Monday, September 19, 2011
When I studied taxation at the University of Chicago Law School, back when it was even more of a bastion of conservative legal scholarship than it is today, students were not allowed to take the idea of a progressive income tax structure as a given. We were required to think through and discuss all of the possible rationales for taxing higher income brackets at a higher marginal rate, starting from the perspective that none of the arguments in favor of progressivity were easy or obvious to make. But one argument that I never heard, even at the University of Chicago Law School, was the argument that people who make large incomes should actually pay a lower marginal tax rate than people of moderate incomes. Even at Chicago, prevailing thought among conservatives would allow a poverty level of income to escape taxation altogether, thus introducing a modicum of progressivity to the tax system.
We accept that some payroll taxes should be regressive (right now they cap out at around $100,000) because they support a floor of Social Security payments that is of more benefit to people of moderate means. We also accept a lower tax rate for capital gains, for reasons that I admit I never understood very well. Sales taxes are also somewhat regressive, because lower and middle class people tend to spend a higher proportion of their income than people who can afford more savings and investments. But I don't know of any good arguments for making people with lower incomes pay a higher marginal income tax rate than people of higher incomes. If we allow that, we move away from the whole idea of an income tax: An income tax, by definition, taxes incomes. Therefore we should at least tax all of the income that a person makes at at least the same rate. I understand the flat tax idea, which would subject all income to a flat percentage rate--I don't agree with it, but at least I understand it--but not too many economists or politicians even want to try to make the argument for a regressive income tax.
That is the argument that President Obama is forcing the Republicans to defend right now.
It is an indefensible position, and the House Republicans would be wise to simply agree to pass the so-called Buffett rule, as plain old common sense. Otherwise they must explain why what's left of the middle class should be required to pay a larger share of their incomes in taxes than the wealthy. And claiming that any attempt to make the wealthy pay at least the same rate as the middle class would amount to class warfare is not going to cut it.
(If you're short on time start watching at around 13 minutes on this video; the "math" line comes around 16:30)