Can we at least acknowledge that we have a fairness problem?
Proposals from the left to increase taxes on high incomes and wealth have brought an outpouring of sympathy for the rich (“To soak the rich, keep tax rates low,” Jeff Jacoby, Opinion, Feb. 7). But how big a slice does one need to satisfy material wants — or does one deserve for contributions to society? There are additional incentives and rewards for great deeds: fame, honor, the gratitude of those one has helped, the thrill of creative accomplishment.
There is growing dissatisfaction with American capitalism. Extreme inequality in income and wealth destabilizes a republic by arousing extremism on both the left and the right. It leads to oligarchy, which is antithetical to democracy.
We owe our prosperity in part to the genius and risk-taking of exceptional individuals, but we owe more to the labors and brainpower contributed by the rest of us. Those at the top have positioned themselves, through cleverness or luck, to profit from the contributions of others. It is difficult to agree on the fairest distribution formula, but the need for fairness is undeniable.
We hear much about all this from progressives. What about conservatives? Do they acknowledge the problem, and can they offer solutions? If not, can they explain why there isn’t a problem?
Overall tax system is hardly progressive
Jeff Jacoby (“To soak the rich, keep tax rates low”) claims that America’s tax system is wonderfully progressive, because the top 1 percent earn 20 percent of the income but pay 37 percent of the taxes. But he includes federal income tax only. Including everything, the top 1 percent pay about 23 percent of the taxes, according to the Institute on Taxation and Economic Policy. So the overall system is hardly progressive at all.
Furthermore, Jacoby’s idea of a fair tax system is that everyone should pay an equal share. That’s not fair at all when you consider that rich people — I count myself among them — can easily afford to pay a significant share of our income in taxes, while for those struggling to make ends meet, the same share would be a real hardship.
Finally, Jacoby says there’s no point in raising the tax rate because “wealthy taxpayers have many wholly lawful ways to avoid exorbitant tax rates.” Those are called loopholes, and the right response is not to give up on higher tax rates, but rather to close the loopholes.
The biggest loophole of all is preferential treatment of capital gains. Treating capital gains the same way as ordinary income would go a long way toward getting the rich to pay a larger share, which we can well afford. Why should people who work hard for a living be taxed at a higher rate than those who make their income from investments?