Who Should Be Taxed, and Why?
Congresswoman Alexandria Ocasio Cortez’ famous (or infamous) “Tax the Rich” dress provided the perfect opportunity for discussion regarding taxation. Changes to the tax structure are popular themes during elections and when trying to gain media attention, but they lose momentum when it comes time to govern. A change in taxes could alter an elected official’s base of support and therefore changing the tax structure is not worth the political risk. It’s easier to just spend and let someone else figure out how to pay.
This does not have to be the case. Like any change, blowback can be mitigated by having a fair and transparent system in place that all are made aware of. Any tax, but particularly a new tax or a change to the tax structure, should flow from these four principles: Neutrality, Transparency, Simplicity, Predictability. These four principles will help ensure a just system is implemented and will lead to a more informed debate about what ought to be done and why. It can also help depersonalize and depolarize the debate if we focus on first principles rather than sound bites.
The principle of neutrality is straightforward. The tax structure should not favor any interest or class above another. The purpose of taxes is to generate revenue that leads to the public good. Taxes should not punish or reward one group over another. Fines, penalties and grants are mechanisms for punishment and rewards, taxes should be neutral.
Transparency is an essential feature that is also at the core of democratic government. In a democracy, a policy and its effects should be clear. It should always be clear who is paying taxes, in what amount and for what purpose. This becomes an almost impossible task under our current tax structure — with volumes of codes and exemptions — which leads directly to the third element: simplicity.
Since the 1950s, the federal tax code has grown from 1.4 million words to more than 10 million — thirteen times longer than the Bible. This keeps most citizens in the dark about who is paying what and why. It also makes a political debate about taxes impossible. No one, or at least very few, will be able to untangle our tax code and its nearly infinite implications for the rest of us to have an informed debate. A murky, complex tax system not only makes reasoned debate impossible; it erodes trust in those who make and enforce the tax code.
Predictability flows from simplicity. Every taxpayer should know what they are expected to pay, why and when. If you’ve ever been surprised by the amount of an income tax refund or an income tax bill, then you will agree that the current income tax structure is unpredictable. This could be true for property taxes as well. A tax assessor, insurance company, and realtor will all evaluate the same property at different amounts. Each of these experts should arrive at the same conclusion if there was an objective way to evaluate real property.
There will always be a debate about the tax rate and who should pay. Currently we cannot have a productive debate about what ought to be done because we do not know what is being done nor can we tie the effects to the cause. Before we move forward with a debate over taxes, we should make clear what makes a system of taxation just. This will not eliminate disagreement, but it does mean we can have a sensible discussion about what should be taxed and to what extent. The current tax system is an ambiguous, complex arrangement of random wealth distribution with no accountability. This means there can be no informed, civil discourse and will only amplify polarization and misinformation.
Kyle Scott, PhD, MBA is a communications fellow at the 1889 Institute in Oklahoma City, OK.