The Unfairness of Income Tax

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A congressional proponent of the nation’s first federal income tax law, enacted in 1894, was, to say the least, beside himself over the wonders he and his colleagues had wrought. “The passage of this bill,” burbled Congressman David Albaugh DeArmond, “will mark the dawn of a brighter day, with more of sunshine, more of the songs of birds, more of that sweetest music, the laughter of children well fed, well clothed, well housed.”

It was no doubt a nice thought. The U.S. Supreme Court swatted down the law as unconstitutional, and a 16th Amendment had to be hemmed to the constitutional fabric to make possible the bird songs, the sweet music, etc.

In 2010, Income Tax Day finds Americans wondering, as is customary on Income Tax Day, whether we’ll ever get right the dratted business of taxing incomes instead of goods.

From the Tax Policy Center of the Urban Institute and the Brookings Institution comes word that just 53 percent fewer of us are paying federal income taxes now. The rest? Exempted on account of low incomes, credits or deductions. A family of four, with two children under age 17, and an annual income of $50,000 might owe no income tax whatever. Not that these Americans don’t pay taxes, because they do—Social Security, Medicare, gasoline, alcohol, and so on. They just don’t pay income tax.

It creates a problem. If you don’t pay income tax, your sympathy for those who do pay it probably isn’t large. You’re apt to wonder, indeed, why they can’t pay more, especially as your own needs increase. When enough start wondering, congressional ears prick up.

Observe one more reason why the American economy is under such stress. It always happens when labor and rewards are proportioned unequally by the authorities. The 20th chapter of Matthew comes to mind: When the laborers who (in Jesus’ parable) had agreed early to work for a penny a day saw others hiring on later at the same rate, “they murmured against the goodman of the house,” who informed them that “the last shall be first, and the first last; for many be called, but few chosen.” Flawless theology, I’m sure. Not a convincing formula, you have to admit, when it comes to civic peace.

Already the top 10 percent of Americans pay 73 percent of federal income tax. What to do at time of crippling deficits? Load more burdens on them? Hope that, like the carthorse in “Animal Farm,” they will reply with one voice, “I will do more”?

The whole theory of the income tax is that those best able to pay it, pay it. It sounds halfway sensible until one starts to reckon with human notions of justice (“to each his own”) and the disruptive implications of upsetting those notions by government edict. A nation, half of whose citizens don’t pay income taxes, is in a bad position to say fewer and fewer should toil for the support of more and more.

Yet the spending and deficits rise like Roman candles. Comes now ObamaCare, to be paid for, in part, by the same “wealthy” people who already pay most of the taxes and will certainly seek legal ways to avoid paying more.

Recently, former Federal Reserve Board chairman Paul Volcker indicated where this dispute might be going. Toward a European-style value-added tax, he said—a tax levied on an item at every stage of production. “If at the end of the day we need to raise taxes,” said Volcker, “we should raise taxes.”

On top of what we’re paying now in income tax? That sounds like fun.

Americans sense that their eyes are bigger, politically speaking, than their stomachs. They urgently need to debate how many government programs they really want to pay for, as concentrated with how many they just plain want. It’s hardly the debate the administration that just seized control of health care wants to encourage. But the sooner it begins, the better for all—the rich, the poor, the in-between.


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