Can We Tax Our Way Out of Inequality?

Our national conversation over inequality has, to me, foundational issues that have largely gone unaddressed. The COVID-19 crisis lays bare the gaps in our nation’s safety net, and hence exposed our vulnerabilities. Activists march decrying inequality, but what exactly do they seek? How is it to be solved? Can it be solved? Should it be? Where do we begin?

I believe that almost everyone would agree that basic human needs, such as healthcare, should be met. When the pandemic hit several months ago, tanking our economy, unemployment soared, families lost their health coverage, food banks couldn’t meet demand, and landlords sought to evict non-paying tenants.

What then, is our individual and collective responsibility? Should the “haves” pay more in taxes to support the “have nots?” Do we trust our government institutions to provide for necessities in times of crisis and otherwise? Is there a danger in delegating these responsibilities to the state?  What are our alternatives?

It seems that news reports on economic growth is the 21st century barometer for whether we are doing well. Should that be the true measure of our society?

To answer these questions, let’s examine our foundation. Unlike almost every other nation, the United States is founded upon a covenant. “We the People” are the opening words to the Preamble to our Constitution. It is a covenant between the governed and their government. Power flows not from the top down, rather it flows up from the consent of the governed. This is unique in the world. Britain is not ruled by “We the people.” It is ruled by Her Majesty the Queen. The difference is that Britain is not a covenant society while America is.

At the time of its creation, this was a new idea. British philosopher John Locke’s (1632-1704) writings about liberty and the social contract influenced American revolutionaries Alexander Hamilton, James Madison and Thomas Jefferson.

What Locke stated is that liberty may only survive within a society where individuals accept personal responsibility for their moral obligations. This was echoed by French diplomat Alexis de Tocqueville (1805-1859) in his work, Democracy in America where he wrote “Liberty cannot be established without morality, nor morality without faith.”

Our country was established under a Judeo-Christian concept of liberty and morality, which asserts a paradoxical truth that a society is strong when it cares for the weak, rich when it cares for the poor, and invulnerable when it takes care of its vulnerable.

A covenant means dual responsibility. As a society our system won’t work when delegating moral responsibility away to either the free market or the state. While a free market economy excels at creating wealth, it lacks in ability to equitably distribute the bounties of that wealth. The state, with its inefficiencies, can’t live up to the task either.

Our nation’s current thinking might be summarized as rejecting personal responsibility in favor of demanding that our government, through taxes and social programs, bridge the gap between rich and poor. Since President Johnson’s Great Society Programs launched in the mid-1960s, we’ve spent trillions of dollars in the “War Against Poverty” without significant results.

Therefore, should we tax the rich even more? Our income tax system has been, in its history, more progressive than it is currently. What about the estate tax? Proponents of the federal estate tax point to the concept of equal opportunity as a basis for our social contract. This viewpoint highlights the association between wealth, power and privilege in society.

Winston Churchill said that estate taxes are a “certain corrective against the development of a race of the idle rich.” More recently, Warren Buffett asks whether he should be able to “leave a couple billion to each of my children, grandchildren and great-grandchildren…is that a great way to allocate resources in the United States?” Speaking in a sports metaphor, Buffett adds, “should our Olympic team 20 years from now be the eldest children of our current team?”  Similarly, Bill Gates advocates not only raising estate tax rates, but also capital gains rates.

In contrast to Churchill, Buffett and Gates, President Trump’s Tax Cuts and Jobs Act of 2017 rendered the estate tax toothless for all but the largest estates, and he also reduced income taxes on our wealthiest citizens. This November’s election may result in a change to these laws, which otherwise sunset in 2025. But does the estate tax achieve its intended purpose? Even when the tax imposed severely high rates on smaller estates, it never raised a significant portion of general revenue. The notion of equalizing wealth through estate tax redistribution didn’t materialize.

So where does this lead us? Returning to Locke and de Tocqueville, we have a moral obligation to show care and lovingkindness to all citizens. If we don’t accomplish that, then collectively we’ll break our society.

Clearly something must change. We don’t want a French-style revolution on our hands. Our conscience urges that we can and should do more for our fellow citizens.  My hope is that not only do Democrats and Republicans come to this realization no matter who wins in November, but that each one of us chooses to do our part to live up to the covenant we inherited.