly 30 years arguing that tax cuts are good for everyone. The very success of that political program has been to remove millions from the tax roles, and put nearly half within striking distance of paying no federal income taxes. So you'd think that would be cause for celebration among Republicans for a job well done and a lot of credit to claim with those voters.

Alas, those voters aren't voting Republican in overwhelming numbers. The way to not have to pay taxes is to not make a lot of money. And while these less taxed citizens appear to have been pleased with lower taxes, that hasn't translated into a majority of Republican votes among these non-taxpayers. So Mr. Fleischer has now taken on the burden of convincing nearly half of the public that it is not good for them to pay little or no income taxes. Instead, fairness demands that everyone pay taxes. That's a breathtaking argument for a Republican to make.

Fleischer goes on to argue that it is poor policy for the top 10% of earners to pay 72% of all income taxes, and that is probably a discussion worth having. But the argument for raising income taxes on the bottom 90% to provide a little more load sharing for the top 10% is an interesting electoral calculus to say the least.

Obama's plan to lower taxes for more of the lower 90% (or 95%, whatever) plays to the anti-tax momentum Bush built. And it means that Republicans don't have the angry taxpayer revolt of the late 1970s that helped build the Reagan platform that transformed tax policy for a generation of Republican politicians.

And so we are left with the irony of Republican success. How do you keep tax cuts at the center of your economics when nearly half don't pay, but aren't as grateful as they might be. And if the issue doesn't have the mass appeal it did for Reagan, can it still motivate the base (remember those tea parties!) enough to continue to have legs. But I have to wonder if Mr. Fleischer's plan is really the way for the anti-tax party to go.

I do think it's a bit simpler. The Wall Street Journal is read, by and large, by rich people, and Ari Fleischer wrote a nice little essay to make them happy. That it's political kryptonite doesn't concern him particularly.

He might even believe what he's saying is a good idea, but he doesn't have to try to sell it to the voters.

Comments

[evilmagnus]

I don't think the taxes I pay are fair, but that's because we pay AMT. And we only pay AMT because we have the audacity to live in CA, which happens to have the highest(?) income tax rate.

I don't mind the high tax rate, but I do mind the boneheadedness of the system.

[r-ness.livejournal.com]

California taxation, and California governance in general, is deeply screwed up. However, there are side benefits to living there, which make everyone suck it up and deal. Massachusetts governance is similarly screwed up, and similarly, there are side benefits to living there.

You are totally right about the boneheadedness of the system. Doing my taxes myself was a great illustration of that. It's the kind of system that evolved by accretion, like many huge, complex systems. dpolicar (below) and I were talking about how the legal system got that way, and he made the analogy with crufty legacy code.

I am actually curious (as opposed to asking this question to make a point): how would you say UK taxation differs from that of the US? What are the differences and similarities in the tax systems in the two countries? I realize this is an enormous topic, but I missed my chance to have to deal with that system first hand when I passed up my opportunity to land a job there after leaving school, and I know you've dealt with it on the taxpayer level, which for my money is much more valuable than some academic's paper on the subject.

Besides, who knows, at some point I might have to gain more than a nodding acquaintance with http://www.hmrc.gov.uk, depending on who my employer becomes. It might be nice to get some warning.

[evilmagnus]

How does UK tax differ from the US?
Uniformity. :-)
No different state or local income taxes. The only real variance is the Council Tax, which replaces property taxes. But even that doesn't vary that much between locations (at least, not in the way property tax does).

This uniformity means everyone gets to suck up a 17.5% sales tax, higher income taxes at the higher bands, about the same payroll taxes, but no AMT.

If all you do is have a salaried income, then the tax witholdings are pretty much always right on the nose - or at least they were when I were a lad.

*Edit*: Oh, and no mortgage interest relief. None. Nada. Don't know what the homeowner percentage is back home, but I don't think it's too much lower than here in the US.

[r-ness.livejournal.com]

If all you do is have a salaried income, then the tax witholdings are pretty much always right on the nose - or at least they were when I were a lad.

Does that mean one doesn't end up having to mess about with these filed returns? Or does one still have to go through this ritual every year?

Don't know what the homeowner percentage is back home, but I don't think it's too much lower than here in the US.

