The question of how to tax the rich continues to be a major issue in the presidential campaign. Under George W. Bush’s tax plan, the top income tax rate would fall from 39.6 percent to 33 percent. Bush has said that it is morally wrong for the federal government to take more than one-third of anyone’s income, no matter how rich they may be. Al Gore, by contrast, supports the 1993 tax increase initiated by Bill Clinton, which raised the top rate from 31 percent to its current level. Indeed, Gore cast the deciding vote in the Senate.
Whether one thinks that a reduction in the top tax rate, that which applies to the top 1 percent of taxpayers, is a good idea is mainly a question of fairness today. Bush is not arguing, as Ronald Reagan did in 1980, that cutting the top tax rate will spur work, saving, investment and economic growth. And Gore is not really arguing that this element of Bush’s tax plan would hurt the economy. True, Gore says repeatedly that Bush’s overall tax cut is too large, but he has not said that cutting tax rates for the wealthy would per se have negative economic consequences. So both Bush and Gore essentially are arguing fairness — not just the fairness of Bush’s plan, but the fairness of the current tax system.
Gore in effect argues that it is just not fair to give any kind of tax cut to those with high incomes. They do not need it and do not deserve it, he says. Better the government should keep the money and use it to aid those less well off. Giving a tax cut to the wealthy, in Gore’s view, is equivalent to sending them government checks. He is basically asking how can we justify making the rich richer while at the same time depriving the government of the resources that could used to help the needy?
Bush also argues fairness, but in an entirely different way. He says that tax cuts are not equivalent to government checks. Taxes are extracted by force from people against their will, and the government has no right to use such means to take more from any taxpayer than can be justified by its legitimate functions. Since the federal government is running a large surplus, this is undeniable proof that the government has more resources than it needs. Thus, it is the essence of fairness to return these unneeded resources to those from whom they were forcibly taken. Bush, therefore, would utilize a portion of the projected surplus — less than 30 percent, according to the Congressional Budget Office — for a tax cut that will benefit all taxpayers roughly in proportion to the taxes they pay.
In short, we are confronted by two competing visions of fairness, both of which have been embraced by the American people at different times. Gore’s vision of fairness is that policy should benefit only those who need it, those who are less well off. Any policy that aids those who do not need it, those who are well-to-do, is therefore unfair on the face of it. Bush, on the other hand, says that fairness requires that policies be even-handed, not picking on a disfavored group to benefit another. Fairness in tax policy, therefore, demands treating all taxpayers equally in proportion to their tax payments.
Interestingly, despite the hundreds of polls annually taken by media organizations on all manner of issues, it is extremely rare for the question of tax fairness to be asked. I think that is because most reporters are liberal, and for them there is no question — Gore’s notion of fairness is the same as theirs, and no other concept is legitimate. Hence, there is no reason to poll the issue.
One exception is a 1995 poll done for Reader’s Digest (published in February 1996) in which people were asked what the top rate of taxation should be; that is, the rate that is most fair. There was a virtual consensus that 25 percent is the most that anyone should pay, regardless of income. When people were asked specifically about those making more than $200,000 — the top 1 percent of taxpayers at that time — they still said 25 percent. And this result was unchanged regardless of the race, sex, age, education level, income or political affiliation of the respondent.
The rich now pay well more than 25 percent in federal income taxes alone. In 1998, according to just-released IRS data, the top 1 percent of taxpayers paid 26.79 percent of their adjusted gross income in federal income taxes. Cutting this group’s effective tax rate to 25 percent would have required a tax cut for them of more than $18 billion in 1998. According to Congress’s Joint Committee on Taxation, effective tax rates on the rich would in fact rise even if Bush’s tax cut is enacted. It estimates that in 2005, those making more than $200,000 would pay 28.9 percent of their income in federal taxes under current law and 27.1 percent if Bush’s plan is enacted.
Fairness is not the sole criteria by which tax plans and tax systems can be judged. But it does seem to be the dominant factor in this election cycle. Although Gore and most in the media may imply that there is only one way to look at the issue, it is clear that Bush’s view also has significant support. The latter should not be shy about pressing his point.
|Effective Federal Tax Rates, 2005 (percent)|
|Income Class*||Current Law||Bush Plan|
|*Thousands of dollars|
|Source: Joint Committee on Taxation|