No, Joe, There is No Such Thing as a “Fair Share” of Taxes
By Brian Balfour
President Joe Biden recently trotted out the well-worn progressive complaint about the rich not paying their “fair share” of taxes. “It’s about time the super wealthy start paying their fair share,” Biden said on June 18 to a crowd in Pennsylvania. Claiming that billionaires “paid a lower rate than schoolteachers, than firefighters, probably anyone in this room,” Biden insisted the rich should “(J)ust pay your fair share, man.”
Missing from such conversations is just what exactly one’s “fair share” of taxes is, and how that is determined to be fair. That’s because the notion of any objective measure of taxes as being a “fair share” is a complete illusion.
Taxes are what citizens are compelled to pay in exchange for government services, like criminal justice, national defense, healthcare, education, and not to mention pork projects, war, and corporate welfare. Given this exchange of money for goods and services, one could plausibly compare the notion of a “fair share” of taxes to that of a “fair” or “just” price of commodities.
As Murray Rothbard points out in Power and Market: Government and the Economy, the notion of a “just price” was debated by ethicists and scholars for hundreds of years. Indeed, the history of this debate can be traced back to Aristotle, who described a “just exchange” as the trading of goods of like value while deeming as immoral the exploiting of arbitrage opportunities for profit. Thomas Aquinas, in the 13th Century, held a similar view, while allowing for profit from selling an item for more than you acquired it.
The Spanish Scholastics of the 16th and 17th centuries introduced to the debate the concept of subjective value, suggesting that the just price was in accordance with the valuation of the prospective buyer, in contrast to any objective value inherent within the good itself. This notion of subjective value largely carried into the present day. Because no such quantitative, universal measure of a just price could be agreed upon, “the only possible objective criterion for the just price is the market price” voluntarily agreed to by buyer and seller, according to Rothbard.
In other words, ethicists and economists for centuries grappled with the concept of a “fair price” for a good or service. Finally, a consensus was reached that the only fair price is one mutually and voluntarily agreed upon by seller and buyer.
When it comes to taxes, however, voluntary agreement is removed. Government imposes its arbitrarily chosen tax rates by threat of force. Because mutual consent is removed from the transaction, there can be no such thing as a “fair share” of taxes.
Tax rates are largely politically motivated and arbitrarily chosen, and stacked with exemptions and penalties to help incentivize behaviors favored by the politicians writing the voluminous tax code. Regardless of the rates, there is no “fairness” to be achieved.
Some may argue that a “fair” tax share for various income groups should be proportional to the share of income earned for those groups. According to the Tax Foundation, however, the top one percent of income earners paid 42.3 percent of federal income taxes while earning 22 percent of the nation’s income. The top ten percent earned 49.5 percent of total income while paying nearly 74 percent of all income taxes.
The average effective income tax rate for the top ten percent was 20.3 percent, more than six times the 3.1 percent rate paid by the bottom 50 percent.
By this measure, many could argue that the rich are paying well above their “fair share,” which is why this measure is never mentioned when Biden and company are asked to specify what a “fair share” would be.
Complicating the concept of a “fair share” of taxes further still, to the extent the discussion is on income taxes, is that one’s income in any given year may not neatly categorize someone as “rich” or not.
A person’s income represents merely a snapshot in time. Of course, people move about income levels over the course of their lives. Today’s “low-income” individual may be a recent college graduate from an upper middle-class family merely working an entry-level job on her way to a lucrative career.
Conversely, this year’s “high-income” earner may be a small business owner who struggled for decades and finally had a successful year, but still remains deep in debt. This snapshot report in no way tells us anything about the financial well-being over the lifetimes of the people being judged as rich or not. In short, simple “income” statistics often provide a misleading snapshot of citizens’ financial well-being, and therefore of how taxes really affect them.
It’s not quite so easy to look at a person’s W-2 in a given year and determine if he is “rich” and therefore must be compelled to pay a “fair share.”
Moreover, taxes are the lifeblood of the political class. The more taxes they extract from citizens, the greater power they hold over society and its scarce resources. More taxes means more political favors to be doled out, voting blocs to be rewarded, and patronage networks to pay off.
The discussion of the non-existent concept of a “fair share” of taxes should be dropped immediately and exposed for what it is: an arbitrary and artificial notion used to disguise political power grabs.
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About the author
Brian Balfour is Senior Vice President of Research for the John Locke Foundation, where he oversees the organization’s research and analysis on a variety of issues. He previously worked for the Civitas Institute for 13 years, and has a master’s degree in economics from Wayne State University in Detroit, MI.
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