Grover Norquist’s Gnomes Duke It Out With The Tax Fairness Fairy

No one seriously believes that federal spending is going to be brought under control any time soon. Regardless of what deals are cut during the lame duck session of Congress, Uncle Sam is expected to continue gobbling larger chunks of our economy while imposing new regulations on the rest. The media, treating this like an inexorable state of nature, have made it clear that Washington’s top priority should be making sure that “the rich” pay their “fair share.”

After all, so the narrative goes, the American electorate was offered a clear choice and the tax-the-rich tribe won, so let the search for tax fairness begin!

If only it were that simple. The tax fairness debate is fascinating because it doesn’t look like extracting the maximum number of tax dollars from the rich with the minimum damage to the wider economy is the real goal. What matters is creating the perception of the rich genuflecting before the altar of “fairness”—a conveniently flexible political concept if there ever was one.

So what exactly is the “fair share” of taxes the top 2 percent, or anyone else for that matter, should pay?

Progressives cannot abide the fact that the top 2 percent of taxpayers—filers making more than $250,000 a year—only carry half of the nation’s income tax burden. Never mind the juicy tax revenue squeezed out of so few people, these 2 percenters earn a quarter of the nation’s aggregate income! Since economics is a zero-sum game, in their view, the rich can only make this kind of money by sticking it to the poor.

You remember the poor, the people who pay no income tax, many of whom receive net payouts from the IRS thanks to the earned income tax credit? Progressives do not consider it fair that only the bottom 47 percent of income tax filers pay no income tax. That implies that they want to increase the number of non-payers, which can yield huge benefits at the polls.

If fairness sounds like a squishy concept to nail down, that’s because we should never expect progressives to clearly define it. Like the famous Supreme Court justice trying to define pornography, they assure us they will know it when they see it.

Meanwhile there is much they don’t see. President George W. Bush did more than any other president to increase both the total income tax revenue and the share of income taxes paid by the top 2 percent by cutting everyone’s marginal tax rate, allowing the economy and everyone’s income to grow. Yet no one would say his policies increased fairness because while everyone gained, the rich gained even more!

The inescapable conclusion is that making the rich worse off is a key test of “fairness.” When it comes to pleasing the Fairness Fairy, a dollar of income reduction from the rich is worth as much as a dollar of tax collection. And that is exactly where we are heading.

Key Republicans have gotten the message as Senators Lindsey Graham and Bob Corker threaten to abandon their pledge not to raise taxes. But don’t worry, they’ll make it up with targeted tax breaks. Others in Congress are looking for wiggle room as liberal editorialists do their best to turn Americans for Tax Reform founder Grover Norquist into Darth Vader, wielding his famous no-new-taxes pledge to slay any “balanced compromise” that might save us from the dreaded fiscal cliff.

Fairness Fairy friend Warren Buffet recently proposed an alternative-Alternative Minimum Tax (AMT). The AMT, introduced in 1982 to make the tax code fairer, is getting tired. The Wizard of Omaha wants the rich to fill out not two but three tax returns, ensuring that any income between $1 million and $10 million gets taxed at a minimum rate of 30 percent, with anything above $10 million taxed at 35 percent. In the future when inflation drives up the nominal middle class wages and a family with a cop and a teacher are making $1 million a year, Congress can do both an annual AMT fix and an AAMT fix.

All this fairness talk reminds me of the old Russian allegory revealing the dark soul of that troubled people. A peasant stumbles on a magic lamp. The genie that appears offers one wish, with a catch—that whatever the peasant gets, his neighbor gets double. Thinking long and hard, the peasant says, “Pluck one of my eyes out.” The modern American version is the worker who, when laid off because of Obamacare, says, “I’m so grateful to the President for making sure I get free health care while unemployed.”

Is that what ultimate fairness looks like? Only the Fairness Fairy knows for sure.

Bill Frezza is a fellow at the Competitive Enterprise Institute and a Boston-based venture capitalist. You can find all of his columns, TV, and radio interviews here. If you would like to have his columns delivered to you by email, click here or follow him on Twitter @BillFrezza.