Against Common Ground on Taxes


Tom Ward, editor of The Valley Breeze, is (as the saying goes) a gentleman and a scholar, and an asset to the State of Rhode Island.  A recent column of his, however, in which he explains why he, as a “Reagan conservative,” can find common ground with progressives on the matter of taxing the rich seems to me to cede ground without justification.  Consider this paragraph:

I also wrote about the young men who formed Snapchat and became billionaires before the age of 25. That wasn’t possible before the internet. And so, progressives rightfully ask “Is it fair for a person who quickly gains a billion dollars to pay the same taxes as the family which makes about $600,000?” This is a fair question. The answer should probably be “no.” And if we are to level a middle-class playing field and help those left behind, we really should be finding some way to get more of that money from those who get rich very quickly.

I’d preface my remarks by wondering why a Reaganite would let his hypothetical progressives get away with the assertion that the two taxpayers “pay the same taxes.”  The family making $600,000 would presumably have exemptions that would lower its taxable income below the line at which the 37% rate kicks in.  But even if $600,000 were the family’s taxable income, 37% would be $222,000.  Meanwhile, the techie with a $1 billion income would pay $370,000,000, or 1,667 times more than the family.

Moving to the key point: As a father of teenagers, I hate Snapchat.  If somebody wanted to go after the company for enabling ephemeral child pornography and that sort of thing, I might be receptive.  But Tom’s talk of what’s fair brings to mind my response when my teenagers made the same objection to my ban of Snapchat:  “Unfair” on what grounds and by whose metrics?

Why is it unfair that those young innovators made a whole lot more money and pay the same tax rate?  Did the merely rich family work harder?  Perhaps not.  Did the family’s breadwinners provide more value to society?  We could disagree on subjective grounds, depending what the breadwinners do, but at least by the standard of what society values, it is a tautology to say that they obviously did not.

The other absent question is why it should be government’s role to address this inequity.  Let the kids make their billions.  If they’re unwise and blow it, then it’s redistributed anyway.  If they reinvest it and do something productive, society reaps the reward (again, by society’s own values).

Those two possibilities raise the appropriate response to money-grabbing progressives.  If you want to redistribute the billionaires’ wealth, then increase competition, which requires getting government out of the business of judging fairness.  It also has the added benefit of keeping the money and power out of progressives’ hands.

  • Rhett Hardwick

    I have always wondered where the concept of “fair” (meaning progressive rate) taxation arose from. It would seem “fair” that you “pay in what you take out”. For instance, divide the full cost of our military among all taxpayers, equally. Under any other system, someone is getting a free ride. Why is that “fair”? Admitting my suggestion would never work, let’s redefine “fair”.

    • Mike678

      “Fair” is in the eye of the beholder, and is all to often the tactic of the lazy and envious. Also a successful way for politicians to pit one demographic against another to gain power. Reference Hitler in the late 30’s..

  • Joe Smith

    First, the “billionaire” SnapChat owner is a “paper” billionaire – when SnapChat stock fell 20% in a day, he lost $500M in wealth, not income.

    So, Mr. Ward is missing a fundamental point – if you are not comparing apples to apples, then the argument about fairness becomes muddle because different assets are taxed differently.

    It would generally be difficult for a stock billionaire to convert that wealth to liquid (money) assets; first the enormous supply would depress the price and second presumably the person wants to retain stock in order to have control (over significant control) in ownership.

    However, should the person liquidate within a year, well that’s income and would be taxed at the progressive income rates (less exemptions of course – although hard to imagine either the AMT or inability to generate that much exemptions would be the case). So, Mr. Ward could argue that a higher rate than 37% should kick in at say X millions – that would be a fairer question – although that might generally apply to athletes (hmm..then race would enter), lottery winners, and some number of CEOs.

    The billionaires realize their wealth in more liquid means over time and so then it’s a discussion of whether capital gains should be adjusted. Long-term capital gains are somewhat progressive in they go from 0 to 20% but that depends on your status and income in the year of sale. So theoretically a billionaire could take no income, avoid other sources to keep him/her in the lowest income bracket, and pay 0% on long-term stock sale.

    Hedge fund managers, etc. – why do “rich” people pay generally “low” taxes – because of all the loopholes and strategies put in by special interests to keep lawyers, trusts, bankers, high wealth financial advisers, etc. in business. Why do tools like “deferred compensation” and ‘stock options’ exist – so rich people can avoid taxes.

    Geez – why do progressive think when it comes to policy that incentive and opportunity cost changes don’t change behaviors? Rent control – the rich landlord is just going to give up all those “profits” and poorer folks will have housing.. (eye roll). Raise taxes on the super rich and don’t change the loopholes – the super rich will find ways either in existing rules or get ones made to avoid the taxes.

    People point out the days when the top tax rate was something like 905 – but they fail to look at marginal rate vs the effective tax rate. Exemptions, deductions, and loopholes were different (and more basic – the martini lunch was not about alcohol, but a tax write off and it was under Reagan that the entertainment deduction started to lessen.

    What Mr. Ward fundamentally misses – besides the difference between taxable assets of the high income earner versus the IPO stock billionaires – is his falling into the progressive’s idea that fairness about the gap between rich and poor can be fixed through the tax system. One only has to review the history of the US tax system functionality to see the proportion of taxes paid by the highest tax bracket (effective rate) doesn’t change much whether it’s 30 something or 90 something.

    You’d think a smart guy like him would understand that..

  • D. S. Crockett

    “Fair” is a flat tax encompassing all types of income, salaried, capital gains, etc. Of course, the flat tax is anathema to progressives because it takes away an important wedge issue, which they daily hammer the American public.,

  • BasicCaruso

    “The other absent question is why it should be government’s role to address this inequity.”

    Is it to prevent dangerous and antidemocratic rise of a European style aristocracy? Here’s famous progressive, Thomas Jefferson, on progressive taxation…

    “Taxes should be proportioned to what may be annually spared by
    the individual.” –Thomas Jefferson to James Madison, 1784.