I am always nervous when some politician utters the phrase “Pay Your Fair Share.” My last article was on the IRS looking into any transaction over 600 dollars. It got me back to thinking about the term that is constantly brought up by politicians who are looking for a larger piece of your pie.
The phrase is often taken as a positive, as 99 percent of us by definition are not in the one percent of earners. Anytime a political person can say something they think will be accepted by 99 percent of the population, they are going to run into the ground. Most recently the Biden administration has been using this term. Here is Biden himself on the subject:
“I just think it’s about just paying your fair share for lord’s sake.”
If I were a reporter and Biden took questions from reporters, my question would be, “What percentage do you think is fair?” You never hear an actual number when “Fair Share” talk is bandied about. So, let’s look at the actual numbers.
According to the IRS:
- The top 1% pay more in federal income taxes than the bottom 90%.
- The top 10%.pay 70% of all federal income tax.
- The top 1% made 20% of the income in the US, yet they pay 40% of all income taxes.
So as a percentage of income or as percentage of what is paid into the system, “fair” does not seem to come into play. So, let’s look at this from a different perspective (I will admit, I am using an extreme example to make a point, but at least I admit it.) In the city of New York, the richest tax bracket can owe up to 60 percent of their income to the government once local, state and federal taxes are totaled up. Think about that, they are working to the end of July to pay their tax bill before they make any money of their own.
Ok, there is the argument that they have money, so they can pay more. True, but studies show that even just having money doesn’t mean you are thought of fairly. Surveys show that people think that how you earn the money should affect your tax rate. If you are successful CEO making 10 million a year, people think you should pay less than a professional athlete or entertainer that makes 10 million a year. Why, because athletes and entertainers’ jobs shouldn’t be about the money. So, we come back to fair, how do you have a fair tax system when biases of how you make money can affect your rate. (Don’t think it already happens, just google who gets tax breaks on their earnings. It’s not Tom Brady, but, Biden built an S Corp to divert earnings. I don’t blame Biden for paying as little as possible, just pointing it out.)
Would it be fair that all pay in something? Forty percent of Americans pay no federal income tax, so that can’t be what they are talking about. It can’t be that everyone pays 10%, that wouldn’t be fair to low wage earners, apparently. That brings to mind a quote from Benjamin Franklin:
"It would be a hard government that should tax its people one-tenth part of their income."
He would be a little disappointed in today’s tax rates.
So, fair is something different from everyone contributing something, even on a graduated scale. JK Rowling made the news when she said she would pay her taxes gladly since it was her duty. In America, the thought process of most of the Founding Fathers was it was your duty to pay as little as possible without breaking the law.
In reality, it is not true fairness that people seek with a tax code, it is efficiency in moving wealth around. Since a billionaire paying in millions in taxes has a relatively small impact to the billionaire compared to the people receiving those millions of dollars in benefits, the idea is to have an equitable outcome from taxing the rich, not to come to a fair number.
The only thing I can think of when a president says we should pay our fair share is that a fair tax code is to take as much from the people with means to pay and without means to legally avoid paying it. Just be wary of anyone talking about fairness with your money that won’t explain with real numbers about how much they plan to take.
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Crypto is going to change all of this. It makes much more sense to do public spending on a blockchain, where community members can vote on spending proposals, and anyone can audit how the money is actually being spent. We're just at the beginning of the adoption curve, but it's inevitably going this way.
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