Institutional Inequity

Feb 21st, 2012

On the heels of the latest Council of Economic Advisers Report to the President, Bruce Bartlett sums up what we already know pretty well today:

"...a tax system that lightly taxes capital and heavily taxes labor is necessarily going to benefit the wealthy. As this chart illustrates, federal tax rates on the wealthy have been falling since 1978, when Congress cut the maximum capital gains rate to 28 percent from 35 percent."

It is notable that Bartlett refers to capital gains in this piece as "unearned" income as opposed to the "earned" income of labor.

The current field of Republican Presidential hopefuls would never use such language. In spite of the fact that the realities of the last ten years have disproved the supposed benefits of so lopsided an approach to federal revenue, their plans, if elected, are to make the disparity more extreme.

Every one of them has proposed lowering taxes on dividends and capital gains further while actually raising them on the lowest quintile's labor.

Bartlett's takeaway:

"...the tax system in the United States violates the fundamental principles of income taxation. Those are "vertical equity," which says that those with upper incomes should pay a higher effective tax rate than those with modest incomes — as far back as Adam Smith, ability to pay has always been a core principle of taxation — and "horizontal equity," which says that those with roughly the same income ought to pay roughly the same taxes." EMPHASIS OURS

Of course, what the heck does Bartlett know? He's merely one of the Reagan Revolution's architects as well as one of the preeminent economists of our age.