Progressive tax rates have always puzzled me because they assume that government has different value for citizens based on their incomes.
Break government down to the basics and it is essentially a provider of services — defense, transportation, the legal system, schools, etc. — that customers want or need and are willing to pay a price to obtain.
In that way, it’s little different than a private sector business.
Except in the private sector, goods and services have a set value; all customers pay the same. You don’t have to scan your 1040 at the gasoline pump to set the price per gallon.
Only in government does every customer pay a different price for the same thing.
Reader Jon Taub sent me a note last week putting the difference between government and private sector pricing in perspective.
Taub, a corporate lawyer for a Detroit business, notes that the top 1 percent of earners pay for 38 percent of the general fund services delivered by the federal government.
Forty-seven percent of earners pay nothing for these services. And the bottom 40 percent actually get a reverse payment from the federal government in the form of a refund on taxes they don’t pay.
Taub applies that same formula to a purchase of a gallon of milk, which currently sells for $2.49 at Kroger, to see what would happen.
“If every U.S. taxpayer purchased a gallon of milk, each person would pay $2.49, and the total cost would be 140.5 million times $2.49 — or $349 million.
“Now let’s assume the government treated milk like government services and determined its price the same way it determines tax rates. The pricing would change as follows:
“When the bottom 40 percent of earners buy their milk, they won’t pay a dime for it. In fact, the government would give them $1 in reverse payments for every gallon of milk they purchase. The total cost of providing one gallon of milk to each person in this group would be $196.1 million.
“The cost of providing milk to the remaining 60 percent of the taxpayers would be $209.9 million, bringing the total cost burden of all taxpayers’ milk to $406 million.
“Under our existing tax rates, instead of paying $2.49 a gallon, the top 1 percent of earners would pay 38 percent of the total milk burden or $109.81 for a gallon of milk.”
And despite that absurd price, the milk jug wouldn’t be full. Since top earners require less government services than lower earners, they’d get a lot less milk.
Taub urges everyone to think about that example whenever they hear President Barack Obama talk about tax fairness, as they will incessantly over the next few weeks.
The current tax system is unfair, but not because the wealthy don’t pay enough.
It’s out of whack because it doesn’t acknowledge that the rich are paying more for their government milk than it’s worth so most others can pay less. And instead of saying thank you, we’re milking those cash cows dry.
(Follow Nolan Finley at detroitnews.com/finley, on Twitter at @nolanfinleydn. Originally posted on The Michigan View.)
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