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Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Tax Fairness

What it is:

Tax fairness is the concept of having an equitable tax system.

How it works (Example):

Tax fairness is a subjective term with no single hard-and-fast definition.

The U.S. federal tax system is a progressive tax system, meaning that progressively higher portions of income are taxed at progressively higher rates. The original concept behind this was to ensure that those with very high incomes paid more taxes on the portions of their income that was deemed "high."

However, not everyone considers the progressive tax system "fair." Some argue for lowering certain taxes, others advocate raising certain taxes, still others lobby for changing certain exemptions, and others want to change the rules for qualifying for certain deductions, credits, or exemptions. Some argue for a flat tax, whereby everybody generally pays the same percentage of income in taxes. Though the concept of tax fairness has as many definitions as there are people, the general idea is to ensure that no one segment of the population has more tax benefits or burdens than another.

Why it Matters:

In very general terms, much of the controversy over tax fairness revolves around disagreement about whether the relative percentage of income paid in taxes is more or less important than the relative dollars of income paid in taxes. For example, a popular discussion is the notion of whether a CEO should pay a higher total percentage of his or her income in taxes than the CEO's secretary should. From this angle, a person paying 25% in income taxes seems to be getting a better deal than a person who makes less money but pays 28% in income taxes. However, when one considers that the CEO may have paid $2,000,000 in taxes for the year and the secretary paid, say, $5,000, the question of who is "paying more in taxes" takes a turn.

The controversy around tax fairness will probably never go away, which has made (and will likely continue to make) for very interesting political campaigns.