Monday, July 18, 2011

"Punishing the wealthy"

In a column published in yesterday's Grand Rapids Press, Cal Thomas repeated some misconceptions about taxes and tax policy that seem to be fairly commonly held. I think they deserve specific refutation.

1) Taxes are not punishment. Taxation is a constitutional means we use to decide how we are going to pay for the expenses of government, expenses that are our common obligation as a community.

2) The time-honored principles of ability to pay and reimbursement for benefits received govern most of our taxation decisions. Those with high incomes have the ability to pay, since their discretionary incomes are disproportionally higher. They also benefit greatly from the programs of the government: transportation infrastructure, international relations, criminal justice, higher education, basic scientific research, food safety, financial regulation, and so on. Furthermore, the incomes of the top 40 percent or so of the population have grown greatly over the last 30 years, while incomes of the rest of the population have stagnated.

3) There are growing doubts about whether in our society wealth is indeed "a sign of achievement." Pay for top executives and talented entertainers seems increasingly out of proportion to the amount and quality of their work, or the beneficial impact they have on society. Pay for people in the business community seems less and less related to their actual achievements, as leaders of failing businesses are rewarded handsomely. Business leaders seem to have a lot of control over their own pay, while they increasingly fight to have unilateral control over the pay of their employees. Many also have advocated repeal of the estate tax, a move which would further weaken the link between achievement and wealth.

4) While in some cases wealth is "a reward for risks taken," this sort of income has traditionally been viewed with suspicion by the Western religious and philosophical tradition, while income from work has been honored. For instance, the Bible forbids interest on loans (e.g. Lev. 25: 36-7), but requires the prompt payment of wages (e.g. Deut. 19:13). This suggests at the very least that income from investments should not be given the preferential treatment it is given under our current tax laws.

5) Nobody's motives are completely unmixed, so envy may play some role here. It is only fair to point out that on the other side, greed may be a factor as well. But impugning the motives of others is not a way to move the discussion forward.

I think it would be a great step forward in the ongoing deficit-reduction talks to agree that the Bush tax cuts should be allowed to expire, as they are scheduled to do under the current law. Remember, the law was written this way because at the time everyone recognized that the cuts would eventually contribute to the deficit problem. The tax structure of the 1990's coincided with vigorous economic growth and four years of budget surpluses. We could do a lot worse.

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