What Is a Fair Tax? It All Depends on How You Ask the Question

Below is the text of a message I addressed to Brian J. Gaines and Douglas Rivers, authors of “What’s a Fair Tax for the Mega Millionaires,” published in The Wall Street Journal on April 10, 2012, in which the authors point out the seeming contradiction in polling showing that most people think that the fair amount of income tax that should be imposed upon people who win millions in a lottery is an amount that represents less than 10% of their winnings, whereas polling also shows that most people think that a 35% tax on millionaires’ income is unfairly low!   As the authors do not suggest an explanation, I offered this one:

Agree with everything you and Mr. Rivers say, in “What’s a ‘Fair’ Tax for the Mega Millionaires,” in today’s Wall Street Journal, but I think you might be ignoring the real cause for the apparent disconnect between public support for the Millionaires Tax and public views on taxation of lottery winners.  In my opinion, a great many people (perhaps a majority of the US population), regardless of overall intelligence and education, are just hopelessly lost when it comes to even the most simple elements of mathematics and statistics.  As Exhibit A for my thesis, I present this quotation from a recent speech by the President:

“Now, you can call this class warfare all you want. But asking a billionaire to pay at least as much as his secretary in taxes?” Mr. Obama told the Congress. “Most Americans would call that common sense.”

Please note the artful – not necessarily to say deceitful – phrasing.  Mr. Obama does not refer to “tax rates” (as he does at other points in the speech, showing that he knows the difference), he refers to “taxes.”  You may find this too simplistic an explanation for your tastes, but, as a person who is “good at math,” I can tell you, based upon decades of experience in the worlds of law and business, that a shockingly high percentage of the overall population is simply unable to distinguish between taxes and tax rates.  I will guaranty that a huge portion of the population understood the President to be saying that Warren Buffett pays less in taxes (i.e., the total gross amount of the check he writes to the IRS) than does his secretary – and of course, that enrages them, as well it should if it were true.   I do not want to attribute too much cynicism to the President, but, . . .  .

I could give you tons of other examples.  When the average American hears that a Warren Buffett gets a “tax write-off” when, say, he gives $100,000 to a charity, that average person thinks that means the net cost to Mr. Buffett of his charitable gift was $0, when in fact the net cost to him is the $100,000 he actually laid out, less the tax savings (perhaps$35,000) that he enjoys as a result of deducting $100,000 from his gross income, so that it still costs him $65,000 of real money – not $0 – to make the gift.    Or, when the average American hears that his 5% state sales tax rate has been increased by 15%, he thinks that means the tax rate has gone from 5% to 20%.   People simply do not understand tax rates, because they are expressed in percentages, and people are clueless about percentages.   Indeed, you make it clear that people gave their opinions as to a “fair” amount of tax in dollars, not percentages, and the percentages were inferred;  I take it as a 100% certainty that if the same people had been asked to answer in percentages rather than absolute dollar amounts, the results of the survey would have been quite different.

 

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