"SPREADING THE WEALTH" ISN'T FAIR

April 14, 2010

President Obama says he wants to create what he calls "a sense of balance and fairness in our tax code," and ensure that well-off Americans "pay their fair share."  He famously defended his planned tax hikes to "Joe the Plumber" by saying, "I think when you spread the wealth around it's good for everybody." 

  • Starting in January 2011, "the rich" -- defined by President Obama as individuals earning more than $200,000 and families earning more than $250,000 per year -- will see their marginal tax rate rise to 39.6 percent from 35 percent.
  • Their effective tax rate will increase even more as certain credits and deductions are phased out.
  • Meanwhile, projections from the Urban-Brookings Tax Policy Center showed that 38 percent of Americans were expected to have had zero or negative federal individual income tax liability in 2009, before the stimulus was enacted.
  • After President Obama's budget, stimulus, and other tax changes, this proportion will increase to nearly 46 percent in 2011, all while the federal government grows in size.  

Simple facts about our tax system do not support the contention that it is "unfair" in favor of the rich, says Arthur C. Brooks, president of the American Enterprise Institute: 

  • According to the most recent IRS data, the top 5 percent of earners bring in 37 percent of the income but pay 60 percent of the federal individual income taxes.
  • The bottom half of earners bring home 12 percent of the income but pay 3 percent of the taxes.
  • Today, according to the Tax Foundation, 60 percent of Americans consume more in government services than they pay in taxes.  

The president's argument is wrong, says Brooks.  There is nothing inherently fair about equalizing incomes.  If the government penalizes you for working harder than somebody else, that is unfair.  If you save your money but retire with the same pension as a free-spending neighbor, that is also unfair. 

Real fairness, says Brooks, does not mean bringing the top down.  Yes, free markets tend to produce unequal incomes.  We should not be ashamed of that.  On the contrary, our system is the envy of the world and should be a source of pride.  Generation after generation, it has rewarded hard work and good values, education and street smarts.  It has offered the world's most disadvantaged not government redistribution but a chance to earn their success. 

Source: Arthur C. Brooks, "'Spreading The Wealth' Isn't Fair," Wall Street Journal, April 14, 2010. 

For text:

http://online.wsj.com/article/SB10001424052702304168004575177910000899010.html  

 

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