Tax Fairness

In a recent commentary, Mark Hyman suggests the Bush administration will make changing the tax code a priority in the next four years, and goes on to imply that two possible alternatives to the existing system, the flat tax and the national sales tax, offer a needed simplicity to the Byzantine IRS rules that now exist.

But Hyman erroneously equates the apparent simplicity of these codes with fairness. Not true. A flat tax and a national sales tax would both, by definition, be regressive tax policies. That is, they fall disproportionately on those who make less money. The wealthier you are, the more you benefit from either of these types of taxes. It’s not accident that that the best-known proponent of the flat tax is Steve Forbes, one of the nation’s richest men.

Hyman also fallaciously suggests that these two options are the only true “simple” options available. Again, not true. There’s no reason a progressive tax code with, say, tax brackets of 15, 25, 35, and 45 percent couldn’t also be handled on a postcard-size return.

The simplicity Hyman touts doesn’t come from the flattening of the tax code; it comes from eliminating deductions and tax loopholes. There’s certainly something to be said for this, but there’s no necessary relationship between eliminating loopholes and flattening tax rates. Beyond that, we doubt that a tax system that eliminated the home mortgage deduction while nailing consumers with a 45% sales tax (a conservative estimate of the necessary tax needed to maintain federal tax revenues) would be terribly popular.

But the larger issue here isn’t the nuts and bolts of tax policy. The reason Hyman and other members of the Histrionic Right advocate this type of regressive taxation isn’t because they value simplicity or fairness in the tax code. They don’t. Rather, it’s a matter of a larger world view. Conservatives equate wealth with goodness. If you have a lot of money, they reason, you’ve obviously shown your superior ideas and work ethic. You should be rewarded by not having to pay your share for the upkeep of the country. Let those who haven’t demonstrated their value to the system to the same extent (i.e., middle class, working class, and the working poor) subsidize the lifestyles of the righteous winners.

Moreover, conservatives know that such changes in the tax policy would lead to massive loss of government revenue. This will force government to spend less, but not on those aspects of big government conservatives love (defense, corporate subsidies, law enforcement—at least as practiced by the current Justice Department). It will come by hacking away at the social programs they despise: Medicare, Medicaid, Social Security, etc.—programs that help those they see as inferior because they haven’t amassed personal fortunes.

What Hyman doesn’t get is that taxes are investments in the future of our country. They’re the way we ensure that the nation will be in good shape for future generations. Things like the interstate highway system don’t happen if we simply have each individual keep and spend his or her money. Taxes are the way we collectively invest in our shared future. Hyman and his friends want to create a system where we squander our money instead of invest it.

That is, of course, unless they can rig the system to have the non-rich foot pitch in the entire amount. But that’s both unfair and bad policy. As tax expert David Cay Johnston has pointed out, progressive taxation is integral to a healthy democracy. It’s not by accident that Athens was a tyranny when it had a flat taxation system, but blossomed into democracy when it had a progressive tax system. Those who profit most and depend most for their continued well-being on the health of the nation as a whole owe the most to its upkeep.

While Hyman wants a tax code that will reward companies for moving overseas and keep the most well-off Americans from paying what they owe, we advocate tax fairness.

And that’s The Counterpoint.