Tax Notes' Heidi Glenn reported on a discussion about fairness at a tax reform roundtable sponsored by Tax Analysts on September 9. 108 Tax Notes 1357 (Sept. 19, 2005). Panelists included Scott Hodge from the Tax Foundation, Gene Steuerle of the Urban Institute, and David Cay Johnston from the New York Times.
Johnston and Steuerle seemed to push for understanding the centrality of tax fairness in thinking about the way the tax system works. Johnston worried that a system that efficiently captures taxes from wage earners but doesn't efficiently capture taxes from business activities is not fair. He also noted that a fair tax system shouldn't shift burdens to future generations and should make it possible for people to invest in human capital. These comments are compatible with the concept of democratic egalitarianism forwarded in this blog. Tax cuts for the super-rich today that are paid off the backs of ordinary Americans in the future are the ultimate in unfairness, since the super-rich don't need the cuts and those who pay the price receive no benefit.
Steuerle's comment about the importance of fairness as a foundation for democracy also caught my attention. Whatever we think fairness means, we know that citizens must trust that their democracy provides equal justice under the law and protects the human rights that we treasure. I have argued that this means that the tax system should shift resource allocation away from inequality and towards equality. Consolidation of capital ownership in the hands of a few destroys democracy, and expansion of human capital investment across the polity builds democracy.
Hodge's comments, however, I find disturbing, at least as reported in Tax Notes. He joins the radicals such as Jim Saxton and JEC staffer Jason Fichtner who argue that there is no need for traditional distributional tables as a tool in determining tax policy. But the argument he makes seems loaded with judgmental terminology that suggests a goal of moving the tax burden from certain favored groups (not distributional groups, but "value" groups) to more disfavored groups.
He complains that the result of distributional tabulation is "sterile quintiles" that tend to polarize the middle class into those that pay tax and those that don't. The "rising army" of single and single mom and part-time worker taxpayers (he terms at least some of these "self-serving idiots" like characters from Friends) pays no taxes, and the "statistically wealthy" middle class (analogized to Ozzie and Harriet) is left paying the bills. But, he argues, the "middle class is a value system. It's not a point on the income scale." Given the "punishing" effect of progressivity on the middle class, he suggests we should mitigate that effect through a flat rate tax. With a flat tax, we can throw out the distribution tables.
This discussion suggests a callous insensitivity to the many single mom heads of households and other single taxpayers who are just barely getting by on their low incomes. The derogatory terminology towards an entire taxpayer group compared to those who belong to the "right" value system (the Ozzie and Harriet nice, clean, white familes of four?) jars the same as former Education Secretary William Bennett's statement about abortions of black babies.
Further, the statement that "middle class is a value system" and not a distribution of income calculation seems to imply that only those who have the "right" value system are worthy of concern when considering how to make tax policies fair. Single moms are placed in that outcast group that neither merits our emotional sympathy nor deserves our economic concern. "Let them eat cake" is now translated to "let them pay the same flat tax, no matter their ability to pay."
Distributional tables are more necessary now than ever. Remember that in the campaign to pass the 2001 tax cuts in a climate where most Americans did not place tax cuts very high on the national priority list, ordinary Americans were told that the "typical American family's tax cut" would be about $1800. That was a misleading use of a statistic to make Americans in those lower four quintiles think they would receive a significant bonus from the tax cut bill. Distributional tables help to dispel those misconceptions, and are an important tool for tax policy analysis. The only problem with the current distributional tables is that they make too few distinctions in the top quintile where it really matters. Tables should instead break down the top 5%, 2%, 1% and .2%, so that ordinary Americans have some sense of the immense incomes and access to wealth held by those at the very top.