Tax Day and the Rich

On Tax Day in America, we all recognize two important traditions. First, like all days, we salute the troops for making Tax Day possible. Second, we rehash stuff that has been beaten into the ground so much that you want to die reading about it.

This year, the latter tradition is being carried on by writing takes about Donald Trump not releasing his tax returns. Nobody really cares that much about this topic, not even those who pretend to. But for some reason, some power players in the non-profit and media sectors have decided that this is a thing we’re going to have to keep dealing with, and so we are.

As for me, I would like to respect the dead-horse-beating tradition by rehashing the issue of taxes and tax justice, especially as it pertains to the rich. I’ve written about this plenty of times before (see, e.g., I, II), which is precisely why it is a great candidate for this ritual.

You see, there is a problem with the way we talk about taxes and especially the way we talk about who pays them and what an individual’s “fair share” is. What we tend to do is group everyone into quintiles on the basis of their gross market income and then sum up how much tax is “paid” by each quintile. From there, depending on the point we are trying to make, we might also then divide each quintile’s taxes paid by their gross market income in order to get their tax rate.

But what is a gross market income exactly? Why have we decided to use that to assign people to groups and then use that to divide taxes paid by? What is so important about it? Is it people’s real income? Is it their separate-from-government income? What makes it so special?

Gross market income is how much money each person would have received from factor payments in a hypothetical world where taxes did not exist but the tax-funded political economic system that factor payments depend upon somehow still did. More clearly, gross market income is the amount of income paid out to capital and labor “before” (as an accounting matter) we deduct taxes.

The reason we use this particular figure in so many things is because, under prevailing capitalist ideology, factor payments are understood as your real, deep, separate-from-government income. Everything else, whether it is taxes or public benefits, is treated as if it invades that natural, pre-political distribution of income. This particular understanding serves to legitimize the capitalist order and those who benefit the most from it, which, as any good Gramscian will tell you, is probably why it is so pervasive.

It certainly is not pervasive because it makes sense. After all, the magnitude and distribution of factor payments are no more removed from politically-imposed economic institutions than transfer payments or anything else. The rich are not a freestanding class of people that the government then comes in and taxes. Rather, the rich are created by the government when the government puts in place the institutions that direct all that factor income to them in the first place.

Given this reality, the proper way to understand taxes is not as something that takes from each person’s income, but rather as something that — along with factor payments, transfer payments, and every other income institution — determines each person’s income.

The idea of “the rich paying their fair share” understood as remitting taxes equal to some percent of the factor payments our system directs their way is ultimately incoherent. The proper amount of tax rich people should “pay” is not determined by grasping abstractly at tax rates, but rather by determining what taxes are necessary to achieve a fair distribution of income in society.

  • ehwilhelm

    Are you saying taxes are 1) a signal of “government providence”, 2) a causal force for choosing winners and losers, and/or 3) a part of the market scaffolding in an entangled political economy?

  • RJ

    3) pretty clearly. No?