In this election year, there has been a lot of discussion about taxes. I believe we can agree that taxes should be fair. Unfortunately, there appear to be too many ways to define the word ‘fair.’
I recently moved to Philadelphia and was amazed by how much of our nation’s history permeates it. It’s hard not to think of our nation’s founding in such a place. I think of how our ancestors came to this country, willingly or not, and how they had to rely upon one another to make it. Everyone put their nose to the grindstone and their shoulder to the wheel to pull their weight in building this nation. And that I believe is the essence of fairness, everyone pulling his or her own weight. So the question is how do we create a tax system that ensures everyone pulls his or her own ‘economic’ weight?
Luckily there are brighter people than I who have already figured it out and the answer is the theory of marginal utility. Simply stated marginal utility tells us that the more dollars a person has, the less useful one more dollar will be to that person. It’s worth repeating: the more dollars I have, the less useful one more dollar will be to me.
I find examples help, so I pretend I have $10,000 and someone took $1,000 away. How would I feel? Pretty bad, because I would not be able to buy as much food, clothing or shelter; the basic necessities of life. Forget, self-actualization. Next I pretend I have $1 million and someone took that same $1,000 away. How would I feel? Honestly, I would care less, because there are still a lot of things I could do with $999,000 and losing $1,000 would not significantly impact my lifestyle by any means.
This is why a system that taxed everyone the same amount would not be fair. This is why a system that taxed everyone the same percentage of their income, or flat tax as some have proposed, would not be fair. No, a fair tax system is one where everyone pulls his or her own economic weight. One in which everyone shares the same economic burden. One in which everyone feels the same pain when they pay the tax bill.
To get there, we need to ask ourselves the following intellectually honest question, “how much do we need to tax the person with $1 million so that they feel the same pain as the person with $10,000 feels?” I don’t know the exact answer, but I’m pretty confident that if we were to speak in terms of percentages the tax rate on the rich would be significantly higher than the tax rate on the poor.
I believe this country and our democracy work because of a belief in sharing the burden. Everyone should ‘feel’ the same pain as everyone else when it comes to protecting, defending, and strengthening this great country.