The deadline for federal taxes has been pushed back to May 17 this year, due to COVID-19. Supreme Court Justice Oliver Wendell Holmes Jr. summarized the importance of taxes: “Taxes are what we pay for civilized society.” Few people like to pay taxes; Ronald Reagan helped the Republicans build decades of political success on that sentiment by not only reminding people of the economic bite of taxes but also arguing that tax revenue funded the government, which caused more harm than good. Political strategist Grover Norquist came up with the “No new taxes” pledge that was the foundation of Newt Gingrich’s “Contract with America” that was supposed to limit the size of government (making it small enough “to drown in a bathtub”). But taxes are not evil; taxes pay for roads, schools, public safety, medical care, transportation, scientific research, among other things.
Conservatives like to point out that taxes allow the government to make decisions about spending your money instead of you, which is true, but misleading. They make it seem like the government is an alien entity, but if a representative democracy is working properly, government is responsive to voters so we have some control over how our representatives spend our money. More optimistically, government allows us to pool our money to spend it more effectively than we could on our own. Take streets, for example. People could voluntarily choose to pave the street in front of their house, but that would lead to a patchwork of paved and unpaved portions, and some pretty poorly maintained roads (which was one of the great impediments to progress in the 19th century). And of course, on roads that were used by people just passing through, local property owners’ efforts would largely benefit outsiders they didn’t even know. But taxes allowed us to pool our resources and build roads that were better (and cheaper) than if we had built them on our own.
Former President Trump hates to pay taxes; in his world, only suckers pay taxes. We need to change that attitude. We should be thankful for people who pay taxes. People on the left like to demonize the rich, but the wealthy pay the bulk of the taxes. That is appropriate (since they benefit the most from our current system and because they can best afford to pay the taxes), but the rest of us should appreciate the load they carry. We should celebrate publicly the people who pay the most taxes as national heroes for carrying a great share of the common burden.
Part of the anti-tax philosophy extends to hatred for the IRS because they collect the taxes. But the IRS does not write the tax laws, it just enforces them. Republicans have consistently defunded the IRS, which makes no sense either financially or philosophically, unless you see tax collection as negative in itself. Failure to collect taxes efficiently means that more people get away with not paying taxes, which makes people who do pay taxes feel like suckers for paying when no one else is. The economic woes of Greece should serve as a warning about the downsides of this attitude; their tax collection system was so corrupted that people lost faith in it so collections plummeted, forcing Greece to eventually default in 2015. One of President Biden’s plans includes increased funding for the IRS, which will actually reduce the deficit because tax collectors bring in many times their costs in increased tax revenue ($70 billion in increased funding is expected to bring in $700 billion in increased revenues over 10 years). An efficient tax system is one of the most important elements of economic stability. Conservatives profess to value law and order; getting people to comply with tax law is just as important as compliance with any other laws.
The most significant legislative achievement of the Trump administration was reducing the corporate tax rate, from 35% down to 21%. President Biden is seeking to pay for some of his programs by increasing that rate to 28%. Conservatives have long sought to eliminate the corporate tax, and one can make a rational case that the revenue lost could be made up by taxing corporate profits when they are distributed to shareholders. But in this globalized economy, many shareholders are foreign (40% of equity in American corporations was held by foreigners in 2019), so cutting the corporate rate is essentially shifting the tax burden from some foreign shareholders to American taxpayers.
Tax havens, such as Bermuda, Panama, Luxembourg and Ireland, allow savvy corporate financial engineers to avoid taxes by using techniques like the “Double Irish with a Dutch Sandwich” (which is as complicated and divorced from reality as it sounds), reducing their tax bills and shifting their share of the tax burden to others. In addition to denying the government needed revenue, this wastes valuable resources by allocating intelligent, hard-working people to producing paper profits rather than creating real value.
Biden’s plan to boost the collection capabilities of the IRS should be applauded by all honest taxpayers because it will allow the tax burden to be shared more broadly. Likewise, his plan to impose a minimum tax of 15% on the profits corporations declare to their shareholders will also benefit the rest of us. A corporation should not be bragging about its profits to the shareholders while telling the IRS how unprofitable it is. Taxes help sustain our society; it is vital that everyone pay their fair share so that honest taxpayers don’t have to pay more to cover the deficits left by tax cheats and scofflaws.
Kent James has a doctorate in History and Policy from Carnegie Mellon University and is an adjunct professor in the History Department at Washington & Jefferson College.