In their unending efforts to swell the coffers and powers of government, statists continually bleat about tax “fairness,” by which they mean that they intend to begin by increasing taxes on anyone and everyone who is better off financially than those they are addressing at the moment.
They ignore the fact that high earning citizens pay a far higher portion of total income tax collections than their proportionate share of the nation’s total earnings. Recognizing the accuracy of the adage that those who propose to rob Peter to pay Paul always can count on the support of Paul, they constantly claim to all the Pauls that they are going to increase taxes on everyone named Peter (whose earnings exceed those of the more numerous Pauls and therefore are referred to as “the rich”). But they never explain their concept of fairness.
To examine that concept, let’s use as a model a hypothetical society made up of five individuals, one of whom earns $200,000 a year and four who each earn $50,000 annually.
In the first instance, everyone’s earnings are taxed at 10%. Thus each of the four individuals earning $50,000 a year will pay $5,000 in taxes and the more highly paid earner will pay $20,000. Thus the taxes paid by the individual whose earnings account for half of the society’s earnings will pay half of the total taxes collected. The taxes paid by the other four will in the aggregate pay the other half of all the taxes as they collectively earn the other half of the society’s total earnings. As each of the four earns a fourth of what the high earner does, each of them will pay only 25% of the tax that he does.
Nothing about this now old fashioned and outdated system seems unfair to me even though each of the five individuals probably share equally in the services that the society provides to its citizens.
However, the four Pauls can easily be convinced that it is unfair for each of them to be left with only $45,000 to spend as they wish after paying their taxes while the “rich guy” can do what he pleases with $180,000. So they elect guys who will not tax them at all even though they enjoy their society’s benefits and impose the total cost of such benefits on the “rich guy,” by taxing his earnings at a 20% rate. So now four individuals contribute nothing while the high earner pays the full $40,000 cost of their collective government.
But wait. Along comes another politician, who points out the unfairness of the four guys having only $50,000 to spend for their needs and desires while the “rich guy,” even after paying $40,000 in taxes, has $160,000 available to spend as he wishes. So the next step – which gets us to where we are today – is to tax the earnings of the “rich guy” at a 30% rate, meaning that he pays $60,000 in taxes. The government distributes $5,000 to each of the four Pauls for a total of $20,000 in “earned income tax credits” and runs the government with the other $40,000 it has extracted from the “rich” Peter.
Well now, how can it be fair for each of the four Pauls who make up a majority of the society to have only $55,000 each while even after paying $60,000 in taxes the “rich” Peter has $140,000 at his disposal? After all, doesn’t fairness require equality?
Of course it does, and that is what liberals and progressives now are demanding. The “rich” Peter must pay enough to give the government the $40,000 it needs to operate plus an amount that will enable it to equalize what each of its individual members have available for their own use. The total earnings of society’s members, net of the $40,000 it takes to run the government, is $360,000, or 72,000 for each of its five members. So the “rich” Peter is going to be expected to shell out in taxes all but $72,000 of his income. Thus the “rich” Peter is going to have to pay $128,000 in taxes from his $200,000 in earnings – $40,000 for the costs of operating the government and an aggregate of $88,000 to fund the four $22,000 “earned income tax credit” distributions. This will leave him and the four Pauls with $72,000 each.
Who can complain about such “fairness?”
* * * * *
Oops, it seems Peter has disappeared… went to Singapore or some such place on vacation and never returned.
He also appears to have shut down or taken with him his company, at which each of the four now unemployed Pauls used to work for $50,000 a year.
What do we do now?