Debate on Tax Reform

Kyle Vande Weerd

Andrew ManleyGuest Columnist

When it comes to tax reform, equality and fairness are aspects that cannot be ignored. What may seem to be the most compelling argument for a flat tax would be it is the most fair, as everyone pays an equal rate. However, this reasoning does not consider that those who are most able to pay (the wealthy and top tax brackets) are paying the same rate as those who can’t pay, and because of this, it creates a heavier burden on those who are on the bottom tiers.

In the world of economics, the Gini Coefficient is the way to measure just how equally wealth is distributed. Among all the arguments in support of a tiered progressive income tax, one of the strongest is this structure’s impact on a nation’s Gini Coefficient. With a more progressive income tax, the Gini is lower (wealth is more even). There is abundant evidence of this in U.S. history. In 1979, 79.5 percent of the nation’s wealth was owned by 99 percent of the population and the top 1 percent only controlled 20.5 percent of the wealth. President Reagan took office in January of 1981, drastically cut the top tax rate, and by 1983 the amount of wealth controlled by the bottom 99 percent and top 1 percent shifted to 60.1 percent and 30.9 percent, respectively. Likewise, when President Bush passed his round of tax cuts in 2001 and 2003, it ushered in an era where the amount of wealth held by the top 1 percent has been steadily increasing. Put simply, with a more progressive tax system, there is a lower Gini Coefficient.

So why do we care about the Gini Coefficient? “Supply Side” economics (or Reaganomics for short) posits that by lowering the top tax rates, wealth “trickles down” from the top in the form of investments and hiring on behalf of the highest earners. But whenever tax rates are at their lowest, the Gini is at its highest. This is because the Gini also serves as an indicator of the strength of the middle class, and it is this middle class that drives the economy. I personally find it to be very telling that the Gini’s two highest points were in 1929, the beginning of the great depression, and in 2006, a little less than a year before this most recent recession hit our economy. When the Gini is at its highest, the middle class is at its lowest; and when the middle class is at its lowest, the economy is at its weakest.

In addition to increasing the gap between the rich and poor, moving from a progressive to a flat income tax would have disastrous effects on the deficit. One of the key arguments of Reaganomics is that by lowering the tax rate, the government can actually increase tax revenues received. If this were true however, why has every Republican president since President Nixon, with their tax slashing policies, seen an increase in the national debt as a percentage of GDP? And “tax and spend” liberal Democrats like President Carter and President Clinton have actually lowered the debt as a percentage of GDP. President Obama’s recent increase in public debt has been a result of Keynesian policies meant to combat this recession. A recession, we would do well to keep in mind, that was brought about by reckless “Supply Side” theories.

So haven’t we seen enough of the effects of “trickle down” to know that it’s been debunked? Apparently not. Congressional Republicans are still trying to make the Bush tax cuts permanent, despite the multitude of evidence against them, and despite economic policy gurus like Alan Greenspan voicing their opposition to the cuts. I’m not sure what brand of fiscal responsibility the GOP is trying to sell, but I, for one, am not buying.

Andrew Manley is an SDSU student and the vice president of the Political Science Club. Contact him at [email protected]