At the end of this tax season, we can all agree that nobody enjoys paying income taxes. But wealthy conservatives positively hate it. They have been trying to get rid of our progressive income tax system for years. Their latest brainchild is the so-called “FairTax”--a sales tax based on consumption that would replace the income tax. The “FairTax” bill they have introduced in Congress would abolish all federal personal and corporate income taxes, gift, estate, capital gains, Social Security, Medicare, and self-employment taxes and replace them with one federal retail sales tax. The FairTax proponents want to tax us only on what we choose to spend on goods or services, not on what we earn as income. How convenient for those with very large incomes who spend a much smaller percentage of their income on goods and services then do those with less income. This federal sales tax is nothing more than a ploy to further reduce taxes paid by the wealthy and to shift the tax burden downward to those who can least afford it.
Replacing our system of progressive income taxation with a regressive sales tax is the wrong way to go. Understanding the real reasons behind progressive taxation—taxing the wealthy at higher rates than the poor—could lead to more coherent—and more just—tax policies.
America’s government has two fundamental functions, protection and providing the public infrastructure. Protection includes the police, firefighters, emergency services, public health, and the military. The public infrastructure includes the basics needed for business and everyday life: roads, communications systems, water supplies, public education, the banking system, the courts for enforcing contracts and the law, air traffic control, support for basic scientific research, our national parks, and much more. We are usually aware of the protection function. But the public infrastructure, also provided by our taxes, is usually taken for granted. For most people, it seems like the public infrastructure was just put there by magic and that the government is taking money out of their pockets.
Protection and the public infrastructure serve the common good and as citizens we are financially responsible for maintaining this common good. If we shirked this responsibility, we could not maintain our roads, fund our schools, or protect ourselves from crime. Equally important, we could not create prosperity for ourselves because we would have no protection of our intellectual property, no oversight of markets, no means to enforce our contracts, no way to educate our workforce.
Few people dispute this responsibility at some level. Disagreements arise over the amount and the relative apportionment of the responsibility. Differing concepts of fairness drive this debate. Some say that it is only fair that those who earn more pay a higher percentage in taxes while others argue that it is unfair to “punish” the financially successful by making them pay more.
An important point often lost in this debate is an appreciation for just how protection and the public infrastructure, which our taxes create and sustain, empower the wealthy in myriad ways to create and increase their wealth. Consider Bill Gates, the world’s richest person. Though he obviously benefited from his own intelligence and business sense, he could not have created or enlarged his personal wealth without the public infrastructure. The public legal system protected Microsoft’s patents and contracts. The tax-supported financial infrastructure enabled him to access capital markets and trade his stock in a market in which investors have confidence because of government oversight. He built his company with most of his employees educated in public schools and universities. Tax-funded research helped develop computer science and the internet. Trade laws enforced by the government protect his ability to sell his products abroad. These are but a few of the ways in which Bill Gates’ accumulation of wealth was made possible by the public infrastructure funded by our taxes.
Ordinary people just drive their cars on the highways; corporations send fleets of trucks over them. Ordinary people may get a bank loan for their mortgage; corporations use the banking system to borrow huge sums to buy entire companies. Ordinary people rarely use the courts; most courts are used for corporate law and contract disputes. Consider the biggest protection that our government provides-- the military. Some 40 cents of every tax dollar is used for military expenditures. The simple fact is that our military protects the holdings of our wealthy investors around the world including keeping the airways and seaways safe for the planes and ships that carry their goods and services across the globe. Our big multi-national corporations require a big military to protect their interests. Because the wealthy make greater use of the protection and the public infrastructure provided by our government, they have a greater obligation to pay for it. By paying higher taxes, they are merely paying their debt to society and investing in the protection and public infrastructure that sustains their wealth.
But this equitable situation is threatened by the Bush administration’s tax policy. Because of Bush’s large tax cuts for the wealthy, the huge costs of the invasion and occupation of Iraq, and through massive borrowing abroad to simultaneously pay for these big tax cuts and the Iraq war, the common good is being threatened and the public infrastructure allowed to fall apart. Instead of going to a regressive sales tax that reduces the taxes of the wealthy even more, we need a fair tax policy which insures that those who benefit the most from what government provides pay the most in taxes. We do need a “FairTax” and that means a truly progressive income tax in which the wealthy pay what they really owe to our government and our society.