In 1789, Benjamin Franklin wrote “In this world nothing can be said to be certain, except death and taxes”. The fairness of death must be taken up with a deity but the fairness of taxes is very much a human issue. The idea of tax fairness is like motherhood or apple pie – everyone is supports it. Yet there is a wide disparity in what constitutes tax fairness. Investopedia offers little clarity with its circular definition: “Tax fairness is a tax platform based on an ideal that aims to create a system of taxation that is fair, clear and equivalent for all taxpayers” .
The folks at FairTax.org do not specifically define “fair tax” in their support for the Fair Tax Act, but they claim: “The Fair Tax Act is nonpartisan legislation. It abolishes all federal personal and corporate income taxes, gift, estate, capital gains, alternative minimum, Social Security, Medicare, and self-employment taxes and replaces them with one simple, visible, federal retail sales tax administered primarily by existing state sales tax authorities” .
Does this match the Investopedia standard of “fair, clear and equivalent”? I’ll readily admit that it’s clear, but it is hard to call it “fair” when it completely abolishes several of the taxes that apply only to the wealthiest classes of Americans – corporations, estate-owners and investors. So, after two attempts, we have yet to achieve a suitable definition.
Perhaps asking the question directly is the wrong approach. Perhaps the best way to view tax fairness is to adopt Supreme Court Justice Potter Stewart’s approach to defining obscenity: “I know it when I see it” . To look for it, let’s examine the history of the Federal income tax, and then take a look at how the incomes of the top earners have fared compared to the rest of Americans. This comparison will demonstrate how much tax fairness.