Our public finance is supported by taxation. As Justice Oliver Wendell Holmes observed, "taxes are what we pay for civilized society." Yet at a time of unprecedented wealth inequality in America, progressivity in our tax system has declined. There are many causes, among them, Republican control in Washington throughout the early 2000s, the dominance of market ideology and anti-tax movements. A primary reason, however, has been failure of persuasion and the scarcity of well-articulated arguments for progressivity.
The case for the return to a more graduated, and hence more fair, income tax structure rests on arguments that animated our politics in the past and on principles representing century-old consensus.
Those who gain the most in income and wealth from the American society and economic infrastructure not only have the greatest ability to pay, they also derive far and away the greatest benefits. The American tax burden provides far more than the usual and obvious benefits that all Americans enjoy — national defense, police protection, roads and highways. It also sustains an elaborate, orderly, stable and subsidized U.S. economy. Wall Street works because property interests are protected and regulated. Within a framework of tax justice, founded in Republican and liberal ideals, it follows that those who benefit the most would pay the most.
Many goods and services result from democratic processes and are provided at public expense. Only government can provide certain functions, e.g., enforcing personal and property security, and ensuring a fair and stable economic environment. The Interstate Highway System — the greatest public works project in history — the G.I. Bill, the Internet, the most powerful military ever and currently half the nation's annual medical coverage, all have resulted from public programs. In partnership with the private sector, government works.
The general welfare, that which makes everyone better off, is grounded in social contract and democratic processes. The concept reflects the community's judgment of what constitutes fairness and how to maximize the stability and aggregate welfare of the society as a whole. Western advanced societies have honored the tradition of equal worth of all citizens and the Golden Rule. Tax policies can sustain these norms.
In a mature economy like ours, with poor rates of savings, slow or faltering growth, and a tax system that actually rewards debt over savings, the government can, when needed, evoke a counter-cyclical intervention and stimulate spending by adjusting tax incentives and increasing public expenditures. Progressive taxation during these periods expands spending on the nation's vital infrastructure and boosts consumption, stimulating economic activity.
Donald Trump, following Republican orthodoxy, has put forward a massive tax cut as the centerpiece of his economic program. It would mostly benefit taxpayers in the top percent. He claims this program will produce growth and thereby magically pay for itself. Bruce Bartlett, who served under both Presidents Ronald Reagan and George H.W. Bush, drafted the Kemp-Roth tax bill, the basis of the Reagan tax cuts. Mr. Bartlett disagrees with Mr. Trump.
Mr. Bartlett, in an August op-ed in the New York Times, recognized that "the Reagan tax cut played only a secondary role in the 1980s boom." Furthermore, he pointed out that Reagan, concerned about deficits, "supported 11 different increases from 1982 to 1988 that collectively took back half of the 1981 tax cut."
Mr. Bartlett also noted that the "economy tanked during the Bush years despite numerous large tax cuts" and that "there is far more evidence from the last 35 years showing that tax increases do more to stimulate growth than tax cuts."
America has spawned a proliferation of millionaires and billionaires. Middle class incomes have stagnated. The wealth of upper income Americans has steadily increased, creating, in effect, two Americas. Excessive concentrations of wealth breed an elitist class and smother a free, vigorous democracy. Money dominates political campaigns.
Congress has neither the political will nor the stamina to grapple with tax reform. A fairer and simpler tax code with far fewer tax breaks and loopholes would help to restore much needed trust and respect to our tax system. As inequality increases, power shifts away from middle class and the working poor, and pessimism, discontent and anger assert themselves. This is happening in America right now. Tax justice is critical to social stability and economic progress.
The United States — the great experiment in democracy — has become a decidedly unequal society and it is rapidly becoming more so. The modulating influence of progressive taxation is a tool at our disposal.
Perry L. Weed, attorney and founder/director of the Economic Club of Annapolis. His e-mail is email@example.com.