Tax fairness

The Nightly Build...

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To Conservatives, "Fairness" is a Dirty Word

The Dallas Morning News' Mike Hashimoto is off reading the Washington Times again in search of stories that support his preconceived notions. And he's found one, an article by the Cato Institute's Richard W. Rahn, that trashes the notion of "fairness" in taxation. Hashimoto has asked before if "fairness" should be the purpose of taxation, even though no one suggests that. The "purpose" is the need to raise revenues to pay for public projects. Fairness is a desired trait, not the purpose.

There's so much wrong in this article, it's hard to cover it all. Let's go through what we can.

The New York Times is right that 401K owners don't pay capital gains taxes. They pay ordinary income taxes, even on their capital gains. Suggesting that giving a capital gains tax break to others will indirectly help 401K owners is a scam known as trickle-down economics. Hashimoto accuses those who can see through that scam of "envy." That's as unsupported as accusing those who have fallen for the scam of "greed."

Barack Obama doesn't have a "proposal to nearly double the capital-gains tax rate." He proposes looking at raising the tax rate, amount undetermined, in order to address an unfairness in the current tax system that results in secretaries paying a higher tax rate on their income (taxed as ordinary income) than CEOs do on their income (taxed as capital gains). Hashimoto would have you believe that's fair, or that fairness is not important. The secretary might think otherwise.

The logical consequence of this notion of "fairness" is not a lower standard of living for everyone. Hashimoto would have you believe that spending on public projects (e.g., defense, Social Security, education, etc.) "hurts everyone."

Raising capital gains taxes would not "most likely result in less revenue for government." Hashimoto's thinking is based on the myth that lowering capital gains tax rates results in higher tax revenues. In fact, what's happening is that rational people are shifting income around to take advantage of low tax rates on some kinds of income. Since capital gains taxes have been cut, CEOs have shifted most of their income from salaries to capital gains. When they do that, their income tax payments drop while their capital gains tax payments go up. CEOs benefit. Secretaries don't.

Hashimoto admits that his approval of this Washington Times article is maybe because he agrees with it. He ought to look elsewhere for ideas that challenge his preconceptions. He might learn something. For example, I read Mike Hashimoto, whom I seldom agree with, hoping to learn something, but I have to admit that so far all I've learned is how misinformed some professional journalists can be about basic economics.