Progressive income taxes are bad policy, divisive and immoral. You don’t hear that often, so let me say it again. Progressive income taxes are bad public policy, socially divisive and immoral. Let’s explore each in turn.
Bad public policy: Taxing higher incomes at higher rates and lower incomes at lower rates (or not at all), convinces a lot of people they can vote themselves government services but have someone else (“the rich,” “millionaires and billionaires”) pay for those services. It creates the illusion there is a free lunch, or at least someone else is buying lunch.
However, according to IRS numbers for 2009 (last year that statistics are available), just under 237,000 tax returns reported $1 million or more in adjusted gross income, and just over 81 million tax returns reported adjusted gross income between $25,000 and $1 million. The middle class always ends up paying the bill.
No surprise, the wealthy seek to escape steep tax rates by lobbying Congress and state legislatures for deductions and subsidies. All this lobbying is why we have so many tax breaks for the rich. The result is our politics and tax codes have become corrupt and the rich don’t pay the high tax rates anyway.
Bad social policy: Progressive income tax rates divide us based upon incomes — the wealthy versus everyone else. Politicians and social critics demonize the wealthy for not paying their “fair share” and tell everyone else they are being cheated. This is called the zero-sum game — the wealthy earn more money causing everyone else to make less. No matter how the wealthy earned their money — most wealthy people are first generation wealthy; they didn’t inherit it.
More important, taxing the wealthy more doesn’t make anyone else better off. The poor and middle class are still poor or middle class, just more dependent upon government bureaucrats for handouts. The politicians benefit, however, because they use all that tax revenue for their own vote buying schemes. Here again, the end result is not a growing economy benefiting everyone, but political corruption.
Immoral: Since the Declaration of Independence, it has been a fundamental American principle that “all men are created equal.” Perhaps the worst part of progressive income taxes is that they violate this principle. They make it lawful to treat Americans differently solely based on what they earn.
We don’t expect a wealthy person to pay more for the same loaf of bread a poor person buys because the wealthy can afford to pay more. We don’t insist the A students give some of their grade point averages to the D students to make things “fair.” Imposing such unequal treatment in prices or grades would be considered un-American, taking by force of law from those who have more just because they have more even if they earned it by working harder. The same is true for tax rates. You wouldn’t demand your neighbor who has a better-paying job give you some of his money just because you want it. Why is it moral for the government to demand it for you? The answer, of course, is that it isn’t.
The progressive income tax isn’t about fairness. What is someone’s “fair share” anyway? We are never told how much someone must pay to pay their “fair share.” No, the progressive income tax is about the greed of “I have less; you have more; you should have to give me some,” routed through the government, of course.
Bad public policy, socially divisive, and immoral — the progressive income tax cannot be justified.
In theory, all Americans have an equal responsibility to pay for government, implying everyone should pay the same flat rate on income and no loopholes/deductions for anyone. Of course, we must stop expecting the federal and state governments to fix every problem. Why that is a good idea is a topic for a future column.