The Principle of Tax Fairness

To understand the U.S. tax code, focus on the principle, not the policy details. A tax code can be based on the principle of enriching the rich at the expense of everyone else or on the principle of egalitarianism. Which principle do you really think the U.S. tax code today, with low capital gains rates, high rates for the 99%, and loopholes for the super-rich, is based on?

One of the core problems with U.S. politics is the confusion between principles and policy details. Specifically, politicians offer nice-sounding policy details that delude voters into supporting policies based on principles they oppose.  For example, a politician says, “We need to attack Country X” when the politician actually wants to build empire and enrich his friends but voters think he is working for peace and national security. This is a fairly obvious example that occurs often and can be seen through by a fair number of voters, though millions get tricked every time. A less obvious example concerns taxes, admittedly a complicated issue in the horrendous U.S. tax code.

Politicians won’t tell you this, of course, because any voter who thinks like this will be very hard to cheat, but the U.S. tax code is increasingly (compared to Eisenhower-Kennedy days, for example) based on the principle of enriching the rich at the expense of the 99%. Avoiding all the hot air about “cutting taxes” or “freeing up people to invest and keep their earnings” (i.e., low capital gains tax rate)–all that is detail and will both confuse and bore anyone who is not a tax wonk. Focus on principle.

The core tax principle voters should keep in mind is this:

Earned income (the legal term, and a good one, for wages and salaries) should always be taxed at a rate less than the rate for unearned income (i.e., profits on investments, i.e., capital gains).

Let citizens choose their own work, but encourage them to do something…reward them for making a contribution. A society of productive people builds a healthy society and strong country. Train the population to believe that the best way to achieve a comfortable life is to gamble on the market, especially with other people’s money, offer those who are the most successful a guarantee that they will not be held responsible for their behavior before a court of law, and you create a society on the road to ruin…or revolution. Citizens should work, not ask for handouts or engage in gambling that has no value for society; surely, we can all agree on that. But for that to happen, the citizens must perceive that working pays.

Does society want more services? Fine – raise taxes. Does society want fewer services and more cash in hand? Fine – lower taxes. Does society want more egalitarianism? Fine – tax the rich at a higher rate. Does society want to trust the rich to take care of the rest of us? Fine – lower the capital gains rate and raise the income tax rate. All these are day-to-day policy questions that will be debated forever because there is no one correct answer: sometimes taxes should go up and sometimes down.

But the principle that the tax code should reward hard work more than playing the market should always be the foundation. A capital gains rate that punishing those who work or a bailout of billionaires matched by austerity for the poor are policies that violate this principle of tax fairness.

Beware the politician glibly promising specific policy details. These promises cannot be kept. Politicians must be forced to own up to the principles they believe in. Does your politician want empire or democracy; does your politician want a tax code favoring the super-rich or an egalitarian tax code? Policy flows from principle. Figure out the principle, and you will understand the game your politician is playing.


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