Saturday, April 23, 2011

The Fallacy Laid Bare

See if you can read this and not see that there is an underhanded premise being shaped here:
When politicians argue that, for the sake of fairness, we must raise taxes on the entrepreneurial class — and make those “millionaires and billionaires” bring us a few state-subsidized beers on the beach — they are unwittingly undermining the possibility of achieving the opportunity society they regret not having.
We are not a perfect opportunity society in the United States. But if we want to approach that ideal, we must define fairness as meritocracy, embrace a system that rewards merit, and work tirelessly for true equal opportunity. The system that makes this possible, of course, is free enterprise. When I work harder or longer hours in the free-enterprise system, I am generally paid more than if I work less in the same job. Investments in my education translate into market rewards. Clever ideas usually garner more rewards than bad ones, as judged not by a politburo, but by citizens in the marketplace.
To throw the word "politburo" into the discussion is a buzzword that is supposed to associate "higher taxes on the rich" with "communism." Did you fall for it? Of course not. Whenever a member of America's elite, either academically, financially, or socially speaks to the American people about taxes, fairness, meritocracy, or the American dream, the use of the word "politburo" is supposed to conjure up terrifying images of a Soviet Union on the march.

Of course, there is no Soviet politburo anymore, and there hasn't been one for about twenty years. But Mr. Arthur Brooks knows that if he can link the idea of forcing the rich to pay for the benefits of living in a free society with a communist plot to bring socialism to America, he can convince people to vote against--or advocate against--their economic self-interest.

The advocacy is inherently suspect whenever the discussion of whether the wealthy should pay more in taxes. As shown here, there's no use denying it, wealthy people do have to pay taxes. But what this article doesn't really acknowledge is this:

The tax burden in America has dropped for wealthy Americans over the last fifty years. It plunged during the Reagan era and dropped precipitously during the Bush Administration (2001-2009). Raising taxes on the rich is one thing--actually getting them to pay their taxes is the other half the battle:
The dean of tax reporters, David Cay Johnston, has a fantastic cover story in the Willamette Week (of all places and 40 other alt-weeklies), shining a bright light on just how unfair and unequal the US tax system is. The whole 3,000-word article is well worth reading in full, but here are some highlights:
  • In Alabama, the tax burden on the poor is more than twice that of the top 1 percent. The one-fifth of Alabama families making less than $13,000 pay almost 11 percent of their income in state and local taxes, compared with less than 4 percent for those who make $229,000 or more.
  • Between 2000 and 2009, the US population increased by 25,584,644. Meanwhile, the number of people with jobs increased by just 2,803,967.
  • John Paulson has paid no taxes at all on the $9 billion of income that he made in 2008 and 2009.
  • Frank and Jamie McCourt, the owners of the Los Angeles Dodgers, have not paid any income taxes since at least 2004.
  • Between 2000 and 2008, corporate profits rose by 12% while corporate income taxes fell by 8%. Without any change in the corporate income-tax rate.
  • George W Bush did sign one — just one — tax increase. It was on children under the age of 17.

I suspect that if you "raised" taxes on the wealthy, stories about how wealthy people were "leaving" America would surface. If we are already not collecting much in taxes from the wealthy, why are there so many advocates for keeping tax rates on the wealthy low?

One theory is that the only wealthy people who actually pay taxes are the ones who want to work in the public sector. These are the wealthy individuals who have to file ethics reports and who expect to have their tax returns examined closely if they choose to work for the government. I don't think that a wealthy person who has nothing but disdain for the tax system worries about whether or not they are going to face similar scrutiny.

Tax rates remain low for the individuals who actually pay their taxes because many of them work in the public sector. Tax rates are irrelevant for those individuals who have taken their money offshore, decided to pursue a tax strategy of openly cheating, or who have created a business situation where they are able to game the system.

Any change in the tax code would have to be accompanied by strict enforcement and auditing of tax laws and tax returns by an IRS that would have to be directed to pursue wealthy individuals who commit fraud, the ability to pursue those individuals who move their money offshore, and the political will to challenge a system that benefits only a handful of powerful Americans.

If the system were even remotely honest, wealthy Americans would pay their share of the costs of civilization. These costs are rising every day and the burden on people who are not sophisticated enough to lie, cheat, or steal becomes greater on an annual basis. Do we have a discussion about fairness, or about fear? Unwarranted fears are always used to distract people from the real issues at hand. Namely, the gap between rich and poor is growing and no one seems to know how to stop the process and reverse the trends which are shrinking the middle class, creating endemic poverty in groups that saw economic growth during the last half of the Twentieth Century, and leaving us with an economic system that is not sustainable.

If it is argued that we cannot sustain a large Federal deficit then why isn't anyone arguing that concentrating wealth in the hands of a few elite individuals is an even quicker road to economic ruin?

Until we begin to have an honest discussion about these issues, we will be treated to more of this "politburo" talk.
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