Greg Mankiw (Harvard University, Department of Economics) has an interesting op-ed in the Sunday New York Times: Fair Taxes? Depends What You Mean by "Fair"
Do the rich pay their fair share in taxes? This is likely to become a defining question during the presidential campaign. At a recent fund-raiser for Hillary Clinton, the billionaire investor Warren E. Buffett said that rich guys like him weren’t paying enough. Mr. Buffett asserted that his taxes last year equaled only 17.7% of his taxable income, compared with about 30% for his receptionist. … These claims are enough to get populist juices flowing. The problem with them is that they don’t hold up under close examination. …
The CBO’s most recent calculations of federal tax rates show a highly progressive system. … The poorest fifth of the population, with average annual income of $15,400, pays only 4.5% of its income in federal taxes. The middle fifth, with income of $56,200, pays 13.9%. And the top fifth, with income of $207,200, pays 25.1%. At the very top of the income distribution, the CBO reports even higher tax rates. The richest 1% has average income of $1,259,700 and forks over 31.1% of its income to the federal government.
One might wonder how Mr. Buffett gets away with a tax rate of only 17.7%, while a typical millionaire is paying so much more. Most likely, part of the answer is that Mr. Buffett’s income is made up largely of dividends and capital gains, which are taxed at only 15%. By contrast, many other top earners pay the maximum ordinary income tax rate of 35% on their salaries, bonuses and business income. …
Fairness is not an economic concept. If you want to talk fairness, you have to leave the department of economics and head over to philosophy.
The quintessential political philosopher of modern liberalism is John Rawls, the author of the 1971 classic “A Theory of Justice.” Professor Rawls concluded that the primary goal of public policy should be to redistribute resources to help those at the very bottom of the economic ladder. If Professor Rawls were alive today, he would most likely want to raise the top income tax rate of 35% in order to finance a more generous safety net. And for much the same reason, he would probably raise taxes on the middle class as well.
Professor Rawls would get a vigorous debate from his Harvard colleague, the libertarian philosopher Robert Nozick [,author of the] 1974 book, “Anarchy, State, and Utopia.” … To libertarians like Professor Nozick, requiring the rich to pay more just because they are rich is little more than officially sanctioned theft.
There is no easy way to bridge this philosophical divide, but the political process will, inevitably, try to forge a practical compromise among those with wildly divergent views. At the 2000 Republican National Convention, the candidate George W. Bush made clear where he stood: “On principle, no one in America should have to pay more than a third of their income to the federal government.” As judged by the CBO data, he has accomplished his goal.
A question for any political candidate today is whether he or she agrees with the Bush tax ceiling. If not, how high above a third is he or she willing to go?
Blogosphere commentary:
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Angry Bear: Fair Taxation
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Citizens for tax Justice: The Definiton of "Rich"
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Economist’s View: Principles of Taxation: What Is a Fair Tax?
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Greg Mankiw’s Blog: Taxing the Rich
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The Volokh Conspiracy: What Constitutes a "Fair Share"?
