"Spreading the Wealth" Isn't Fair

Jean-Baptiste Colbert, the 17th-century French minister of finance, once remarked that "the art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the smallest possible amount of hissing."

Many Americans are already hissing loudly, but the plucking in earnest is only beginning. Starting in January 2011, "the rich"--defined by President Obama as individuals earning more than $200,000 and families earning more than $250,000 per year--will see their marginal tax rate rise to 39.6% from 35%. Their effective tax rate will increase even more as certain credits and deductions are phased out.

Meanwhile, projections from the Urban-Brookings Tax Policy Center showed that 38% of Americans were expected to have had zero or negative federal individual income tax liability in 2009, before the stimulus was enacted. After President Obama's budget, stimulus, and other tax changes, this proportion will increase to nearly 46% in 2011, all while the federal government grows in size.

If you think spreading money around by force seems like an odd definition of fairness, you're not alone.

The president's rationale? He wants to create what he calls "a sense of balance and fairness in our tax code," as he said on the campaign trail, and ensure that well-off Americans "pay their fair share." He famously defended his planned tax hikes to "Joe the Plumber" by saying, "I think when you spread the wealth around it's good for everybody."

If you think spreading money around by force seems like an odd definition of fairness, you're not alone. A 2009 survey conducted by the polling firm Ayers-McHenry asked respondents to choose which of the following statements came closer to their views: "Government policies should promote fairness by narrowing the gap between rich and poor, spreading the wealth, and making sure that economic outcomes are more equal"; or "Government policies should promote opportunity by fostering job growth, encouraging entrepreneurs, and allowing people to keep more of what they earn." Respondents chose the second option over the first, 63% to 31%.

Most Americans think tax rates are already unfairly high. A February 2009 Harris poll found that on average, Americans believe the maximum amount anyone should have to pay in total taxes is less than 16% of income. The Tax Policy Center notes that families earning $75,000 and above are paying more than this in federal taxes alone; the highest income earners pay much more.

Nor do Americans believe it is fair to expand the pool of people with no income tax liability at all. According to a Tax Foundation poll in April 2009, 66% of Americans agree with the statement that "Everyone should be required to pay some minimum amount of tax to help fund government." People understand that good citizenship means we all contribute in some way to the national project.

Simple facts about our tax system do not support the contention that it is "unfair" in favor of the rich. According to the most recent IRS data, the top 5% of earners bring in 37% of the income but pay 60% of the federal individual income taxes. The bottom half of earners bring home 12% of the income but pay 3% of the taxes. Today, according to the Tax Foundation, 60% of Americans consume more in government services than they pay in taxes.

In sum: A large majority disagrees with the current administration's redistributionist philosophy; believes the rich already face a tax rate that is too high; and disapproves of the fact that more and more Americans pay nothing in federal income taxes. So why do arguments like the president's persist?

The answer is that nobody wants to sound anti-poor, so we too easily concede the notion of fairness to those who define it as redistribution and criticize redistribution only because it leads to economic inefficiency.

This is an error. There is nothing inherently fair about equalizing incomes. If the government penalizes you for working harder than somebody else, that is unfair. If you save your money but retire with the same pension as a free-spending neighbor, that is also unfair.

Real fairness, as most of us see it, does not mean bringing the top down. Yes, free markets tend to produce unequal incomes. We should not be ashamed of that. On the contrary, our system is the envy of the world and should be a source of pride. Generation after generation, it has rewarded hard work and good values, education and street smarts. It has offered the world's most disadvantaged not government redistribution but a chance to earn their success.

That is true fairness, American-style.

Arthur C. Brooks is the president of AEI.

Photo Credit: iStockphoto/Brandon Rose

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