"Fair" Share of Taxes; "Fair" Trade vs. Free Trade
The data above (click to enlarge) are from the Congressional Budget Office's (CBO) report Historical Effective Federal Tax Rates, for the year 2004, showing that:
1. The top 20% make 48.8% of after-tax income, make an average of $143,600 after-tax, and pay almost 85% of all federal income taxes paid, at an average rate of 25.1%.
2. The top 1% make 12.2% of after-tax income (average after-tax income of $867,800), and pay almost 37% of all federal income taxes, at an average rate of 31.1%.
3. The average tax rate for the bottom quintile is 4.5% and increases to 31.1% for the top 1%, indicating a highly progressive income tax system.
In today's NY Times article "Fair Taxes? Depends What You Mean by ‘Fair’," Harvard economist Greg Mankiw poses the question: "Do the rich pay their fair share in taxes? This is likely to become a defining question during the presidential campaign."
Citing some of the CBO data above, Mankiw then comments, "Fairness is not an economic concept. If you want to talk fairness, you have to leave the department of economics and head over to philosophy."
MP: Mankiw makes a good point about fairness being subjective and philosophical, although you'll find no shortage of politicians waxing philosophical about "fairness" when it comes to topics like taxes and trade, especially those who want to raise taxes and erect trade barriers.
For example, whenever you hear politicians or Lou Dobbs talk about "fair trade" instead of "free trade," you'll pretty much be guaranteed that the discussion has left the realm of economic theory and empirical evidence of the benefits of free trade, and ventured off into a philosophical/political discussion justifying using the political process to bestow protectionist trade policy favoring a well-organized domestic, special-interest industry at the expense of consumers, in the philosophical interest of "fairness."
Bottom Line: Any time you hear politicians use the words "fair" or "fairness" in relation to tax policy, look out for higher taxes, and any time you hear those words in regards to trade, look out for protectionist trade policy.