“Fairness” and the Bush Tax Cuts — An Appeal to Political Philosophy
By Guest Blogger Ryan Berg
Yesterday, I posted on the policy-side of the Bush tax cuts. Today, let’s examine the philosophical issues involved with them—to wit, the idea of “fairness” and what constitutes the government’s definition of “rich.”
As I noted in yesterday’s post, the Bush tax cut debate has profound implications for the direction of the country; almost all arguments for or against the tax cuts are made within the limited parameters of “fairness” and “wealth.” Given the immaturity of Congress’ recent political debates, it is unlikely we will see a political dialogue on taxes outside the limited purview of “fairness” and “wealth.” Therefore, is it possible to make the case for retaining the Bush tax cuts solely through an appeal to “fairness?” I think it is certainly possible.
First, as a technical point, the income tax does not exist for social re-engineering, redistribution, “social justice,” or other vague and trendy notions of “fairness.” The income tax structure was created foremost with the solvency of government in mind. When the facts show that the government cannot remain solvent through increased taxation alone, Congress must cut spending, mainly through serious and real entitlement reform. Congress does not face a revenue problem so much as it does a spending problem; the Treasury takes in nearly $2.5 trillion per year in total taxation (the largest proportion coming from the income tax).
Second, let me address the issue of “fairness.” In one of my favorite and prescient articles in the Wall Street Journal, titled “Their Fair Share,” the Journal notes that the result of the Bush tax cuts was “the biggest increase in tax payments by ‘the rich’ in American history.” The top 10% of America alone—those earning around $100,000 per annum—paid 71% of all income taxes from 2006-2008, according to IRS data. Americans below median income paid a record low 2.9% of all income taxes, and the top 50% paid 97.1%, according to the same data. To be sure, the top echelon earned a higher proportion of all reported income, but as the Journal notes, “they also paid a share of taxes not far from double their share of income.” These figures clearly confound President Obama’s promise to “cut taxes for 95% of Americans.” How is it possible to cut taxes for 95% of Americans when, under our current scheme, the lower 50% of Americans pay little to no income tax? Democrats contend that allowing the Bush tax cuts to expire will only hit the Bill Gates’ of the world, manifesting a profound misunderstanding of high income in the United States.
As many commentators have noted, many “high income” earners are, in fact, small business owners. A large majority of small businesses operate as sole proprietorships and single-member LLCs, in which business revenues flow to their personal income tax statement. Thus, often it is difficult to differentiate between individuals earning more than $200,000 per year and small businesses that make more than $200,000 per year. As Karl Rove pointed out in a recent Wall Street Journal editorial advocating for these cuts, allowing the Bush tax cuts to expire will raise taxes on more than half of all small business income in America. These businesses constitute a quarter of all small business employment.
The notion that tax cuts are a giveaway to the rich is a figment of the Left’s imagination. Perhaps President Obama and Congressional Democrats think half of America should pay steeply progressive income taxes to support the other half. It seems Tocqueville was spot-on when he quipped, “A democratic government is the only one in which those who vote for a tax can escape the obligation to pay it.”
Even in the face of this mounting statistical evidence for retaining the Bush tax cuts, the Left could do itself a huge favor by revisiting the basics of “fairness.” I am referring to political philosophy, specifically ancient political philosophy. In Plato’s Republic, for instance, Socrates and his interlocutors require some three hundred pages of dialogue to arrive at the conclusion that justice is an exceedingly difficult virtue to define. Yet, for many on the Left, it seems they know without further discussion what the ubiquitous phrase “social justice” means. An encounter with Socrates might lead them to wonder not only what “social justice” is, but to ruminate what work the word “social” does in that formulation. Does “social” imply that justice consists of some kind of equality? What about the classical view that justice is the capacity to distinguish or reward according to merit? Might “social justice,” then, actually be unjust? These questions make the study of ancient political philosophy the core of any intelligent and informed conversation, and thus a necessary counterpart to the predominant concerns about “fairness,” wealth, and taxation in American politics.