A Question of Fairness

In my last post I bemoaned the lack of honesty within the GOP establishment when it comes to taxes. I noted that though many complain that half of the populace do not pay income tax, everyone pays some tax.  We've always debated taxes in this country and we are gong to keep debating taxes until the end. The unspoken issue in all the debates is this slippery word--FAIRNESS.

People and pundits like to talk about the economic reasons for certain tax rates and types. They argue that this tax is the best policy because of its economic and social benefits. But I believe, deep down in the heart of the pundit, the question they ask, is it far?

Now it is true that taxes have broad economic and social consequences and that some types of taxes and tax rates are better than others. Nevertheless, when people are debating taxes they are debating fairness. For example, conservatives like to point to the total dollar amounts that taxpayers pay. They say, we can't increase taxes, because the (super) rich already pay the lions share. Liberals, on the other hand, note that as a percentage of income the rich pay much less than the poor. Sure the (super) rich pay a massive dollar amount, but that is because they make a more massive amount from the US economy.

Of course, both are right. The highest 1% of taxpayers pay more than their share of income tax. And yes, the (middle class) poor, on average, pay the highest percentage of their income on taxes. It is just not usually income tax, but sales tax, property tax, excise, gas, and numerous other taxes.

What ruffles my feathers is that lack of honesty in the debate and the recognition that that the real question being debated is fairness.

Broadening the Tax Base

I feel that I'm a charitable fellow. I'm willing to give folks the benefit of the doubt. I even try to understand politicians and am sympathetic to the competing interests they must serve. Alas, my sympathies cannot extend to complete idiocy.

In the latest round of foolishness parts of the Republican Party are attempting to make the case that we need to broaden the tax base. They are upset that only 53% pay income tax. To quote Bachmann:

Part of the problem is today, only 53 percent pay any federal income tax at all; 47 percent pay nothing. We need to broaden the base so that everybody pays something.

I'm all about broadening the tax base. I believe that all citizens of any republic need to have skin in the game. The problem with this line is that the poor already pay a lot in taxes. They may not pay income tax, but they pay sales tax, payroll tax (what a crappy tax), gas tax, and a whole slew of other taxes.

It is this sloppiness of thinking that bothers me. The Republicans are obsessing over one part of the tax code and missing all the rest. We need tax reform in this country. Our tax code is inefficient, out of date, and harmful to our economy. But to do that we need to have an honest look at the whole tax pie. We can't just fight over marginal income tax rates or look at capital gains taxes, while ignoring payroll tax (oh how I loathe it), sales tax, and state taxes.

A Real Business Sense

From the Comments of the previous post that should be brought to our attention:

Egg Farmer needs to clarify... It is section 179 depreciate, not accelerated depreciation that is a problem. Section 179 allows businesses to completely write off a new piece of equipment. The state of minnesota does not allow the deduction or only a portion of the total amount the federal section 179 allows. If a business person cannot take it both on the federal and state, what is the point... In our case we don't take the full amount of section 179 tax deduction, because it doesn't help on the state tax return. Of course, my good friend across the state line can take the section 179 both on the state and federal tax. All these different tax deductions and/or incentives that are given to businesses I understand (we take advantage of as many as we can). The problem is that the playing field becomes uneven. I am not arguing that the government should some how make it "even" or "fair" for all, because innovation and technology will always disrupt the playing field. What I think the role of government can or should play is to use its limited resources in shaping a better playing field (better infrastructure, simplifying the tax code and security), which would benefit all.

A few thoughts. First, it is easy for the folks who don't run a company to see the day to day effects of our taxation policy. How we tax matters. Second, if I ever want to run a small business, boy I need an education. Third, I'd be interested in Egg Farmer's take, do you think that services you get in MN (better infrastructure, better schools, etc) and the closer proximity to large population centers outweigh the higher taxes? Life is full of trade offs (no matter what Congress says), so is this a worthwhile trade off?

Funding Your State

The Great Recession may be officially over, but states throughout the land are still facing difficult budget decisions. They need to decide what to fund and how to raise the money. Too often in discussions of taxation we focus on income tax or just federal taxes when in fact we have a whole slew of taxes. Instead we need to talk about the tax burden citizens face rather than particular tax rates (e.g., the rich may face the highest income tax rate, however, if their income is from dividends their tax burden is significantly less).

You particularity see this tax reality with separate states. For example, in my lovely state of South Dakota we have no income tax, yet one of the higher property tax rates. As far as sales tax we are on the lower end, however, many more items are tax (e.g., groceries and clothes, while high tax MN exempts those items). Needless to say, tax policy is super fun.  Check out these state graphics:

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