The Doctrine of "Fair" (No, Not the FCC One)

Addressing his fellow Democrats at a retreat on Maryland’s Eastern Shore in January, President Obama fought back against the class warfare charge that has dogged him since the 2008 campaign:

“This is one of the biggest things I’m going to be pushing back on this year, this notion that this is somehow class warfare, that we’re trying to stir up envy,” Obama said. “Nobody envies rich people, everybody wants to be rich. Everybody aspires to be rich, and everybody understands you’ve got work hard to be successful. That’s the American way.”

Has an American president ever expressed the American ideal in words that were at once so crass and largely inaccurate?  Even if one generously interprets the president’s description of “the American way” as only consisting of the last phrase (“everybody understands you’ve got work hard to be successful”), a perusal of the Occupy Wall Street website quickly dispels the notion that “everybody understands” the American work ethic.  But more likely the President also intended “…everybody wants to be rich. Everybody aspires to be rich…” to be included in his read on the American way.  What a cynical  rephrasing of “life, liberty, and the pursuit of happiness”!  Given that a Google search for “Obama’s soaring rhetoric” returns 59,800 results, one would have thought that this modern day Abraham Lincoln could have found a more eloquent way to capture the essence of his country.

And what of the president’s assertion that “[n]obody envies rich people?”  If taken literally, this could lead to a 20% reduction in the Ten Commandments, as “Thou shalt not steal” and “Thou shalt not covet” would fade into obsolescence.  The Founders of this country were not as sanguine in this regard.  As Ben Franklin is reputed to have said, “When the people find that they can vote themselves money, that will herald the end of the republic.”  The Constitution severely limited Congress’s power to tax for this very reason, a limitation that required the 16th Amendment to overcome it.

The president went on to reiterate his plans to call for Congress to pass the so-called Buffett Rule.  This plan to make sure anyone earning one million dollars or more per year does not pay a lower tax than those with lower earnings.  His reason?   “[A] sense of fairness and a sense of mutual responsibility and a sense of commitment for the country’s future[.]”  Fairness?  Currently, our culture is involved in an epic battle over the definition of the word “marriage,” a word that has had a concrete, unambiguous meaning for millennia.  How on earth will we even begin to agree on a definition of “fairness” concerning income and taxation?

At its most basic level, “fair” would seem to mean everyone is treated equally.  But even most proposed variations of a “flat tax” have various exclusions, exemptions, and even multiple rates.  As paradoxical as it may seem, even the FairTax incorporates an “annual consumption allowance” that inserts a backdoor progressiveness to that tax system.

So how does the president’s latest incarnation of “fairness,” this alternative alternative minimum tax (AAMT?), measure up?  The trouble with fairness is that it’s a moving target.  Buffett’s argument has been that he should not be paying a “lower tax rate” than his secretary.  But what about other secretaries?  Or other millionaires or billionaires that have not structured their compensation as effectively as Buffett and already pay a higher rate?  It is already well established that on average, those making over $1 million already pay more than everyone else.  Must we compare individuals within companies or industries to determine fair rates on a case by case basis?

To complicate things further, is it only unfairness in the income tax rates (wages versus capital gains) we are concerned about?  If so, then why use Buffett as the marquee example?  It is not the fact that he pays the capital gains tax rate on most of his income that reduces his tax burden compared to that of his secretary, but rather his low payroll taxes (Social Security and Medicare.)  His $15,300 in payroll taxes amounts to only .04% of his taxable income versus the 15.3% most people pay.

As any elementary school teacher, or parent for that matter, can tell you that fairness has as many definitions are there are persons who are calling for it.  But a common thread among those who complain about the rich “paying their fair share” is that they are less concerned about how much the rich are paying in taxes and more concerned about how much money they have left.


Also posted at Speak With Authority