Monday, June 11, 2012

The Buffett Rule

Judge William Whitbeck argues in his guest column (Grand Rapids Press, June 3, 2012, p. D4) that the "Buffet rule" should not be adopted because life is unfair. This is a poor excuse for an argument. While life is undoubtedly unfair (though it's not really clear that Whitbeck believes that the rich do not deserve their high incomes), we nevertheless expect that our laws and tax policies will be fair. That an appeals court judge would not understand this is appalling.
The basic principle of justice or fairness is that equals should be treated equally. Our current tax code does not do so. People who work for a living are taxed at a higher rate than people with the same incomes who do not earn their income from work, but receive it from investments. This is a failure to treat equals equally. It is fundamentally and transparently unjust and unfair.
There are additional reasons for the perception of unfairness. Traditional Judeo-Christian values privilege work as a source of income, and cast suspicion on "making money off of money." See for example the biblical prohibition of usury. Our tax code turns this on its head by privileging investment income over wages. The degree of inequality in our country has increased dramatically over the last thirty years. If our economy could grow and prosper in the fifties and sixties with much less inequality, why do we tolerate this greater inequality now?
Eliminating this rate differential would not make the tax code "even longer, more complicated, and more monstrous," as Whitbeck claims. Taxing all income at the same rates would make the code simpler and make compliance easier, as anyone who has filled out a Schedule D could testify. This move would return us to the principles of the 1986 Reagan tax reform.
The Buffet Rule would raise revenue in the long run, contra Whitbeck. Changing capital gains rates result in temporary shifting of capital gains realizations between years, but when rates are steady, higher rates yield higher revenues. This is a help in dealing with our federal deficit problem.
It is hard to feel sorry for the "rich people in their gated communities who already pay" a large proportion of our taxes. The taxes they pay are not that large compared to their share of national income, or the benefits they receive from our system of political economy. They have lately come under the illusion that they can buy their way out of society with their private security, private jets and helicopters, skyboxes, private schools, "concierge medicine", and the like. But they still need the rest of us, and if we're not treated fairly, it will become increasingly difficult to make our system work. That will hurt everybody, even the one percent.