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Neo-Neocon

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December 10, 2011 - 12:08 am
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From his speech, one would almost think that Obama is moving towards the imposition of a flat tax — after all, that would seem to make the tax rules the same for all levels of income. But of course that’s not what he’s getting at at all. To Obama, what’s “fair” for a poor person is the use of different rules (or at least different tax rates) than those for a rich person, a progressive rather than a flat tax.

By using the word “fair” or “fairness” over and over as though their meanings and the best way to achieve them are self-evident, Obama glosses over the quandary that every consideration of fairness in tax law presents. For example, is progressive taxation, which sets a higher tax rate for the rich, “fairer” because the rich can afford to pay more? And if so, then how progressive is progressive enough to satisfy the requirements of fairness? Also, is it fairer to allow the poorer segment of society to pay no income tax, or is it fairer to have its members pay something?

Or would it actually be “fairer” to have people of all income levels pay a flat tax that is the same percentage of whatever their income might be? And what about exemptions and loopholes? Is it fairer to eliminate them all, or just some, and if so which ones? How about taxing consumption rather than income? Is that too regressive a tax to be fair, even though it’s equal? And what of dividends, which are taxed twice, once at the corporate level and once at the individual level? How fair is that?

In addition, there are the myriad practical considerations that should be factored into any decision about fairness. For example, the tax rate that is set for the last dollar of a person’s taxable income (the marginal tax rate) is not the same as the rate that is actually paid (the effective tax rate), and this difference should be recognized. But later in his speech Obama purposely blurs the two by comparing higher marginal tax rates of the past (up to 90% for the highest brackets during the Eisenhower years) with lower effective tax rates of today — apples to oranges. In so doing, he also ignores the enormous tax shelters that functioned to drastically lower the effective rate during those times of sky-high marginal tax rates and to encourage investment as well.

Any honest discussion of tax rates and fairness is inevitably complex, full of wonky charts and details that make most people’s eyes glaze over, and about which liberal and conservative economists can argue nearly forever. Obama takes the easy way out by pretending that the issues have a simplicity and the answers a clarity that they lack, and that he is telling self-evident truths. But what he’s really doing is pandering to a schoolyard mentality of envy that says, “It’s not fair if other people have more stuff than I do; they must be cheating and they should pay me back” — and that government’s just the one to do it.

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Neo-Neocon is a New England-based blogger.
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