Thursday, August 19, 2010

Reply to an important comment - why should the wealthy pay more?

Someone posted the following comment in response to an earlier post:

I don't think many would disagree that we should be paying taxes. The real debate (in my opinion) is not should we pay taxes but why should those who earn the most be supporting those who contribute the least. I certainly expect to "pay for what (I) get" however my question is why should others "get" what I am paying for? 



I hear this a lot and it is an important and common point of view.  I'd love to take a crack at replying...

First, I think a lot of people don't like paying taxes think they are "Taxed Enough Already" (the TEA Party people), and would like to see their taxes cut further.  Unfortunately, no one really forces them to acknowledge that we pay little in federal taxes compared to other developed nations and, because we cut taxes almost a decade ago, we end up borrowing from our kids' future earnings to finance much of what our government does.

Also, in my experience, most people who are reluctant to pay more in taxes can't come up with a credible plan for spending less so we don't have to borrow.  And most of the ones that I know have at least one or two major budget items they fervently want to protect (defense spending, Social Security, Medicare for their elderly parent, etc.).  In general, we Americans want more from the government but refuse to pay for it.  That is fiscally irresponsible and morally wrong.

Now, as to the main point in the comment, about "paying for what I get" but not wanting to have others "get" what the wealthy in America pay for, it's a fundamental question of what is fair and sensible in American tax policy.

The fundamental reason for a progressive tax system, in which those who make more pay a higher percentage of their income in taxes, is that those who earn more can afford more (the poor and middle classes spend most or all of their income on necessities - the rich have more discretionary income and can afford to pay a higher percentage of income in taxes).  In addition, the theory goes, wealthy Americans benefit more, overall, from having a government that protects us, makes sure the financial system functions well (um, that is, most of the time?), and insures a healthy level of economic competition and the rule of law.  I agree that, in general, a progressive system of taxation makes sense and is "fair" for those reasons.  So does Warren Buffett.  In fact, he has argued that our tax system offers so many loopholes and deductions for the wealthy that in many cases they pay less than middle class Americans.

But I also think it is ok to think selfishly.  The reality is that wealthy people in this country generally do better when the middle class is growing and prospering.  A healthy middle class buys more goods and services from businesses that the wealthy class owns and invests in.  So if we make sure that the middle and poor classes pay less in taxes and have more money to spend, that's good for everybody.  Just look at the 90s - the wealthy paid more in taxes than they do now, but the middle class did better and so did the overall economy - and the rich got richer!

There's one final point I'd like to make:  we are in this together as a country.  We choose to live here and participate in a social contract that tasks the government with providing for the general welfare of the country and its citizens.  That means that, sometimes, those of us who have more provide aid and support to those who have less.  It is one of our greatest traits as a people, I would argue.  We are, generally, a kind and generous people.  That's why we have had a social safety net for seven decades.  And, while it does not work perfectly and there are those who take advantage of it, in general it serves us well and I am proud that we have one.  

Thanks for the important comment and the chance to respond.


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