Economike: Rep. Seth Berry as Economic Illiterate
Mon, 08/27/2012 - 1:05pm (new)
Posted by Economike
As polemic, [Rep. Seth] Berry's op-ed is successful in the sense that it's hard for a casual reader to spot its errors.
The effective tax rate is the proportion of taxes paid to income received. Berry writes that the effective tax rate for a minimum-wage single parent is greater than the effective rate for a well-to-do taxpayer, if only state and local taxes are considered.
Let's assume Berry is correct. It makes sense (to me, anyway) that those with higher incomes enjoy a greater latitude in reducing their effective tax rate. A minimum-wage worker must pay for necessities - a certain minimum for food, shelter, and transportation. A high-income worker could choose to pay the same minimum costs, but obviously can afford to pay much more. Because of this range of choice, the high-income worker gets to choose - at least in part - his own effective tax rate. This is especially true of property and sales taxes.
But so what?
The reductio of Berry's "fairness" argument is that the effective tax rate should be equal across income groups. The problem is whether tax policies could achieve it. What would those policies look like?
Years of Maine Democratic tax policies provide ample evidence that it is not within the power of government to raise effective tax rates on higher-income taxpayers. Maine's attempt to collect 8.5% income tax served to drive taxpayers either out-of-state or out-of-sight. If LePage's reforms are the dramatically wrong direction, one wonders what makes higher tax rates the right direction?
If Berry were economically literate, he'd understand that the implication of his own argument about tax fairness is that the LePage reforms - including a reduction in marginal income tax rates for lower-income taxpayers - are a dramatic step in the right direction. The only hope for a convergence of effective tax rates across income groups is the implementation of tax reductions.