A Sobering Thought About Our Tax System

To mourn tax season, the WSJ has had a series of editorials and op-eds on the insanity of the US tax system. An op-ed today by former press secretary Ari Fleischer hit a point that is not discussed much but is quite important. Namely, that the top 40% of earners pay 99% of federal income taxes, which means that 60% of earners pay nothing or next to nothing. When a majority of the population is not affected at all by the cost of government it creates a moral hazard situation which leads to profligate government spending, as the majority supports expensive programs that they don't have to pay anything for. From the article [subscription only]:

If, as now happens, 60% of the people in our democracy can force 40% to pay the bills, what's to stop 65% from making 35% pay it all? Since no one wants to pay taxes, what's to stop 90% of people in a democracy from making 10% pay it all? Or why not let 99% of the country off the hook, as long as the remaining 1% picks up the tab?

The problem is that there is a tipping point after which piling taxes onto the rich will leave the government unable to meet its obligations. And perhaps we're already reaching that point, where most people won't have a serious stake in what the government does because they don't pay for it. They want services and benefits, but they don't pay the price. That's a formula for runaway spending and no accountability. In other words, a system that looks a lot like the one we already have.