Who's Not Paying Their Fair Share of Taxes, the Poor or the Rich?

Both many liberals and many conservatives believe that the tax code is unfair, with some not paying their fair share and others expropriated for too much. But of course, they disagree on who's who, with liberals viewing the tax code skewed toward the rich and conservatives viewing it as skewed toward the poor. Each camp has a sort of simple "just look out the window" common sense on its side: liberals can appeal to the fact that rich folks have all that money to enjoy a higher standard of living to argue that the system can't be tilted toward the poor and against the rich (or if it is, it's doing a terribly ineffective job), and conservatives can point to budget figures of the costs of different programs and tax payments.

Intuitively, I'm firmly in the liberal camp on this one; I mean, if the system is so biased in favor of the poor and against the rich, then why does everyone strive for wealth and to avoid poverty? But the conservative reasoning is so deceptively simple and persuasive that a lot of people believe it, so a more specific argument would be very helpful to cast doubt upon it and back up the liberal intuition. So let's examine this conservative view in depth and see where it takes us.

Those right of center think it is the poor who are unjustly benefitting from the government tax system: the 47%, makers-vs-takers, etc. The argument goes that because poor people pay nothing or too little in taxes, or are even net recipients of tax money thanks to refundable tax credits, while still getting all the same benefits as citizens who do contribute to funding them, like a police force and other emergency services that will come when called and a military to deter and repel belligerent threats (and even something as fundamental and oft-overlooked as the non-pecuniary benefits of relatively robust freedom to do as one pleases that is enjoyed in modern liberal democracies, and moreover the gains in knowledge and economic surplus is has historically enabled), they are consuming unearned property that was illegitimately expropriated by force with the fig leaf of political authority as "taxation" by the democracy of the mob at the expense of the property's rightful owner, the taxpayer. This is not even including other means-tested social insurance "welfare" benefits, in-kind ones like Medicaid for healthcare coverage for example or Temporary Assistance for Needy Families (TANF) for food aid and cash assistance, that are not administered through the tax code in refundable credits, and so are more visible and explicit, which only add to the alleged unjust gap between what the poor enjoy and what they contribute when included in the accounting. (Let's take all this as fact and ignore the complications, detrimental to the conservative position, arising from the existence of taxes other than the federal income tax and their typically regressive nature, the high incidence of retirees, the disabled and students in the notorious 47% and the growth of this group as a result of conservative Republican tax policy, the dubiousness of equality in the provision of public services across different socio-economic groups, the proportions of the benefits accruing to the poor compared to those flowing to the rich, middle class, and private firms through tax credits and deductions, among many other mitigating factors).

So, to follow this reasoning to the next step, if those right of center are correct on this issue, then how is this unjust enrichment of the poor to be rectified? Well if the problem is that poor people are getting more than their contribution deserves, an obvious option is to reduce how much they get, which keeps in accordance with the real world agenda of those right of center. So take away means-tested "welfare" benefits like Medicaid and TANF, but some poor people would still be consuming more than they contribute, especially if their money contribution is negative thanks to refundable tax credits. So cut next those refundable tax credits, including ones that aren't means-tested if necessary to bring the tax liability of the very poorest up to at least zero (let's ignore for now the effect this would have on the balance of other taxpayers that would have to be corrected). But to eliminate all benefits to the poor on both the tax and spending sides of the budget in the name of making their benefits proportional almost certainly still wouldn't be sufficient to fully close the gap. The very poorest people who might still pay no taxes at all would still enjoy those fundamental non-pecuniary benefits of society and government provided at public expense: the relative freedom, security, and predictability that government provides. Following this logic, the only way to close the gap entirely and make the contributions and benefits of the poor commensurate would be either to jettison the equality under the law that is one of the pillars of modern liberal democracies and allow the unequal public provision of justice by legal systems (which is what we have in fact done, including in name until very recently, and continue to do unofficially, with widely varying quality of public safety, medical, educational state services, among many others) or move to no public provision of justice at all and embrace anarchy.

To avoid giving up, instead of cutting their benefits, how about raising the poor's taxes to make them pay their fair share? That would have its own issues: the poorest people can't afford it and would be less able to afford it with any of these discussed benefit cuts; those who have truly nothing and live off the land or charity would be unaffected by tax increases; it's likely to simply change around the targets and magnitude of expropriation without eliminating it.

So it looks like, following this logic that we must not let anyone gain more from the system than they contribute to it in taxes, that we have to abandon liberal democracy.

Here is the error in this reasoning allowing us to escape that fate: the government system whose benefits to each person must not exceed their contributions to it has both pecuniary costs and benefits (taxes and programs like Medicaid and TANF) and non-pecuniary costs and benefits, and those right of center who make this argument are counting the poor's non-pecuniary benefits (the freedom, security and predictability the result from government, especially from its deterrent effect without actual application) but not their non-pecuniary costs. In other words, the costs and benefits that government provides are more than can be summed up in its budget. Just like an on-budget benefit conferred on one person is balanced by an equal liability incurred to him or someone else to pay for it, an off-budget benefit conferred to one person means an off-budget cost for another as well (just like how one person's right implies another person's correlating duty): giving one the benefit of a patent imposes on others a duty to not infringe; giving one a license gives others higher prices; and giving one a property right imposes a duty to not go certain places or touch certain things.

When we account for the costs incurred by government conferring the benefit of property rights to others, I think there's definitely room for very poor people to already be paying their fair share of the public provision of justice, which makes room for liberal democracy, and further for some redistribution to at least provide sufficient equality of opportunity as well.

To reconsider this issue from the opposite view, whether the rich are paying their fair share or too much or little, confirms the importance of non-pecuniary costs and benefits to a fair accounting of everyone's balance in the tax system. Those right of center who say the poor aren't paying their fair share usually say also that the rich are paying too much and are the victims of the poor's expropriation. They might evidence this by showing the costs of the portions of programs that go to rich people compared to how much they pay in taxes. But again, this misses the off-budget non-pecuniary benefit that the government bestows on them: protection of their property. Sure, you might say they are already paying for that because running a justice system to protect rights of person and property costs money and they are the ones paying the taxes, but the level of protection afforded property rights by government far exceeds the value of the tax revenues devoted to the purpose through the power of its deterrence effect and, when deterrence isn't enough and actual legal action is necessary, the justice system's returns to scale (made possible because the legal resources necessary to protect property are not directly proportional to the value of that property - i.e. a legal resolution to a dispute over assets worth $100 million need not expend ten times the legal resources as a resolution to one over assets worth $10 million).

So when you factor in the non-pecuniary benefits of government enjoyed by the rich, it surely is possible that they gain as much as they lose from the tax system and that they are not necessarily the victims of unjust expropriation, just as the poor surely could be paying their fair share for what they get when you factor in the non-pecuniary costs.

By including these off-budget costs and benefits in the accounting, not only is liberal democracy with equality under the law redeemed, but moreover a redistributionary social insurance state might be justified or even obligatory to bring everyone's accounts into balance. The means-tested benefits the poor get are compensation for the costs they bear by respecting the physical and intellectual property rights of others and paying higher prices for licensed services, and the higher taxes levied on the rich are payment for the government-bestowed benefit of the protection and enforcement of the right to carve out land or materials from nature without leaving others unaffected (by failing to make sure there is still afterwards as much and as good as for others to do the same) and to exclude others from that property (i.e. to impose duties and limits to freedom on others). In other words, higher taxes are the just payments for property that violates Locke's Proviso.