Should the rich bear the burden of economic hardships?

I recently had a debate with a friend of mine sparked by the recent debt-ceiling debacle in the United States- the crisis that gave us such wonderfully melodramatic terms as ‘financial Armageddon’.Now that it is over, I think the reasonable people in the room (I like to put myself in that category) can conclude that it was the most ridiculously contrived political soap-opera of the last few years.

I recently had a debate with a friend of mine sparked by the recent debt-ceiling debacle in the United States- the crisis that gave us such wonderfully melodramatic terms as ‘financial Armageddon’.

Now that it is over, I think the reasonable people in the room (I like to put myself in that category) can conclude that it was the most ridiculously contrived political soap-opera of the last few years.

In the real world, people pay their debts without having such a ridiculous song and dance about it.

But what I’m really getting to is the way the terms of the debate were skewed. Republicans were firm in their conviction that the deficit (and how the deficit was tacked on to the debt ceiling debate was another shameful bit of theatre) could be tackled solely with spending cuts.
 
Needless to say, these cuts were heavily skewed towards the poor and lower middle-class. Tax cuts for the rich were judged to be beyond the pale.

The Republicans still insist that you can’t have tax raises in times of economic turmoil which strikes me as economic madness because it is being held above all else as a principle, and not backed up by intellectual or economic justification.

My friend- who is Republican-leaning although I forgive him- asked a fairly reasonable question:  why should the rich and the upper class bear the burden?

The rich have had some pretty bad PR of late, and plenty of people blame them as a group for what happened when a small section of their band rolled the dice and brought world markets crashing down a few years ago.

As such, the ‘make the rich pay’ brigade, can sometimes appear like a lynch mob thirsting for revenge.

But there is a ‘fairness’ angle that is hard to ignore- although some may see ‘socialist’ undertones. The argument is that in times of economic hardships, the rich can afford to shoulder a bit more of the burden for the good of society as a whole.

The thinking goes that if raising the taxes of the top 1% prevents massive cuts for the poorer members of the society, then that’s what the government should advocate.

It is the ‘fair’ thing to do. Some will object to the idea of ‘fairness’ being a guide for economic policy, but I don’t see why it should not be applicable.

 Fairness as a concept applies to everything from crime to paying bills at the end of a night in your local bar. Is there any reason it should be exempt here? It is linked to a certain moral standard.

 If we don’t accept it, we will in effect be saying that government policies should be completely amoral.

So morality as a basis for tax-raising is an attractive idea, but raising taxes for the top earners (and I’m talking very slight increases here) also makes sense from the perspective of what the government’s purpose is.

Government has to oversee the most efficient allocation of resources, and from this very basic standpoint it’s hard to defend a ‘no tax cuts under any circumstances’ policy. A slight increase in taxes could be defended under this argument.

But Government isn’t just altruistically fighting to make sure the poor don’t suffer more than they already are. After all, Government is always trying to find a way to raise revenue and this is a constant theme irrespective of the state of the economy.

This often means that taxes are raised on the rich (or at least higher tax increase for them in comparison to the middle class) and this doesn’t necessarily go to social programs.

My friend objected to this saying Government is effective when run like a business. But I think there is a justification for that principle considering what any Government does on a daily basis.

I’ll revisit this concept at some point in the future as I feel I may have already overstayed my welcome.

minega@trustchambers.com

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