Afterthoughts: The ‘Fair Share’ Tax Myth

Tax form

For the last two presidential election cycles we have repeatedly heard about the wealthy in the nation not paying “their fair share” of taxes.

Candidates like progressive Sen. Bernie Sanders, I-Vt., and Democratic President Joe Biden say the wealthy should pay more money in taxes to provide what the country needs to solve its problems.

While it initially may sound good, “they have more, so they should pay more,” it really doesn’t answer the question of what a “fair share” is exactly.

According to the World Bank, “collecting taxes and fees is a fundamental way for countries to generate public revenues that make it possible to finance investments in human capital, infrastructure, and the provision of services for citizens and businesses.”

Taxes pay for a military to protect us, to build and maintain our roads, provide policing, fire, and other emergency services we need to run our society.

They can also be used for social programs and education of our children.

We all have a stake in what that money is used for, and a responsibility to pay a portion of that total.

But how much should we each pay exactly?

What is “fair?”

In most reasonable debates determining an objective mathematical equity would seem to be the most appropriate way to deal with the issue.

Take the total amount of expenses and divide it by the number of people in a society so that each person is paying an equal amount for the common expenses.

In that very simple context, each United States resident should pay about $5,000 in federal taxes in 2023.

That total takes the recently passed $1.7 trillion omnibus spending bill and dividing it by the approximately 350 million residents in the country.

The exact math comes out to a federal tax obligation of $4,857.14 per person including children and seniors.

If we only take the number of people who are actively employed, about 158 million, or about 45% of the population, that total rises to $10,791.60 per person this year.

That amounts to $207.53 per person per week, or $5.19 per hour worked in a 40-hour work week.

For most of the country that is a huge burden with a minimum wage of just over $7 per hour, which would leave about $80 in gross pay for a low-end worker to survive on each week.

While that picture is definitely bleak, it is truly “fair” in that everyone pays the same amount for the services everyone requires.

From a purely objective standpoint, about $10,000 would be everyone’s “fair share,” and even that does not really seem fair because 54% of the people are not paying anything toward expenses.

Granted, children, seniors, and the poor do not have the means or income to pay the smaller $5,000 obligation, but the conversation and debate is supposed to be about being “fair.”

But that is not the way we have decided to do things in this country anyway.

According to the Internal Revenue Service, our current income tax system came into being with the ratification of the 16th amendment to the Constitution in 1913, but the history of collecting taxes from citizens based on income goes back even farther.

To help pay the costs of the Civil War, President Abraham Lincoln signed a law creating the position of Commissioner of Internal Revenue in 1862 that also levied a 3% tax on incomes between $600-$10,000 and 5% on incomes over $10,000.

Congress ended up cutting the rate in 1867 and the income tax was repealed in 1872.

A year after the Wilson Tariff Act revived the income tax in 1894, the U.S. Supreme Court knocked it back down as unconstitutional because it was direct and not apportioned among the states based on population.

President William Howard Taft proposed a constitutional amendment in 1909 to bring the income tax back as well as a 1% corporate tax on incomes above $5,000.

The 16th amendment, which states, “Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration,” was finally ratified by the required 36 states in 1913 and the first 1040 form was introduced.

From that simply worded amendment the tax code of the country has exploded to become thousands and thousands of pages in volumes and volumes of books, all of it seeking to figure out the “fairest” deductions, exemptions, and loopholes citizens and businesses could use to determine how much they “really owed” the government.

The complexity of the current system is projected to bring in around $14 billion for the U.S. tax preparation service industry in 2023, growing by 0.8% over 2022, and 3.9% since 2018, according to IBIS World.

Despite the loopholes, exemptions, depreciation on investments, deductions and other complicated credits, the fact is that the richest 1% of the country ends up forking over 42.3% of all collected federal income taxes in 2020, according to the Tax Foundation.

That amounted to the 1% paying $723 billion as compared to the bottom 90% of earners who paid a combined $450 billion, almost a 2-1 ratio.

So, is that a “fair share?”

As a matter of fact, the share of money paid by the top 1% in the United States increased by almost 10% since 2001 as compared to the bottom 50% of taxpayers who saw their share of taxes paid fall from 4.9% to 2.3% during the same period.

It appears that the wealthiest people in the country are, and have been, paying a bit more year after year for more than two decades.

Yet, if you listen to Biden, Sanders, Sen. Elizabeth Warren, D-Mass., and others, you would think that the richest people are fleecing the poorest in the country and not contributing anything at all in the way of taxes.

While I’m certain they do all they can to take advantage of the tax code to minimize what they owe, like we all do each year, the numbers show that they are definitely paying the government.

But is it enough?

Is it their “fair share?”

The question I have for these folks demanding more and more out of the wealthiest Americans, is “what amount, in your mind, is the ‘fair’ amount exactly for any one person to pay?’”

If we go back to the beginning computation, even accounting for only people who work, the “fair” amount is $10,000 for one person.

These people are paying exponentially more than that, but it is still not enough in some people’s minds.

To me, this seems to be a case of jealousness and coveting what others have, and has nothing to do with being objectively “fair.”

As expressed by these politicians, the “fair share” narrative is a myth.

The answer to our nation’s problems is not to simply spend like drunken sailors and constantly return to our rich uncles for more money to cover our foolishness, which is what we continue to do while resenting those that have worked very hard to earn what they have.

The answer is to go back to the basics of what our Constitution provides.

“Provide for the common defense,” and enable interstate commerce on the federal level.

The Constitution says nothing about sending out billions in aid for other countries to handle their own problems, or give a country like Ukraine more than $100 billion to aid its war effort against the Russian invaders when we have record numbers of homeless and poor in our own backyard to help.

The bottom line is the tax system is not “fair” for anyone and does not really do what it is intended to.

Major reforms are needed and I believe the country must find a new way to raise revenue that is more equal for everyone.

National sales tax anyone?

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