Injustice in the Tax System?

Burt Fulsom makes an incredibly important point on his blog regarding our current tax system and debt burden:

When we look at the runaway deficits of the last few years (especially the last one year), we can see the dangers of inflation, the ruin of our currency, and even the potential bankruptcy we may face. I want to focus on something else that is often neglected–the sense of injustice in the tax system to pay off the debt. Why is it unjust? Because almost half of all Americans pay no income taxes. What that means is that these non-taxpayers have every incentive to pressure politicians for government services because the burden of paying for these services will fall on others. That fact compounds the problem, and contributes to a real sense of injustice–others get services free, and I have to pay for them. Certainly that contradicts the spirit of the 14th amendment, with its stirring promise that no state could “deprive any person of life, liberty, or property without due process of law.”

The other problem with the “I get government services and you pay for them” mentality is that basing a tax system mainly on wealth taxes is unstable. What about recessions when rich people lose wealth and withdraw investments? Then revenue sharply declines, and deficits get larger. In the current tax system, the top one percent of taxpayers pay almost 40 percent of all income taxes. In California, which has a highly progressive state income tax, 84 percent of taxes are collected from people earning over $100,000 per year, according to Scott Hodge of the Tax Foundation. When those taxpayers suffer in recession, the whole state budget is thrown into jeopardy.

Our Founders were wise. They encouraged a revenue system based on tariffs on imports and excise taxes (especially on vices such as tobacco and whiskey). Those are indirect taxes, and they are paid by people who purchase certain goods. If you can afford the product, you pay a small tax. Such a system is broad-based, and the revenue generated does not fluctuate wildly from year to year. Let’s never forget that under that system, the U. S. paid off the entire national debt by 1836. I salute our Founders for their wisdom.