Chances are we’ve all heard it from a politician, a talk radio host, or a friend:
- “It’s time for the rich to pay their fair share of taxes.”
- “If only the rich would pay their fair share, we wouldn’t have a deficit/budget/tax problem.”
- “The rich exploit all these loopholes. We have to find a way to get them to pay their fair share.”
There are a lot of angles to take on this issues, but I want to focus on 2:
- Who are “the rich?” — it’s not as easy to define as you might think
- What is their “fair share?”
Who are “the rich?”
What’s interesting to me is that any time you hear someone talk about “the rich” it nearly always is a group that does not include the speaker. Listen to a celebrity, a radio personality, or your relative talk about “the rich” and ask yourself one simple question: “Is there any indication that they are including themselves in this group?”
I suppose it’s human nature, but whenever we speak of “the rich” our functional definition is “a group of people with more money than me.” Whether a person makes $5,000, $15,000, $50,000, or $150 million a year and regardless of the means of making this money, “the rich” are a group of people who make more than you. Right?
Wrong. If you’re reading this, you are rich. How do I know? Because you have internet access. Because you have electricity. Because, if you have electricity, you have running water. And it’s probably hot. And you have access to refrigeration. Which means your food has a higher nutritional quality. We could go on. And on. And on.
If we remove the blinders of all the plastic made-in-China crap Western culture says we need to acquire and lug through life to qualify as “rich,” then we free ourselves to recognize the opulence with which we already live.
Check out GlobalRichList.com. In 30 seconds you can find out how rich you are, indexed to the global population. Spoiler alert: you’re richer than you think.
So who is “the rich?” Is it you? Yes. Yes it is.
It’s time to stop using the canard of “the rich” to bludgeon people who have more money than we do. There is more to life than a Benz and a vacation to the South of France. You’re richer than you think and you’re richer than you want to admit.
What is their “fair share?”
If you thought the real definition of “the rich” stung, make sure you’re sitting down for this one. Next time someone whips out the ol’ “rich oughtta pay their fair share” line, just ask one simple question: “How much should they pay? What share of their wealth qualifies as “fair?”
Imagine we inherited from a billionaire great uncle a beautiful island in the Caribbean and we decided to start our own country. We’ll call it…Fairlandia. In Fairlandia, we decide, everything will be perfectly fair.
We start with the tax code. Fairlandia is going to, obviously, attract a lot of people from all ranges of “richness.” How do we ensure that taxes are perfectly fair?
What if we charge everyone the same dollar amount? Every citizen of Fairlandia pays $1,000 a year in taxes. “Nope, not fair at all,” protests your Minister of Fairness. “If a poor person only makes $10,000 a year they pay 10% of their income in taxes. But if that millionaire who owns the beachfront mansion makes $1,000,000 a year, he only pays one-tenth of 1%! That’s not fair at all!”
Ok, let’s charge everyone the same percentage! That’s fair! Everyone pays 10% of their income in taxes. The poor guy still pays $1,000 and the rich dude has to pay $100,000! What could be better? “Hang on a second,” chimes in your Minister of Anti-Lobbyists. “If the rich guy pays 100 times the amount in taxes, he’s going to have too much influence. He’ll march up to the elected officials and say, “Do this for me or I’ll move and take my bags of tax dollars with me.”
Hmm. That’s not very fair either.
What if we figure out how much each Fairlandian needs to live on, say $8,000 a year…and take the rest! Problem solved! The poor guy pays $2,000 in taxes and the rich guy pays $992,000! This is so easy, why doesn’t everyone run for public office! “Um, guys?” The Minister of the Economy pipes up. “I hate to spoil the party but if we take everything from everyone over and above just basic living expenses, who is going to start businesses? Where would they get the money? And if no one starts businesses, how are people going to work?
Damn. This is harder than we thought.
It’s getting late and we’re tired of this problem so we settle on our final solution: set up groupings based on income (call ‘em “tax brackets”) and charge a higher percentage, not just a higher dollar amount, to those who earn more money. So if you’re one of those stinky rich people you pay three and a half times the rate of one of those sad, pitiable poor people. Voila! The Minister of Fairness timidly raises his hand. “Gentlemen, I hate to point this out but…this is possibly the least fair approach of all.”
So, of course, it’s exactly what we’ve done in America. Brilliant.
The point is simple: there is no such thing as “fair.” Some argue that a flat rate (17% is often thrown around) is most “fair.” I happen to agree. But we can see from the above example that others might disagree with this perspective…and they might even have some valid points. I suppose there are some out there who might argue that taxes should be a flat dollar amount but I haven’t heard anyone seriously promote that position. Others think we should have a bracketed system. I have no idea how this leads to “the rich” paying their “fair share,” but I’m willing to learn.
So let’s say we’ve decided that “the rich” are defined as “not us” and “people we hate because we envy their success” and we decide we’re going to pass laws to squeeze more money out of them. We’re also going to call it their “fair share” even though it is anything but fair.
Right now the richest Americans pay 35% of their income to the federal government. That’s more than 1 out of every 3 dollars they earn. Now, why anyone would want to work hard so they have the “privilege” of only keeping 2 out of every 3 dollars, I don’t know. But I digress.
Well, if this was their “fair share” we would expect to no longer hear the shrieking political class calling for more “fairness” so let’s fair the shinola out of these greedy fatcats and jack that rate up to 50%! LOL! We got you now! Is 50% fair? If so, wouldn’t 60% be more fair? And wouldn’t 75% be even more “fair?” Taken to its logical conclusion, wouldn’t a 100% tax rate on “the rich” be the fairest of all?
I’ll close with an illustration I first read a couple years ago and has stuck with me ever since. I didn’t come up with this and the Internet doesn’t seem to know either. Please read it all:
How Taxes Work . . .
This is a very simple way to understand the tax laws.
Let’s put tax cuts in terms everyone can understand. Suppose that every day, ten men go out for dinner. The bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first 4 men — the poorest — would pay nothing; the fifth would pay $1, the sixth would pay $3, the seventh $7, the eighth $12, the ninth $18, and the tenth man — the richest — would pay $59.
That’s what they decided to do. The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement — until one day, the owner threw them a curve (in tax language a “tax cut”).
“Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily meal by $20.” So now dinner for the ten only cost $80.00.
The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still eat for free. But what about the other six — the paying customers? How could they divvy up the $20 windfall so that everyone would get his “fair share?”
The six men realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man (who paid $1) and the sixth man (who paid $3) would end up being PAID to eat their meal. So the restaurant owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
And so the fifth man paid nothing, the sixth pitched in $2, the seventh paid $5, the eighth paid $9, the ninth paid $12, leaving the tenth man with a bill of $52 instead of his earlier $59. Each of the six was better off than before. And the first four continued to eat for free.
But once outside the restaurant, the men began to compare their savings. “I only got a dollar out of the $20,” declared the sixth man who pointed to the tenth. “But he got $7!”
“Yeah, that’s right,” exclaimed the fifth man, “I only saved a dollar, too . . . It’s unfair that he got seven times more than me!”.
“That’s true!” shouted the seventh man, “why should he get $7 back when I got only $2? The wealthy get all the breaks!”
“Wait a minute,” yelled the first four men in unison, “We didn’t get anything at all. The system exploits the poor!”
The nine men surrounded the tenth and beat him up. The next night he didn’t show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered, a little late, what was very important. They were FIFTY-TWO DOLLARS short of paying the bill! Imagine that!
And that, ladies and gentlemen, is how the tax system works. The people eating free don’t understand their good fortune and complain that they “didn’t get anything at all” from a tax cut. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up at the table anymore.
Where would that leave the rest?