I recently read a short essay in the respected weekly magazine The Economist entitled “Too reliant on the few: Taxes are best raised on a broad base, but in many countries it is worringly narrow.” The general premise of the article is that the best tax policy is a low rate over a broad base. It goes on to argue that the tax base in the US is too small, and getting smaller, that is deviating farther away from the ideal state. It goes on to say that burgeoning government costs require increasing taxes, with the implication that governments, especially the United States, are relying on the rich as a piggy bank to pay for these new government costs which, presumably, are paying for programs that disproportionately serve the poor. While the article mentions in passing that widening inequality is part of the problem, the majority of the article focuses on the Earned Income Tax Credit, a tax break for the poor, and the complicated tax code as the causes for the narrowing tax base. I have found that this article fits a trend in conservative media and academia, and it is worthwhile to have a discussion, at least from a sociological perspective.
I agree with the article on a couple of superficial points. First, axes play an important role in a democracy by creating a contract between citizens and the government, a topic that is best explained, in my opinion, by Larry Diamond’s Spirit of Democracy. When citizens pay taxes to the government, they expect the government to provide services, such as infrastructure or security, as well as good governance. When a government fails to deliver these services, it can be interpreted as a symptom of poor governance, and the people can vote for new politicians. When there are no taxes, this system breaks down. For example, there are no taxes in many of the oil producing Gulf States, and while the state still provides some services and governance, there is no social contract enabling citizens to feel that they are owed superior services or governances due to the tax dollars. The same phenomenon in theory would play out in the United States if a large portion of the people did not pay taxes. (It is important to note that, even if one does not pay income taxes, one would still pay other taxes that would also contribute to this social contract, so I think the effects would be much less clear cut than The Economist suggests). Therefore, the article does have a point – a wider tax base is better for the sake of democracy. Second, anyone who has filed taxes in the United States knows how complicated the tax code can be, even with the assistance of TurboTax or an accountant. Simplifying the tax code would be a welcome change.
At this point, the article moves in a disconcerting direction. It criticizes the tax breaks available for the poor, but fails to discuss the tax breaks available to the rich. In America’s current complicated tax code, both the very poor and the very rich can avoid paying all or much of their taxes, leaving the burden to fall on the shrinking middle class. Therefore, the government not only has a weak social contract with the poor, but also the rich. Although The Economist implies that the poor benefit more from the government programs, the rich benefit as well: their nice cars are driven are roads paved by their tax dollars, and they can sleep safely knowing a police force or the military is protecting them. Good governance is a public good, and affects everyone in every class. The article also seems to criticize the growth of government programs, which presumably means the growth of government due to the Great Society programs under Lyndon Johnson. According to the US Census Bureau, before the Great Society, 25% of Americans lived in poverty. Before the Great Recession, about 12% of Americans lived in poverty (during the recession it grew to 15%). The evidence seems to suggest that these government programs are raising the standards of living in the United States in ways that the free market never could, and yes, these government programs cost money. With fewer people in poverty, American productivity expanded, crime declined, levels of education rose – the list of benefits is very long. Therefore, one could live in a society with lower taxes, but even more Americans would be unable to pay them. The result, clearly, would be an even weaker social contract with fewer contributors.
It is also hard to ask today’s poor to pay more. If a family of four with their parents making minimum wage runs out of money for food, rent, and utilities before the next pay check comes, how can one ask them to put aside more money to pay for taxes? In many ways, the current social contract is failing the poor by not lifting them to a state where they can be an equal partner in the agreement, but eliminating their tax breaks would be only an aggravation to this failure, not an amendment. To truly fix the social contract of America, one needs to address the problems of inequality and poverty in the United States. Without a society where everyone is in a position to pay taxes and enter into the contract, the problems outlined by the article are bound to persist.