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Wednesday, March 28, 2012

The Chimera of Tax Fairness

President Obama plays the fairness card in calling for higher taxes on upper-income people. He says, “[W]e need to change our tax code so that people like me, and an awful lot of Members of Congress, pay our fair share of taxes. Tax reform should follow the Buffett rule: If you make more than $1 million a year, you should not pay less than 30 percent in taxes” (emphasis added).

Obviously 30 percent is arbitrary. How does Obama know that constitutes fairness? If he’s concerned that income and payroll taxes take a smaller percentage of Warren Buffett’s income than the percentage they take from his secretary’s income, why not reduce his secretary’s tax rate? It’s certainly not obvious that Buffett should pay more. Obama (like most other politicians) regards government spending growth as inexorable and virtually untouchable, but why? (Proposed “cuts” are merely reductions in the rate of growth.)

On this matter of tax fairness no one tops Murray Rothbard’s discussion in his classic Power and Market: Government and the Economy. Rothbard starts by noting that for many years people thought products had a “just price,” but even objective ethics could not “yield a quantitative measure or criterion of justice.” So “the only possible objective criterion for the just price is the [voluntary, mutually agreed-upon] market price.” Rothbard of course is talking about a market unblemished by government monopoly privilege and other interventions.

He goes on next to ask: “If the search for the just price has virtually ended in the pages of economic works, why does the quest for a ‘just tax’ continue with unabated vigor? Why do economists, severely scientific in their volumes, suddenly become ad hoc ethicists when the question of taxation is raised?”

We might also ask why a president makes ethical pronouncements about levels of taxation without first laying out his moral philosophy plainly for all to judge.

Thus the “canons of justice” in taxation must not be taken for granted. Calling something just does not make it so. Rothbard writes: “The prime objection to these ‘canons’ is that the writers have first to establish the justice of taxation itself. If this cannot be proven, and so far it has not been, then it is clearly idle to look for the ‘just tax.’ If taxation itself is unjust, then it is clear that no allocation of its burdens, however ingenious, can be declared just.”

A few pages earlier Rothbard defined taxation—uncontroversially, I hope—as “a coerced levy that the government extracts from the populace.” Pulling no punches, he quotes his mentor Frank Chodorov, once editor of The Freeman:

A historical study of taxation leads inevitably to loot, tribute, ransom—the economic purpose of conquest. The barons who put up toll-gates along the Rhine were tax-gatherers. So were the gangs who “protected,” for a forced fee, the caravans going to market. The Danes who regularly invited themselves into England, and remained as unwanted guests until paid off, called it Dannegeld; for a long time that remained the basis of English property taxes. The conquering Romans introduced the idea that what they collected from subject peoples was merely just payment for maintaining law and order. For a long time the Norman conquerors collected catch-as-catch-can tribute from the English, but when by natural processes an amalgam of the two peoples resulted in a nation, the collections were regularized in custom and law and were called taxes.

“Why do not economists abandon the search for the ‘just tax’ as they abandoned the quest for the ‘just price’?” Rothbard asks. “One reason is that doing so may have unwelcome implications for them. The ‘just price’ was abandoned in favor of the market price. Can the ‘just tax’ be abandoned in favor of the market tax? Clearly not, for on the market there is no taxation, and therefore no tax can be established that will duplicate market patterns.”

So let’s hear no more about tax fairness, unless it’s to point out that fairness is approached as tax rates move toward zero.

* * *

No doubt the first person to perform the services of a middleman benefited his fellow human beings immensely—and forthwith became the object of their scorn. Richard Fulmer seeks an explanation.

Capital gains and dividends are taxed at a lower rate than wages, and most people think that’s unfair. But if, as Roy Cordato points out, investment income is actually double-taxed, our moral assessment should change.

People’s moral intuitions militate against the market economy and in favor of government. That’s unfortunate, Dwight Lee writes, because while market relations help people, the political system harms them, although it gives voters a chance to feel noble on the cheap.

As The Freeman has noted before, some of the most impoverished places on earth have successful private for-profit schools that cater to poor people. John Blundell profiles one such school entrepreneur and teacher in Zimbabwe.

The Progressive Era was smitten with big centralized organizations and top-down “scientific” management. No one was more responsible for this approach to management than Frederick W. Taylor, the subject of Harold B. Jones’s analysis.

Nothing violates the spirit of liberalism more than broad, vague government powers. And nothing so fits that description like the 1917 Espionage Act, which is used rather routinely these days against those who disclose government secrets to the public. Joseph Stromberg has the details.

Can you really be said to own your parcel of land if the government can say how it may be used? Samuel Staley puts zoning under the microscope.

This issue’s columnists deliver an array of fascinating insights. Donald Boudreaux pays belated tribute to the Austrian economist Ludwig Lachmann. Burton Folsom sees merit in President Warren G. Harding. John Stossel is thankful ideas have sex. Walter Williams updates the civil rights struggle. And Robert Murphy, hearing once too often that we owe the national debt to ourselves, retorts, “It Just Ain’t So!”

Coming under our reviewers’ scrutiny are books on a warning to Americans, literature and Austrian economics, identity politics, and the political philosophy of Anthony de Jasay.

—Sheldon Richman
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  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.