What’s the fairest way to assess taxes?

To the Editor;
Taxed enough already? In our last letter we noted that the average Mainer (with $37,500 in annual earnings), pays a tax rate of about 16 percent for his federal and state income taxes and for his local property taxes. This compares to the 14 percent that Mitt Romney claimed in a recent election.
Is that fair? Depends on how you look at it. On the one hand, they both paid approximately the same rate for their taxes. (That is what you would get if we had a “flat tax”). That seems fair, doesn’t it?
On the other hand, the “average Mainer” paid about $3,600 in income and property taxes, but Mitt, who claimed about $20 million in revenue, might have paid about $3,600,000 in taxes! From that perspective, Mitt definitely came out the loser.
But still a third way to look at this question is to consider that the average Mainer is probably feeling a lot more pain laying out $3,600 for his tax bill than Mitt did on his tax bill. (Think of taxes as a percentage of your disposable income. Mitt had a hugely greater amount of disposable income than the average Mainer.)
So, there is no mathematically correct way to decide the fairest way to pay taxes. How taxes are levied is really a political (and moral) issue. However, in 1776 Adam Smith, the first real economist, laid out a general approach which I think is still a good rule of thumb today. He said:
“The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.”
In other words, those who have more should chip in relatively more. Paying taxes is painful for everyone. I believe that a good tax system equalizes the pain. I think it’s fair to say that the average Mainer found it more painful to pay $3,600 out of his $37,500 paycheck than did Mitt who might have paid $3,600,000 out of his $20,000,000 paycheck.
This gets to the question of progressive versus regressive taxes. More on that later.
What do you think? Share your thoughts with me. I’m chrism@roadrunner.com
Chris Maas
Dover-Foxcroft