I Want Your Tax

Today is tax day, the yearly opportunity for millions of Americans to shake their fists at the government and declare their contempt for the ideas of mutual concern and collective responsibility. So on this most practical of days, it's good to remind ourselves of some realities. First, the taxes we pay are, by international standards, fairly modest. Second, despite what some would have you believe, the wealthy are not crushed by the burden of taxation. And third, though nobody particularly enjoys giving part of their income to the government, taxes are the price we pay for having an advanced, democratic society. If you like living in a place where you aren't afraid of foreign invasion, if you like knowing that when you retire you'll get Medicare and Social Security, if you like living in a country with parks and roads and police and air traffic controllers and a legal system and food inspectors and water and sewage systems and schools and a thousand things you weren't thinking about when you filled out your tax forms, you might try feeling good about what your taxes are used for.

It would be nice if we could get those benefits without paying for them, or paying less for them. It would also be nice, I suppose, if you could walk down to the BMW dealership and drive off with a new car without paying for it. But the world doesn't work that way.

Many Americans' ideas about taxes are shaped by the fact that one of our two parties argues—endlessly, incessantly—that taxes are little more than theft, an unjust and unfair burden saps American competitiveness as it takes from hardworking Americans and pays for nothing in particular of value, other than benefits for undeserving leeches living large off food stamps and Medicaid. In truth, though, our taxes are quite low. We rank 32nd out of the 34 developed countries in the Organization for Economic Cooperation and Development in the amount of taxes collected as a proportion of GDP. Everybody gets what they pay for, at least for the most part. If you lived in Denmark or Sweden you'd be paying much more—they collect about double the taxes we do—but you'd also get much more. Perhaps you think the Danes and Swedes are living a hellish socialist nightmare, but they seem perfectly happy with their systems (and if they didn't, they'd change them).

But you might say that what irks about taxes is the knowledge that Washington will just waste what you pay. Well, they will—at least some of it. We can and should do more to make sure the government spends its money wisely. But you know who else wastes money? Corporations. And non-profits. And pretty much any large organization you can think of. You may grumble that your taxes went to pay for a bunch of stuff you don't care for. But that $50 you sent the American Cancer Society? Part of it went to the organization's COO Greg Bontrager, whose total compensation in 2011 was $913,126. You scraped and saved to send your kid to Barack Obama's alma mater of Columbia University? Congrats, part of that $45,000 tuition (not including room, board, and fees) went to the university's president, Lee Bollinger, who made just under $2 million in 2010.

You get the point. We tend to get angrier about government waste than about corporate and non-profit waste, but part of the reason is that since ours is a democracy with a good degree of openness (more than many, not as much as it should have), we know what the government is spending its money on. So the next time you hear someone say we should "cut spending," ask what spending they're talking about. Is it just the programs they don't like anyway?

And when you hear some CNBC host complain that virtuous wealthy "job creators" are suffering so cruelly under the taxman's lash, remember that, well, it's just not true. Republicans often call for a "flatter" tax system, meaning either the wealthy would pay less, the poor and middle class would pay more, or both. But it turns out that when you look at all the taxes Americans pay, including federal, state, property, and sales taxes, we already have a system that is pretty flat. The wealthy pay a bit more of their income than the middle class pay, and they in turn pay a bit more than the poor. But the differences are small (read more about that here).

That's in part because the most progressive part of the entire system—the federal income tax—doesn't bite the truly rich. The IRS releases regular reports on the 400 tax returns with the highest gross income; in 2009, these richest Americans, with incomes up into the nine figures, got an average of only 8.6 percent of their income from wages, the kind of income that gets taxed progressively (and that figure was up from before the recession; in 2007 it was only 6.5 percent). Most of their income comes from capital gains, which are taxed only at 15 percent.

That's why I've been arguing for some time that the best tax reform would be the simplest: treat all income the same. It shouldn't matter whether you got that last dollar from your salary, from your investments, from your inheritance, or from the hedge fund you own. It should all be taxed according to the same rate schedule. Conservatives would be terribly opposed to ending the preferential treatment of income from investments, but I've never heard any of them explain why you should pay higher taxes on money you make from working than you do on money you make when your money makes you more money.

One of the people who benefit so handsomely from the current system, a guy who makes $20 million a year despite the fact that he hasn't held a job in years, was the Republican nominee for president in 2012. In a primary debate last January, he said, "I pay all the taxes that are legally required and not a dollar more. I don't think you want someone as the candidate for president who pays more taxes than he owes." That was a fair representation of his party's perspective. Paying taxes isn't patriotic or part of our mutual obligation, it's something you do only under duress, and if you don't take advantage of every loophole and deduction your skilled accountants and lawyers can find, you're a sucker who shouldn't be trusted with power.

The rest of us ought to know better. Yes, none of us gets exactly the government we want. And yes, it hurts to write that check on April 15th or see that withholding taking some out of every paycheck. But when you look at it, you can tell yourself that you helped buy a prosthetic limb for a wounded soldier, or planted trees in Yosemite, or made sure senior citizens didn't have to eat cat food, or helped a poor kid become the first one in his family to go to college. Instead of thinking of the government program you dislike the most, take a moment on April 15 to think of the one that makes you most proud of your country. When you pay your taxes, you're not just an individual, you're also a citizen. It's a good thing to be.

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