I've got five answers. A fair tax system is:
Conservatives invariably counter that it's not fair that almost half of American households, because their income is too low, pay zero federal income tax. (And not just conservatives--I got a pretty moving note from a guy who said he didn't think it was fair that, because he didn't make enough money, he didn't get to pay federal taxes. He wanted to contribute!)
- Progressive: those with more income pay a larger share of it in taxes;
- One that doesn't worsen inequality by giving preferential treatment to the wealthy (e.g., by favoring capital over labor income);
- One that doesn't disproportionately benefit those who are already doing the best at the expense of the rest;
- One that raises enough revenue from those with lots of resources to provide a leg up for those at a disadvantage;
- One that does not rearrange the pretax income distribution, as in a confiscatory, highly redistributive system that turns the poor into the rich and visa versa;
Liberals have two comebacks: First, while it's true that 47 percent of households pay no federal income tax, most Americans pay payroll taxes as well as state and local taxes, as the figure below shows. In fact, when it comes to payroll taxes, the middle class pays a higher effective rate than the wealthy (9 percent vs. 2 percent), because those taxes cap out at around $110K.
Second, as the next figure shows, the actual effective tax rates of the wealthiest families (taxes paid as a share of income) have fallen quite sharply, because a) they've benefited from generous tax cuts courtesy of Reagan and George W. Bush and b) their pretax income has grown so much more quickly than their tax liability.
A key factor here has been the large decline in the rate of taxation on asset-based income, like capital gains, and the much-increased concentration of that income among the wealthiest families. Those changes are related - once you advantage a particular income type, you're going to see more of it.
Anyway, that's the rationale for claiming the Buffett rule increases fairness: it returns some progressivity to the tax code.
Now, you might object to progressivity on principle, but I'd argue you're starting from a different place than most of us. Sure, you'll find folks to agree with you - advocates of the flat tax (where everybody, rich or poor, pays the same rate) might join you, for example. But those of us invoking fairness have on our side the fact that progressivity has always been a bedrock feature in the federal income tax.
And that is as it should be, particularly in an era of so much pretax income inequality. The fact that tax code has become less progressive in a period of rising income inequality is another dimension of unfairness - a violation of principle #2.
I won't go through the rest of the above principles, other than to say that #4 is clearly in trouble - we're obviously not collected enough revenue, and "no," we can't cut spending enough to offset this. And this redounds to principle #3. Were we to follow the roadmap in the House Republican budget - for that matter,any Republican, supply-side, trickle-down tax plan - we would very much be violating those two principles, as these reverse-Robin-Hood schemes redistribute upward.
It's not simply that the GOP plans lower taxes on the wealthy much more so than they do on the poor. It's that they leave us with too little revenue to help offset the disadvantages that block the opportunities of the least well off, that provide them a safety net in hard times, that help them meet basic needs of food and shelter. It is not at all hard to connect the dots between regressive tax changes and cuts to programs that benefit the less well off.
Finally, despite all the predictable caterwauling, the only tax fairness principle that seems intact is #5. If you were rich or poor before tax day, you'll be so again tomorrow. Of that, you can be certain.
Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities. From 2009 to 2011, he was the Chief Economist and Economic Adviser to Vice President Joe Biden, executive director of the White House Task Force on the Middle Class, and a member of President Obama's economic team. Email him at info@jaredbernsteinblog.com.
No income tax at all! Just apply a federal flat VAT tax to all goods and services. That way everyone pays at their income level, by way of the values of the things they buy. You buy a small inexpensive economy car or an S Class Mercedes and you are taxed at the same rate for either. The same applies if you buy a bottle of plonk or a bottle of Chateau Lafite... a T-shirt and jeans or a $5000 Italian suit, etc.
End the ridiculous expense of endless war and military adventurism, rid ourselves of Homeland Security, FEMA, TSA and all of the other nonsense alleged to keep us safe - then trim the federal government and its sprawling bureaucracies to the bone.
The IRS is just a thuggish collection agency for the owners of the Federal Reserve. Every penny of our taxes goes to pay back the usurious interest on the dollars that the Fed loans the government. It is no coincidence that we have been at almost continuous war for as long as we have had a foreign owned central bank, and it will stay that way until they are put out of business and money creation is put back into the hands of the people's treasury. JFK was in the process of this when he was shot. We never had an income tax until we were saddled with the Federal Reserve... and a very successful country was brought to its knees with inflation and usury.