The issue of taxes is fascinating because on one hand it’s a discussion about different policies, rates, and incentives (something economists love), while at its core it is a deeply philosophical issue: what right does the state have to take people’s money and use it for “social” purposes?
Let me begin by putting a few things on the table: I think there are many uses of our tax dollars that are indefensible (e.g. agricultural subsidies, maintaining a nuclear arsenal of 10,000 warheads, and export subsidies for corporations), and I also believe the tax code is a nightmare: little more than a hidden subsidy for accountants and lawyers. It is too bad that Bush and the GOP didn’t start with tax reform before pushing Social Security privatization since I think this is not only much more important (at least in the short-term), but it is something almost everyone could’ve gotten behind. More on this in the future.
While it is a truism that virtually everyone hates taxes, I would like to take a moment to assess what I, a middle-class man in his 30s, gets for his tax dollars. To begin, I have attended publicly subsidized universities for many years to the tune of at least $20,000 per year provided by the state. This alone is more than I have paid in taxes in my entire life. In addition, I get some of the best infrastructure in the world, my taxes fund a variety of worthy programs for environmental protection, poverty alleviation, medical care (though not for everyone), science research, international aid, and of course, I contribute to the national defense budget. Looking at a balance sheet it is obvious that I have received more in services than I have ever paid for and probably ever will.
Of course, the fact that I am paying less than I am receiving in goods and services means that someone else is paying more; notably the rich. While I may not ever enter their ranks, as my income grows I will no doubt pay more in taxes, but I will also get additional services when I have children and they attend public schools (another subsidy of at least $15,000 per child per year).
The bottom line: the wealthy do subsidize the middle and lower classes in American society, and while we in the middle and lower brackets have a right to complain about certain aspects of the tax code we are getting a great deal.
So is this wrong or is it morally justifiable?
This is a tough question and in some sense there is no “right” answer. Extreme libertarians will argue that tax is theft and there is no other way to view it; if you take someone’s money without their express permission you are stealing. I don’t subscribe to this perspective for a number of reasons.
First, if we are to live in a society and not in anarchy we must subsume some of our individual wants to the “greater good.” With regards to taxes, as long as they are not confiscatory the state has a right to levy them in order to promote social goals. Second, taxation for public goods (such as infrastructure, environmental protection, and national defense) is actually quite efficient. Imagine if all the roads were private and we had to pay each time we used them; picture those long lines at toll booths just about everywhere. It is much better for us to pay taxes and have these roads built for everyone; even the people who don’t own cars benefit from them since goods and services are delivered using the transportation system. Third, while wealthy people might not make use of public education or many of the goods and services provided directly by government, it is fair to say that the entire state apparatus disproportionately protects their interests. After all, the court system protects their corporate interests, the roads transport a disproportionate share of their goods and services, they get to enjoy the nicest physical environments in the country, and the military defends their financial interests disproportionately as well.
In summary, I think approaching the issue of tax reform and taxation in general would be greatly improved if people in the middle and lower classes acknowledged that the current system redistributes wealth from the top to bottom and that they get a very good deal. At the same time, the rich should acknowledge that while they pay a large share of the taxes, the state largely exists in order to protect their economic interests above all else. Approaching the issue in this manner might temper some of the harsher rhetoric and allow us to look at legitimate ways to improve efficiency (and hence reduce costs), while not tampering with the essential progressivity of the system.
Let me be clear that the perspective I have laid out should not be construed as support for the current tax system or the massive tax cuts made by the Bush administration; my point was simply to outline the philosophical starting points for the future discussion of tax reform, which is desperately needed given how inefficient our current system is.
*Update on “A Tale of Two (Groups of Fanatics)”: Check out this very good article by the Economist.