Fair Taxation and the Public Good

By Mike P Byron

We need FAIR taxation now!

No one ever really WANTS to pay taxes. I certainly don't. We do it because, like going to the dentist we believe that it's "good for us." As a former IRS agent myself, I certainly saw our tax system in operation. Guess what I learned? Our tax system is UNFAIR! My son-in-law owns a small business. And like many other small business owners and individuals, he receives a lot of abuse from the IRS. The IRS frequently gives misleading advice to well-meaning business owners and individuals, and then denies what they have said. Regardless of this misdirection, the harried taxpayers are responsible to pay any taxes that the IRS eventually decides is due, plus penalties and interest, even though the IRS usually cannot explain the reasons for their decisions.

When I was working for the IRS back in the 1980's, I was shocked to learn that the IRS unfairly targets individuals and small businesses for audits and enforced collections, while leaving the mega-corporation cheats to get off scot-free. (Hey don't blame them though - IRS's marching orders come from Congress AND the President.) This is because the corporations' tax-avoidance schemes are so complex that juries cannot understand them, and so convictions are difficult, time-consuming, and expensive to obtain. The IRS knows that they can complete more enforced collections against small businesses and individuals, and so that is what they do.

What's needed is fundamental reform and simplification of the tax code. In conjunction with my practical IRS background and my understanding of essential public goods, I know what's wrong, what needs to be done, and how to reform our tax system.

1. Too much taxation is counterproductive. When taxes are too high, there is no incentive to produce wealth -- and people will actively evade paying taxes for the wealth that is actually produced. A "black market underground economy" develops.

2. Too little taxation is equally bad. Private goods are those which are not deemed essential to the well-being of the population as a whole, such as vacations, consumer goods, and other optional purchases. However, government furnishes its society with public goods, that are deemed essential for the common well-being of all members of a society, including security (military, police, fire), infrastructure (roads, bridges, canals, telecommunications), clean air and water, education, and so on. Without taxes there can be no government, and we would live in anarchy. As John Hobbes noted centuries ago, life would be "nasty, brutish, and short."

3. The appropriate amount of taxation is that amount which: a) Raises the needed amount of money from the citizenry to provide essential public goods, but no more than that. b) Distributes the resultant tax burden FAIRLY, though not necessarily EQUALLY, among the citizenry.

4. How much do we need? We are the wealthiest and most productive society in the history of the world. This REQUIRES us to provide a variety of public goods -- not just because we can, but because we MUST, if we wish to remain wealthy and productive. Everyone agrees that security and criminal and civil law enforcement are essential public goods. I believe that we should also provide essential medical services to all of our people -- after all, sick people don't create wealth or pay much in taxes! And besides, we are the ONLY advanced country on Earth that does not provide our citizens with comprehensive health care! Most agree that Social Security and Medicare, Veterans' benefits, public schooling, and pollution control are essential too.

Fake tax cuts which really just further enrich the super-rich at the expense of our ENTIRE social safety net are appalling! We need REAL tax reform.

Our real needs go beyond security. Our post-industrial knowledge-based society requires a healthy and highly educated citizenry who can produce future wealth through their talent, genius, and hard work. We NEED clean air and water. We NEED health care. We NEED an integrated transportation and communications infrastructure including roads, bridges, electricity, and the Internet. We NEED comprehensive, quality, academic and vocational education for all. For an example of what government-provided educational opportunity can do, just look at how the GI Bill FUNDAMENTALLY transformed and enriched (literally) America.

All of these public goods cost money. To pay for them, those who have benefited the very most from universal public education, public roads, public order, etc. must pay a commensurate share. It is not possible to generate great wealth for long without our renewing and vitalizing our social and human capital. This means that large corporations and the top 1% of super-wealthy citizens MUST pay substantially more than they are doing now. This is only fair since they benefit from our public goods infrastructure far more than anyone else does. It means that our middle classes and medium sized businesses should perhaps pay a bit less. It means that our poor and our small businesses and start-up firms (I once managed one) should pay even less. Since small businesses are better be able to provide benefits for their employees if their tax burden is reduced, only by assisting them can we ensure the maximum potential of our greatest wealth-generating asset -- our PEOPLE. America in the 21st century will be poised to produce the greatest cornucopia of wealth ever, and do so in a sustainable, affordable manner.

Without essential public investment, we will become poorer and ever-more stratified into the few super-rich and the many poor. We will end up as a third-world economy. I leave it to your imagination as to what our politics will be like THEN! Yet the ultra-wealthy, through their well-funded special interests are today actively subverting our political system by acting to further widen the yawning gulf between rich and poor while reducing the struggling middle class. We must see through this subterfuge if democracy is to prosper, if the tomorrow we are bequeathing to our children is to be worthy of them. It's our legacy!