-- Posted by Neil H. Buchanan
In my most recent FindLaw column (available here), I extend the analysis is my last Dorf on Law post (here) of the claim that nearly half of Americans do not pay taxes. Many mainstream analyses of that claim rightly called it out as a distortion, because it conflates federal income taxes with all taxes. The more interesting question is whether it would really be a bad thing if some people paid no taxes at all, a question that I raised at the end of my DoL post and focused on exclusively in the FindLaw column.
After pointing out the impossible line-drawing problem raised by assertions that all (non-poor) citizens should have a "minimal stake in financing the government," I offered the following analysis: (1) Some people receive benefits through the tax system, making them "nontaxpayers," while others receive benefits through other agencies of government, making them "taxpayers" who receive benefits in a formally separate way; (2) One response to this would be to capture all forms of benefits that people receive from government, then subtract those benefits from taxes paid, so that the only people who would count as "taxpayers" are those who pay less in taxes than they receive in benefits in any other form, thus making the relevant category net taxpayers; but (3) Unless we want to commit another form-over-substance error, we must include in "benefits received from government" not only cash payments (such as "cash for clunkers") but noncash benefits that citizens receive from the government.
I then concluded that everyone (and I am fairly certain that it is literally everyone) is better off, net, with the U.S. system of government than they would be without it, if you include all of the benefits that they receive from being a citizen of the United States. Because that is a fairly abstract claim, I want to offer a few examples here to show the broad nature of benefits that people receive from government, making the taxpayer/freeloader distinction completely meaningless. In fact, as I point out at the end of the article, the wealthiest people in the country are the ones who receive the most net benefit from being in a country that makes it possible for them to earn high incomes and that protects their wealth (even from generation to generation).
In the thought experiments that follow, I will follow the completely counter-factual idea that there is only one kind of tax in this country, the federal income tax. Herewith, some examples:
-- Anne earns enough money to owe $3000 in taxes. She is single, childless, lives in an apartment, has no student loan balances, and drives a well-maintained 2004 Ford Explorer. She thus pays $3000 in taxes, and is a TAXPAYER, not a freeloader.
-- Benny earns enough money to owe $3000 in taxes. He has children, and he qualifies for other tax benefits that were passed under Presidents Bush and Obama that reduce his tax bill to zero. He is a FREELOADER, not a taxpayer.
-- Cal is in nearly the same position as Benny, but (because he works full time and thus qualifies for the Earned Income Tax Credit) the benefits that he receives are "refundable" and add up to $4000; so he gets a check from the government for $1000. He is not merely a freeloader but a WELFARE RECIPIENT.
-- Daphne pays $3000 in taxes and qualifies for a benefit administered by the Department of Housing and Urban Development, paying her $3000 to rehabilitate the house that she bought in an at-risk neighborhood. Daphne is a TAXPAYER, because she pays positive taxes, even though she would be a FREELOADER under a "net tax" test.
-- Edwina owns a business that sells its product (information technology services) to the government. She pays $x in taxes after receiving $X from the government. She is, oddly, a TAXPAYER.
-- Frank works for an investment bank that received a bailout from the U.S. Treasury. He receives $Y in income and pays $y in taxes. He is also a TAXPAYER.
-- Gerry's company located in her hometown because the local government arranged for free infrastructure improvements, including a new off-ramp from the highway into the factory's parking lot, an exemption from some environmental restrictions, and subsidized box seats at the local major league baseball stadium. Gerry's job would not exist but for these government-provided benefits. She pays $z in taxes on $Z in income, and she is therefore a TAXPAYER.
-- Horace is Gerry's company's CEO. His company produces an item that was designed and developed at a state university, employing people who are able to do their jobs because of educations provided through direct and indirect government subsidies. Horace received $XXXX in income and pays $xxxx in taxes, so he is a TAXPAYER.
-- Inga moved to the U.S. from a country with an inept and corrupt police force, where she was forced to hire private security guards, to build a fortress-like villa in which to live, to buy a special bullet-proof car, and to pay handsome fees to hide her financial assets in overseas accounts. In the U.S., she pays (at most) reduced tax rates on her capital gains income, and some of her wealth will (possibly) be subject to the estate tax when she dies. She is a TAXPAYER, too.
Everyone can, of course, claim to "deserve to keep what I earn"; but it is a meaningless exercise to say that they earned money without the assistance of government. The people who earn the most income might be the most talented (although the evidence suggests that great wealth is largely inherited), but they certainly gain the most from the existence of a government that makes wealth accumulation possible. A person who currently has next to nothing is only marginally better off than if there were no government (and thus no economy), but a person who makes millions of dollars through, say, financial trades -- which are a source of wealth only if the government creates and enforces contract and property laws -- has much more to lose.
The government provides net benefits to everyone, especially the wealthiest members of society. There are legitimate political debates over how to distribute the tax burden, but the freeloader/taxpayer distinction is meaningless -- and ultimately mean-spirited.