Should the top 5 percent of Americans pay more in taxes to support the other 95 percent?
That question, tossed out by a friend last week, sounds simple. On the surface one could say "No -- it's not fair. People who have worked hard so they have wealth should get to enjoy it."
My world view is a bit different and my knee-jerk reaction would have been to say "Progressive taxes are good for our society. They act against a nation in which there are a few haves and many more have-nots."
The real answer is that our tax structure is not only about raising money. It's also about who gets let off the hook. It's also about how we spend it. Taxes are also about social and military policy. Social policy is shaped by our economics, special interests, tradition and changing circumstances. Military policy is shaped not only by our alliances and adversaries around the world, but by the powerful political clout of the "military industrial complex."
Prior to the beginning of the 20th century we had no income tax. We had tariffs and import taxes. Products coming in from other nations were taxed to make them more expensive than domestic products. International trade would be hurt when trade wars broke out from tariffs put in place to retaliate. In our present free-trade environment foreign-made products flood our nation with no restraint, hurting manufacturing all over the U.S.
Imposition of the income tax was a way to change the taxing structure to collect money from the most wealthy Americans -- those who owned companies, land, natural resources, banks and the like -- rather than taxes limiting our ability to export and import. That was social and economic policy at work.
There are other ways to look at this:
Companies like GE, Microsoft, General Dynamics, Ford and the like must hire highly skilled engineers and technical staff. These employees come from our public and private colleges funded in part by federally subsidized loans and grant funds. Some of them learned their technical skills in the military, paid for with our tax dollars. Our airlines are largely dependent on pilots who learned to fly in the U.S. Air Force and Navy. They didn't have to train these people themselves.
Any business that depends on trucking for moving materials benefits from the massive funds provided by the federal government for highway construction and maintenance, supported in part by gasoline taxes.
Our income tax system rewards those who buy houses using loans to encourage home building and home ownership. We reward people who invest in stocks and real estate by lowering the long-term capital gains tax. We give tax credits to those who invest in renewable energy to support that growing industry and reduce our dependence on fossil fuels. We give a tax break to people who are blind because they are likely to be underemployed.
We support agriculture through subsidies and petroleum exploration through credits. We provide a wide array of benefits to the lowest income Americans, some of whom work for companies that pay so little and offer so few benefits that they cannot possibly survive and stay healthy based on a full-time job.
Should the wealthiest Americans pay a higher rate of taxes than other Americans? Truth is, they're the Americans who are most likely to be benefiting from all the tax loopholes and incentives built into our tax codes. They are not likely to be paying all that they might without those tax benefits.
We could, of course, go to a very flat tax by eliminating all of those loopholes -- but given the inability of Congress to do anything in a straightforward way, there's no hope of that.
Charles R. Putney is a consultant to nonprofit organizations. He lives in Bennington.