What is a ‘fair’ tax system?

(Fort Wayne) News-Sentinel

It’s so unfair here in Indiana, at least when it comes to taxes. That is the verdict of WalletHub, which has conducted a survey showing that Indiana ranks only 42nd when it comes to the fairness of state tax systems. Only Texas, Mississippi, Florida, Illinois, Arkansas, Hawaii, Georgia and Washington are more unfair.

But what does that mean exactly?

There is surprising agreement about that among Americans who identify as liberals and conservatives. “There is a clear upward trend,” WalletHub said after analyzing the results of a survey of 1,050 individuals, in that “respondents think state and local tax systems are fair when higher-income households pay a greater percentage of their income in taxes than lower-income households.”

A progressive tax, in other words, like the federal tax code is and the state income tax isn’t.

But just why is a progressive tax more “fair” than a flat tax?

If you look at it a certain way, all taxes are unfair, because they take away, with the force of law, money from individuals who have earned it or accumulated it and put it into a common pot for the benefit of people who may or may not deserve it but certainly haven’t earned it. And all taxes are a hardship for those taxed. There isn’t any way around the fact that the hardships will be worse for the poor.

And a flat tax ensures that those well off will pay more into the pot than those not so well off. Under a progressive rate, there are so many exemptions and loopholes that the rich find ways to game the system, with many of them paying much lower effective rates than the poor.

And a progressive rate discourages the creation of wealth, while a flat rate does not. So exactly what is unfair about applying the same rate to everybody?

What kind of tax system should the state try for? How about a system that gives citizens value for their dollar? The state should take in just enough to meet its needs and not a penny more, and it should try to keep waste, fraud and abuse to an absolute minimum, while trying to see at every turn that a productive economy isn’t hindered.

Debates that start with “fairness” as a goal usually head in the wrong direction. Let’s focus instead on “appropriateness.”

This was distributed by Hoosier State Press Association. Send comments to awoods@tribtown.com.