In the vigorous political debate over fair taxation Democrats complain that the rich are not paying enough in taxes. Republicans reply that half of the country isn’t paying any income taxes at all. So what would be a Fair Tax? One candidate suggested a 9-9-9 tax where everyone would pay a 9% tax on income with no exceptions. The obvious problem with that, in a country where half don’t pay any income taxes, is that the poorer half will see their income taxes jump from zero to 9%. Should the poor be expected to pay income taxes, as would be required under any flat tax proposal? Or should wealth be seen as an economic aberration to be eliminated by taxing the rich but not the poor, coupled with extensive federal grants for housing, education, medical care, etc. for the poor so as to redistribute that wealth more equally?
Voters need to make up their minds on these key issues, because those they elect will be enacting one version or the other of a Fair Tax. Is a Fair Tax one where each person pays the same percentage of his or her income—as in a 10% flat tax? Or is a Fair Tax measured by how much people are allowed to keep after they are taxed—where allowing rich people to keep too much is offensive?
Imagine a family facing the same type of debt crisis America is.[i] The parents are retired on a modest income but own their own home. Their oldest daughter has a great job and earns over $200,000 a year. Their next child, a son, earns only $12,000 at a part time minimum wage job. The third son has a decent job, earning $60,000 a year as a reporter. Unfortunately for the family, when this third son is sent on an assignment to Monterey, Mexico, he is kidnapped. The family is told that unless a ransom of $200,000 is promptly paid, they will never see him again. Put yourself in the parent’s living room. The children have rushed home to determine how they are going to deal with this demand. Here is the conversation:
Son: I told him it was dangerous and not to go. It’s his own fault. Why should we help him?
Mother: You can’t let your brother die, even if it was his bad decision.
Daughter: I know, I know. Can’t the government do something?
Father: We talked to the FBI. They said they can’t do anything in Mexico and that the Mexican government was helpless to stop kidnappings. They suggested we pay the ransom.
Son: Where are we going to get $200,000? I’m broke. I can’t even afford new tires for my car. I’d like to help, but I can’t. Sis, you’ve got plenty of money, can’t you pay it?
Daughter: I’ll do anything I can. I don’t have $200,000 but maybe my husband and I could borrow it. We don’t have much equity in our house though. But why should I be the only one paying?
Son: Because you’ve got the most money. Mom and Dad are living on Social Security and Dad’s pension.
Daughter: O.K., I’ll do whatever has to be done to save my brother. We’re a family. I’ll call my husband and see what we can do to scrape it up. We’ll sell all of our investments, max out our credit cards, and borrow from friends if we have to. What a nightmare! We’re going to be paying this off forever.
Dad: When he gets home, maybe he can pay you back.
Daughter: Don’t count on it. Maybe he can. But even with his help, paying off $200,000 is going to be tough.
Mother: We’ll try to help too. I’m so sorry we don’t have that kind of money.
Son: Actually you do. Sell your house and move into a small apartment. Is having a big house more important to you than helping Sis pay the ransom?
Dad: I guess we could do that.
Daughter: I guess brother, because your income is so pitiful, you’re not going to help?
Son: I would if I could, but I’m broke. I don’t have a fancy house or car like you. I’m barely getting by.
Daughter: How about you, Mom and Dad?
Dad: I don’t think we can sell our house that fast. That’s a lot of money for us.
Daughter: O.K. My husband and I will come up with it. I’m not going to let my brother be murdered. But one thing for sure, when he gets back I’m going to tell him that none of you would lift a finger to pay the ransom. Out of the whole family, I’m the only one who cared enough to contribute.
Son: That’s not fair. I’d contribute but I don’t have any money.
Daughter: I believe you. You never have any money. But believe me when I tell you I’m going to let your brother know you wouldn’t contribute one penny to save his life.
Mother: Don’t start a fight. We all want to help. But we don’t have as much money as you do. What would be fair?
Daughter: I don’t think my paying all of it is fair, no matter how much money I have. He’s your son, and your brother, too.
Dad: She’s right. We all need to contribute. We’re a family.
Son: We’ll it’s not fair to ask me to contribute as much as Sis. She might have to sell one of her cars, but I’ll go without gas for my car.
Dad: What if we all agree to pay 10%? That means Sis will pay a lot more than the rest of us, but then we can at least say we helped and, given our different incomes, we all contributed the same amount.
Mom: Does that sound fair?
Daughter: Yes. I don’t expect my broke brother to pay as much as I do, but if he pays the same percentage, that would be fair. Who knows, maybe he’ll win the lottery and then his 10% will pay off the whole thing.
Mom: We can pay 10% too. It means things will be tight, but I couldn’t live with myself if I did nothing to save my dear son.
Son: I can do that. And, frankly, I would be ashamed not to help. I love my brother as much as any of you do.
This family was facing the same problem America faced when it declared independence from England. Where would they ever get the money to fight a war against the most powerful country in the world? It required an overwhelming commitment. Fortunately for us, those early Patriots were willing to make that commitment. Just above their signatures to the Declaration of Independence they wrote: “We mutually pledge to each other our lives, our fortunes and our sacred honor.”
That is the great commitment! That is the level of commitment that permitted this country to be born and to become great. Now, however, we have so many who refuse to pledge their fortunes or even a small part of their income. They say, “Let the rich pay. They have more money! Don’t expect me to help. It’s their problem, not mine!” That is the re-election platform of President Obama. But it is not fair in a family and not fair in a country. Everyone should pay something. We need a flat tax.