No taxes can be devised which are not more or less inconvenient and unpleasant.
-- George Washington
The question of tax fairness comes up a lot anytime but especially during an election year as candidates trip over themselves and each other trying to convince voters their tax policy is the fairest of them all. Perhaps it is time to move the focus away from tax fairness to spending fairness.
Fairness itself is not an economic concept and therefore impossible to establish by economic means. Neither is it a universal concept and thus impossible to establish through policy as well. One person's idea of fairness may well be, and often is, another's idea of unfairness.
This is easily illustrated through the most common forms of taxation. Take the progressive income tax (please!). Those who believe taxation should do more than supply funding for government obligations and programs appreciate the redistribution of wealth that occurs through a progressive tax. But is it really fair to make some people pay a higher percentage of their income merely because they have earned more money in a given year? Usually higher earnings are the result of intense training, hard work, and long hours. Is it wise for a society to discourage people from acquiring skills and education, taking calculated risks and being more productive?
When the United States was founded the government relied on import and export taxes to perform its limited duties. Today's global economy makes such taxes either more appealing or more problematic, depending on where you stand on the importance of free trade. Those who believe American jobs and goods should stay in America think tariffs are fair. Those who believe the entire world, America included, benefits from open markets think tariffs unfairly inhibit trade and hurt worker and consumers.
Many agree the flat tax, by which all taxpayers are assessed the same percentage on their income, is the fairest way to bring in revenue. But some of the numbers being tossed around seem patently unfair, especially for lower-income families whose necessary purchases represent a far greater percentage of their salaries. A flat tax percentage rate in the high teens or low 20s could be a real hardship to low-wage earners and there is also the question raised, only half-jokingly, of why 10-percent is good enough for God but not the U.S.government.
A national sales tax, which is actually being called "The Fair Tax," appeals to people who have established homes and made most of the big purchases they need in order to live day to day. Is it fair to young people, though, who are just beginning careers and establishing households and families? And if such a tax were adopted would it replace the income tax or merely add to it? Though such a combined tax burden would be almost insurmountable for any nation's economy, it is not beyond comprehension that politicians would try to have their cake and eat it, too.
Since taxes are always unfair to someone, it is reasonable to conclude that low taxes are the least unfair to the greatest number of people. This means re-evaluating what government is providing and whether it is really the best means of allocating these services and resources. We need to look at which government services are essential and which are better left to the private sector to provide.
We might want to start by identifying where and why government is necessary. According to Thomas Jefferson, the sum of good government was in the protection of persons and property:
"A wise and frugal Government, which shall restrain men from injuring one another, which shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned."
The Constitution provides a list of what the founders believed were legitimate functions of a national government in Article 1, Section 8. These enumerated powers relate mostly to protecting national and individual sovereignty and include some practical functions such as coining money and establishing a national postal service. What is not included is most of what the government does today.
The redundant and intrusive federal agencies and department that absorb huge portions of the federal budget are easy targets as are the funds given to special interest groups and pork barrel projects at the expense of all Americans. But by far the largest federal expenditures -- three-quarters of the budget -- are on national defense, Social Security and Medicare.
It could be argued defense is sanctioned by the Constitution but the size and scope of our military apparatus certainly begs discussion. As for our national retirement and health insurance programs, let's just say a private financial services firm would be up to its eyeballs in lawsuits and criminal charges had it conducted itself so irresponsibly with regards to the accounts of its clients.
The Medicare program holds trillions of dollars in unfunded liabilities and Social Security is even worse. The 2009 Social Security and Medicare Trustees Reports show the combined unfunded liability of these two programs has reached nearly $107 trillion, about seven times the size of the U.S. economy and 10 times the size of the outstanding national debt.
Raising taxes is not going to fix this problem. We could confiscate all the wealth in the nation and still be unable to pay such crushing bills. It's time to take a more serious look at the spending side of the equation and change some of our ideas about what are truly essential government services and what should be left to the private sector. For when it comes to our current spending any 3-year-old could tell you "That's not fair!"
Audrey Pietrucha is on the executive board of Vermonters for Liberty. She may be reached at email@example.com.