Sunday, November 2, 2008

Measuring Tax Burden by Progressivity and Social Justice

Two reasons invariably come up when discussing the tax burden: who pays and why they should or shouldn’t pay. “The richest – top 1% - pay a whopping amount of the total as it is. The amount they pay is more than what any other quintile or percentage grouping pays.” Another variation, “The total percentage paid by the top 1% as a whole is the largest. The richest – the top 1% - pay 30 percent of total collections, therefore, they pay more than their fair share.” [Implying that because their percentage paid is higher than the total number (percentage) they represent.]

Conversely, this is wrong for two reasons:

The truest way to measure progressivity/ regressivity or fairness is by one’s percentage of their total income that goes to taxes (tax incidence). This gives the most realistic sense to the true burden taxation imposes upon one.

It is also a matter of social justice. Whether you have $1 million or $1 billion dollars to your name, you’re living pretty well. Increasing the taxes on such a fortunate soul (raking in $1 million per year) by one percent would result in $10,000 [yes, I know, scary redistribution]. Now, don’t you think our neighborhoods, streets, schools and a host of other infrastructural, institutional, and socioeconomic factors would be better if we instead dispersed that $10,000 amongst, let’s say, 5 people, giving them each a $2,000 tax-break infusion? Their burden is eased a bit, they’re happier, they shop for a few more things, and they eat out and spend more money in their local economy [probably at one of the wealthy taxpayers’ establishments].

Or, this increased revenue could allow the government to implement public works projects, with unionized labor, to repair roads and bridges, electric grids and water systems, and to create regional light rail systems, among a host of other environmentally sustainable projects. This could establish good green jobs and pave the way for future growth and development, whilst also helping to prime the pump and get us out of the nasty economic doldrums we're in now.

This was the case during the Great Compression after WWII when a single breadwinner could provide for a family. Growth and productivity soared during this period. And, the U.S. was a shining beacon on the hill, an example for the world.

Business investment has not improved during the latest round of tax cuts. It actually increased when Bill Clinton raised taxes – alongside this the economy boomed. Spreading the wealth seems to be good policy for owners and workers alike. It allows higher levels of demand to be sustained, lessening the volatility of the market, leading to more stable growth. We might have averted our present disaster if we had followed the recommendations of some officials (Sheila Bair of the FDIC and Brooksley Born formerly of CFTC) and tightened regulation over the opaque financial instruments that took strong growth and tried to put it on steroids, ever increasing risk.

It just seems wrong to me that people who have more money than they will ever be able to spend gain no solace from knowing that just having a smaller percentage of income in their account(s) could lead to so many social improvements. Plenty of robber barons (Carnegie, Rockefeller, Gates, Buffett, Soros, Cudahy, Zilber), most in their twilight years, realized they had benefited well from Society’s institutions and were therefore obliged to give back. It is sad the paradigms of greed is good and get all you can have won out over a more peaceful shared prosperity.

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