Class warfare

This morning the Strib ran an article which addressed Dayton's proposal to increase income taxes on the "rich."  Their polling suggested that his proposal was more popular than Emmer's to cut spending and Horner's to broaden the sales tax.

Dayton's supporters continue the cry that the "rich" don't pay their fair share of taxes.  I reject this argument. And, i'll go one step further and bet that most of those who claim that the "rich" don't pay their fair share don't fully understand the "facts" behind the argument--they just repeat the rote phrase.

Let's begin with a statement which I think is uncontroversial--the income tax is progressive.  This means that the more you make, the higher rate you pay.  I think everyone agrees this is true.

But, if this is true, how is it that some argue that the "rich" pay a lesser percentage of their income in taxes?

Simple--they mix and match taxes and make certain assumptions which are impossible to prove but which raise interesting policy questions about what exactly it is that government should tax.

I know, that explanation is vague. So, let's go a step further and explain how this works.

Other than the income tax, all other taxes (sales tax, liquor tax, gas tax) are based on a fixed percentage of the VALUE of the item you buy.  So a "rich" guy buying a keg of beer pays the same amount in taxes as a "less rich" guy buying the same keg.  You can add the property tax into this mix as well as it, too, is based on value and is not intended to be based on income.

These "flat rate" taxes have what economists call a "regressive effect," in that the "less rich" guy has to spend a greater percentage of his income to buy the keg of beer than the "rich guy."

So, to make the argument (that the "rich" don't pay enough) work liberals make various assumptions about consumption, lump all of the various "flat rate" taxes in, and then argue that the rich are paying less than their fair share.

I hate this argument by liberals for a number of reasons. First, because it lumps a bunch of taxes which have different purposes together and treats them as though they were all intended to be income taxes. Second, because it ignores the choices that people make when they buy items which are taxable. And, third because most of these "flat rate" taxes were either enacted or increased by liberals.

Think about this last point for a minute using liberal taxation logic. When the liberals increased the gas tax--a tax with a "regressive effect"--a few years back they actually increased taxes on the middle class and poor and further increased the gap by which the "rich" don't pay their fair share. Kinda ironic, isn't it?