Much has been made of Barack Obama’s pledge to reduce taxes on 95% of American citizens while at the same time allowing the Bush tax cuts favoring the wealthiest Americans to expire. Ari Fleischer, former press secretary under President Bush editorialized in a recent Wall Street Journal opinion page that it is unhealthy to increase taxes only on income earners in excess of $250,000 annually, which constitutes the upper 5% of all taxpayers.

He contends that when more than half of Americans pay little or no income tax at all, and when a smaller and smaller share of taxpayers bear the heaviest tax burdens, then most won’t care when the Congress overspends, as the majority become focused on entitlements – what they are receiving as opposed to the cost to society. This scenario, Fleischer argues, could easily lead to class warfare.

I pose this question: What is society’s role in taxing its citizens, and is it in fact harmful to our society to redistribute wealth and earnings as President Obama suggests?

The ancient biblical commandments to set aside a portion of one’s field for the poor are the most classic examples of edicts to help those less fortunate. As societies evolved taxes became the means whereby governments collected – usually a portion from all – to provide for the common good. Without a taxing system government couldn’t provide armies to defend us, transportation systems, educational systems and even sewer systems. If you ever wonder what it would look like if we didn’t have a government to tax us and to provide for the common good, just take a gander at present day Somalia.

Over the generations the government’s mandate has grown. One example is the government’s funding of certain academic studies – some most would call appropriate – research funding for dreaded diseases comes to mind – others many would call inappropriate – research funding to assist grape and wine production. We all love a good bottle of wine but I think that the Gallo family probably can do research on their own dime. Appropriations have been passed for everything from alternative salmon products to funding for the National Mule and Packers Museum.

Yet all of this spending is dwarfed by entitlement programs. We all know that Franklin D. Roosevelt ushered in the largest entitlement program in the form of Social Security. At the time, a majority of our nation’s elderly lived in poverty. The Social Security System assisted in curing this problem. Medicare followed, to ensure the elderly had adequate medical care. President Bush passed a prescription drug benefit adding billions to Medicare’s costs.

The elderly haven’t been the only entitlement benefactors. The earned income credits and child care credits pay out billions of dollars to those who usually don’t pay any income tax at all. Ever wonder why you see so many H&R Block income tax ads so early in the filing season? The first week of February ads coincide to the time when many receive their W-2 earning statements allowing them to file their tax return resulting in a large check. Many of these “taxpayers” aren’t really taxpayers at all. These are people who file to receive large entitlement checks through our income tax system – independent of whatever welfare checks they might be receiving.

Not only are the poorest amongst us receiving money from those paying into the system, but with the recent “bail out” of Wall Street it would appear that even those who lived high on the hog over the past several decades can get in on the action. While we all know deep in our hearts that these loans and bail outs are necessary to keep our entire financial system from collapsing, I’m sure that to many high income taxpayers it nevertheless feels inherently unfair. You make sacrifices, take risks and are rewarded with a good income, only to see it taxed disproportionately.

Will this lead to the collapse of our system? I don’t think so, at least not in the short run. But I do agree with Ari Fleischer that it is a mistake to cut taxes on most while increasing taxes on a select few, no matter their degree of wealth. We all have a responsibility to provide for the elderly; just the same as we all have a responsibility to educate our children. But whose going to care about government waste when 95% of us are getting tax cuts, even in an age of unsurpassed government spending?

You can argue whether trickle down economics works or not, or whether hedge fund managers’ earnings should be taxed at the higher ordinary income tax rates rather than the lower capital gain tax rates. But these arguments are beside the point. The point that Mr. Fleischer makes is that when you don’t have any “skin in the game” then the game itself is meaningless to you. You only care about what you’re getting.

And when a majority of our citizens fall into that mindset, then it doesn’t take a tax attorney to guess what the future results might be.

©2009 Craig R. Hersch