When taxes are under discussion, we often hear a call for rich people to “pay their fair share.” The message is that tax rates on those with higher incomes should be raised to make sure that fairness is achieved. However, if we look at this honestly, as a real-life ethical issue, we will have to conclude that people with higher incomes are already paying more than their fair share. Let’s try a thought experiment.
Suppose we are part of a group of friends from work who decide to go out to dinner together. “We” includes the owner of the business, the new person in the mailroom, and two of us in between. We choose a nice restaurant and enjoy our meal together. For some reason we cannot get separate checks and are given one large bill. What are some fair ways to pay for this meal — and what are some unfair ways?
Normally what happens is this: each person puts money into the kitty based on what he or she ordered. Often after the check goes around the table it isn’t quite enough because people forget to add in enough money to cover the tip or their second drink or the taxes or something. So the check goes around again while everyone refigures the cost and puts in a little more. So each pays based on what each received. That is what we ordinarily regard as fair.
Now suppose the bill isn’t itemized and we can’t find out what each person received and therefore what each person owes. People might try to guess, but generally we feel that one fair way is for each to pay the same amount. If we do that, we recognize that people who ordered a more lavish dinner or an extra bottle of wine will be getting more than their fair share, but still the same amount for each person seems close to fair. So each person paying the same amount without regard to any other criterion looks fair to us. This is equivalent to a per capita or per person tax. But that is not how we do taxes in America. We don’t all pay the same amount or the same amount per person, do we, despite the fact that it’s impossible to construct an itemized list of each taxpayer’s liability for government services received?
So let’s go back to the arrival of the unitemized bill for the group’s dinner. How should we divide it up fairly?
When the check came, the boss could offer to pay for everyone’s dinner. That would be voluntary, private charity. But imagine if, when that happened, the new mail oom guy said, “Wow. This is great. I got this fabulous meal for free. I propose we do this every night! How many people are in favor?” Perhaps most of us who received the boss’ charity would vote to make him give it more often, but that would be clearly unfair.
No one would dream that three people should “vote” to make the fourth person pay for them. Why does it become right when we do it through the government?
The boss would be well within his rights to say, “You guys can do this again if you want, but count me out. I’m not interested in paying for everyone’s meal night after night.” Would it be fair or right to claim that he must do so because it was a “majority vote?” People shouldn’t just be able to vote to oblige others to give them things, should they? In normal, face-to-face interactions, in a small group of four people no one would dream that three people should “vote” to make the fourth person pay for them. Why does it become right when we do it through the government?
Now imagine this. Imagine that someone in the group said, “Let’s take a vote. Who thinks we should base what we pay on how much income each of us has? Wouldn’t that be fair?” Several things come to mind right away. First, it’s extremely rude to require people to tell you what they earn. It is simply not anyone else’s business. But we do it as a country when we make people fill out their income tax returns so that a progressive tax can be levied. We intrude in a way we ordinarily don’t think is right or fair — because we do it through the government. Does that make it fair?
Second, voting on this proposition doesn’t seem right, because the boss makes more than any of the rest of the group, and will always have to pay more, yet he has only one vote. So of course, voting for this proposition is self-serving for everyone else. It is the same as the other case, when the boss was made to pay the whole tab: we are voting to force the boss to subsidize us.
Charity performed voluntarily is one thing. It is common for people who are better off to pay a bit more than their equal share, voluntarily. But where do the lower paid people get the right to vote to force the higher paid person to pay more? Does that strike you as fair? Again, what if we voted to regularize it by law, so that he had to do it every night? Would that make it fair?
This unfair situation is equivalent to the flat income tax that people propose from time to time. The flat tax would have everyone pay the same percentage. If you made more money, you would therefore pay more, whether you received more from the government or not. When we take this down to the personal level in our thought experiment, basing the fair share calculation on someone’s income level is embarrassingly unfair, yet it is criticized as being not fair enough. They aren’t paying their fair share, that’s true. They are paying more than their fair share.
But instead of having a flat tax, which requires people to pay more if they earn more, we have a tax system in which the percentage goes up as they earn more. The harder they work, the more money they make, the higher the percentage of their income is taken. The federal income tax percentage goes up to 35% for some people, while others, with lower incomes, pay 10%, and many pay nothing at all. Yet people are calling for the top tax brackets to go even higher, so that wealthy people will be required to “pay their fair share.”
Well, how will we know when fairness is achieved? How will we establish the “fair share”? We will take a vote, of course — because that’s really the fair way to decide.