My understanding is that the effect of mortgage interest relief is to increase the size of houses. Perhaps not the intended outcome.

[dpolicar]

See, it would all be much simpler if we just didn't let the lower 90% of income earners vote.

[r-ness.livejournal.com]

I think that was tried, wasn't it? I understand it makes for a very different society.

[signsoflife.livejournal.com]

Fleischer goes on to argue that it is poor policy for the top 10% of earners to pay 72% of all income taxes, and that is probably a discussion worth having.

Probably something to do with the top 10% of earners making way more than 72% of the money? I mean, I'm not unfamiliar against the arguments against income tax per se, but opening the "The top (small percent) of (population) (verb) (large percent) of (value)" construction is just a bad rhetorical move on the part of a flat-tax advocate.

(FWIW, I don't have a problem with my income tax, but then, I never have -- when our household income was high enough for the tax to be high, I was just grateful to have that much money in the first place. Now I make fairly little, and the tax is correspondingly low. Local property taxes, on the other hand, are outrageous. About a third of our PITI is T.)

No.

[fin9901.livejournal.com]

The top 10% of earners earned 47.32% of the income and paid 70.79% of the taxes.

The top 1% of earners earned 22.06% of the income and paid 39.89% of the taxes.

The bottom 50% of earners earned 12.51% of the income and paid 2.99% of the taxes.

Our income tax is one of the most progressive of taxes among the industrialized nations (progressive tax code = rich pay higher percentages).

Source, Table 1

[cubes.livejournal.com]

I am absolutely sick at the bottom line on our tax bill. I am sicker still at the fact that that number can be so easily manipulated, and other taxpayers with similar gross incomes are paying much less (or more) than we are, simply because they have different numbers on different lines on page 37 of some schedule or another. I'm in that top [small percent], but even that number is deceptive because it only tells you how much taxable income we had last year, not my net worth, or my parents' wealth, or other things that don't appear on the ol' 1040.

Is it fair that I pay a large dollar figure in taxes because I have a correspondingly large income? Maybe. Less "fair", I suppose, if I disagree with much of what the gov't is spending on, but that's another argument. What I don't think is fair is that I get to keep less, percentage-wise, of my income simply because I have more of it than someone else.

[emilymorgan.livejournal.com]

Hmm. Why should income level not be taken into account when determining tax rate?

[cubes.livejournal.com]

Why should it? Why is it "fair" that because I work harder (or smarter, or whatever) and produce more income, I should be able to keep a smaller percentage of it?

Unfortunately, I think this is one of those areas where fundamental beliefs come into play (is it "fair" that I am able to have a much higher income than the next person in the first place?), and where those differ it's not likely that we'd ever see eye to eye on the smaller issues that result (flat vs. progressive tax).

[emilymorgan.livejournal.com]

I suppose that if you believe that you make more money than others *because* you work harder/smarter/whatever, and it's not influenced by inequality in the system, then it would stand to reason that you think it's fair that you have a much higher income than the next person. I'm just not sure why you'd assume the former point. It's more of an empirical question than a fundamental belief, though, I think.

[cubes.livejournal.com]

Certainly part of my current situation is luck (including the good fortune to have been born with a certain level of intelligence), some may be inequality in "the system" (what system? and what if I've prospered in spite of it rather than because of it?), but it is also the result of a lot of hard work and the willingness to do things that others simply aren't willing to do.

So what is "fair", anyway? That's the sort fundamental belief I'm talking about. If we disagree on the basics, it's sort of pointless to argue the conclusions.

[r-ness.livejournal.com]

that number is deceptive because it only tells you how much taxable income we had last year, not my net worth, or my parents' wealth, or other things that don't appear on the ol' 1040.

And, of course, that's the point, because the people who have all that net worth and all that parental wealth have a lot of power and money and are determined that those things don't appear. Meanwhile, they've thrown you and people like you under the bus, you being an easy distraction to the people who are angry at the manipulations of the tax code.

So the rest of us are left arguing about who gets taxed and how much gets taken from them on one end while trillions get sent out the other end to bail out people and organizations, many of whom are the ones who have managed to manipulate their tax numbers, because it takes money and power to get those manipulations written into the law.