Brian Balfour – April 18, 2018
As tax day rapidly approaches, we are sure to hear leftists once again admonish us all about how the rich should “pay their fair share” of taxes. Their favorite tool to accomplish this is a highly progressive income tax code, which forces those with higher incomes to pay a greater share of their income to the tax man.
The progressive income tax is more “fair” and “just” because it is based on the taxpayer’s “ability to pay,” according to its advocates. Under a progressive income tax structure, those that earn the most income not only pay more in taxes in total dollars, but pay a higher share of their income in taxes. “The rich should pay more because they can afford it,” goes the argument.
The ability-to-pay rationale has been elevated as unquestioned dogma in the realm of taxation justice.
Indeed, progressives are so enamored of the ability to pay principle of taxation, one Daily Beast article last year described it as “the basic principle of all successful income and wealth tax systems going back nearly 2,500 years to ancient Athens where democracy and progressive taxation were invented as foundational twins of Western civilization.”
But the ability-to-pay doctrine falls short of providing a logical or ethical justification for progressive tax rates, for multiple reasons.
Murray Rothbard expertly laid out these reasons in his 1970 book Power and Market: Government and the Economy.
For starters, the ability-to-pay doctrine fails to consider an individual’s accumulated wealth – a factor that clearly affects a person’s ability to pay taxes. “A man earning $5,000 during a certain year probably has more ability to pay than a neighbor earning the same amount if he [the first man] also has $50,000 in the bank while his neighbor has nothing,” wrote Rothbard.
Thus, using income alone as the metric to gauge one’s ability to pay becomes ambiguous and does not provide a sure guide on the concept.
Moreover, an individual’s financial obligations such as medical bills and other debt commitments surely impair one’s ability to pay a hefty tax bill, but this too is not taken into account on the progressive’s beloved progressive income tax schedule.
Moreover, some apologists of the ability-to-pay doctrine defend it by comparing taxes paid to government with voluntary donations to charity. In private charity, they say, it is expected that people of greater means contribute a higher share of their resources than those with less.
Comparing voluntary charity to tax payments to the government, however, is shameful.
People get to choose which charities they support, and the amount of support each receives. If one believes a charity is no longer serving the community in a way that is appropriate, he can withdraw his support. The same is obviously not true of government. People cannot opt out of paying taxes. As Rothbard wrote: “Government is the very negation of charity, for charity is an unbought gift, a freely flowing uncoerced act by the giver.”
Finally, the ability-to-pay doctrine fails because it harms society by more sharply penalizing the most productive. Those that prove most capable in serving the needs of their fellow man (at least in a free market economy) by efficiently creating goods and services that others value are those who will fall into the highest progressive income tax brackets. “Penalizing ability in production and service diminishes the supply of the service – and in proportion to the extent of that ability,” declared Rothbard. The result will be greater impoverishment, felt most heavily by the low-skilled and low-income people who are always hardest hit by a stagnant economy.
In spite of the protests from self-styled, left-wing advocates of “tax fairness,” the ability-to-pay principle fails to provide a logical or ethical argument in favor of progressive income taxes. As Rothbard concluded, “Rather than being an evident rule of justice, the “ability to pay” principle resembles more the highwayman’s principle of taking where the taking is good.”
This article was originally published at Mises.org. Brian Balfour is Executive Vice President for the Civitas Institute, a free market advocacy organization in Raleigh, North Carolina.