Liberals, Conservatives and Tax Fairness

By Peter Wehner Friday, May 04, 2012

In defending President Obama’s effort to make as the centerpiece of his campaign the so-called Buffett Rule — which would require anyone earning at least $1 million a year to pay at least 30 percent of his income in taxes — Jason Furman, deputy director of Obama’s National Economic Council, said, “Our goal is to have a progressive tax system.”

Furman added that the tax was never intended “to bring the deficit down and the debt under control” (contradicting a past claim made by the president). The goal, according to Furman, is to establish “a basic issue of tax fairness.”

Let’s take Furman’s claims in order, starting with the goal of a progressive tax system.  According to the CBO, the top 1 percent of earners pay 40 percent of all federal taxes, compared to less than 20 percent in the 1970s. And today, according to research by the OECD, income taxes in America are the most progressive among the rich nations of the world. As Stephen Moore has observed, the “richest 10 percent of Americans shoulder a higher share of their country’s income-tax burden than do the richest 10 percent in every other industrialized nation, including socialist Sweden.”

Second, the United States now has the top corporate tax rate in the world, having recently passed Japan (and once again placing America ahead of socialist Sweden).

Third, middle-class workers on average pay just under 15 percent of their income in federal taxes while the richest 0.1 percent pay almost twice that rate (26 percent). The Buffett Rule applies to the exceedingly small number of individuals who make most of their money from capital gains, which are taxed at a lower rate than ordinary income in order to encourage savings and investment and because that income has already been taxed as corporate income. It’s reasonable to assume that The Buffett Rule is, in the words of the Wall Street Journal, “really nothing more than a … way for Mr. Obama to justify doubling the capital gains and dividend tax rate to 30 percent from 15 percent today.”

As for the “basic issue of tax fairness:” This is a recurrent theme for Obama. In a 2008 debate between Obama and Hillary Clinton, ABC’s Charles Gibson asked Obama why he would support raising capital-gains taxes given the historical record of government’s losing net revenue as a result. “Well, Charlie, what I’ve said is that I would look at raising the capital-gains tax for purposes of fairness,” Obama replied. This moment revealed that Obama isn’t simply or even primarily interested in raising taxes for economic reasons (e.g., raising revenues or spurring growth). He sees taxes through a moral prism, as an instrument to advance “fairness,” which he takes to mean leveling higher taxes on wealthy Americans in order to decrease income inequality. The president really does favor, in his words, “spreading the wealth around.”

This debate goes to the core of what separates progressives and conservatives. The former are drawn to the concept of equality of results while the latter are far more committed to equality of opportunity. And for liberals, the problem of income inequality has to do with the rich whereas for conservatives, the problem is not wealth but persistent poverty. As Robert Beschel and I argue in a National Affairs essay, “the right way to deal with income inequality is not by punishing the rich, but by doing more to help the poor become richer, chiefly by increasing their social capital. This means not simply strengthening the bonds of trust and mutual respect among citizens, but also equipping Americans — especially the poor — with the skills, values, and habits that will allow them to succeed in a modern, free society.”

Liberals are correct about this: income inequality has increased over recent decades. The task of conservatives is to give a full and fair picture of income gaps in America, to explain what is behind it, and to point out the injustice of the left’s remedies and the degree to which their proposals represent a radical departure from America’s ideals.

But more is required than simply that. Social mobility, which is the central moral promise of American economic life, has been the traditional alternative to economic egalitarianism. But the truth is that whether one judges by intragenerational mobility (meaning movement within or between income brackets and social classes within an individual’s lifetime) or intergenerational mobility (movement within or between income brackets and social classes occurring from one generation to the next), the United States is less mobile than it should be. Many European countries, for example, now have as much social mobility as, and more opportunity than, the United States. Today, a child’s future depends more on parental income in America than it does in Canada and Europe.

It would therefore be a mistake for conservatives to ignore the issues of social mobility and income inequality. They couldn’t even if they wanted to. The divide between rich and poor in America will be a focal point of this election. This is an instance, then, when the left is forcing the conservative movement to grapple with an issue it might otherwise ignore. (When things are working right, liberalism and conservatism focus attention and spur creative thinking on topics each movement is largely indifferent to.) The challenge for conservatives is to offer up a comprehensive social agenda in the face of America’s deep cultural and structural problems. Assembling such a platform is a hugely complicated task. But doing so, and translating good ideas into policy, would make America a more just, decent, and less divided society.