By Ted Williams

Recently, while I was picking up my 5 and 3 year old daughters from their school, I noticed a poster on the wall. The poster encouraged the kids to share and compromise when they had disagreements with one another. As I thought about this profound lesson, my attention immediately turned to the American political system.

President Obama’s Jobs Act recently met defeat in the US Senate. Its primary opposition came from the proposal that would raise taxes on the top 1%-2% of the wealthiest Americans. The airwaves have been full of accusations of class warfare, socialism, and an abandonment of capitalism. President Obama, having been labeled a Socialist for perceptions about his tax policies, has marshaled his army of public relations experts in an effort to convince the American people that taxes would remain the same for 98% of the population. This battle is one that has been fought for years in American politics. To reject heavy taxes is as American as apple pie and millions want reform of our current system to reduce our tax burden. Yet is this burden as significant as many believe? In reality, the United States has a relatively low rate of taxes compared with other developed nations. Among OECD nations (Organization for Economic Cooperation and Development) only Mexico, Turkey, Korea, and Japan have lower rates. The US tax rate stands at 28%, as a percentage of GDP, while the average of these nations is 36%. In many European nations, rates are higher than 40%. Where the US may have room for reform is in the kinds of taxes we collect. We collect less consumption taxes, 17% of all tax revenue, than any other OECD nation, yet our reliance on income taxes is among the highest at 36%. The average among these nations is 25%. Corporate income taxes make up just 12% of all US tax revenue.

Consequently, reformers of the American tax code are correct in one vital area. Income taxes may be too high. Herman Cain’s 999 plan, which proposes a flat 9% business, consumption, and individual tax, may appear to be a gimmick in the eyes of most. Yet the concept of the flat tax is not unreasonable. It aims to simplify an extremely complicated tax code and provide an increased level of equity to a system many see as confusing and unfair. It has also resonated with the public as evidenced by the number of political leaders advocating it, in addition to the popularity of books like The Fair Tax Book which recently climbed to #1 on the New York Times bestseller list. In order to meet the government’s increased obligations for programs like Social Security, Medicare, Medicaid, and defense we must consider additional sources of revenue. Relying on national consumption taxes while reducing individual income taxes may be a way to appease both those who desire lower individual taxes and those see government spending as increasingly necessary. Additionally, ending various corporate loopholes and subsidies, as proposed in Obama’s Jobs Act, could yield billions in additional revenue. Without some level of serious reform, the United States will face serious economic consequences. Strapped with a national debt of almost $15 trillion dollars and rising costs in a variety of sectors, the US will face European-like financial challenges without drastic change. Standard and Poor’s’ recent downgrading of the US credit rating provides ample evidence that our current track is unsustainable. A variety of measures must be taken, including re-evaluating spending, acquiring additional revenues, and provoking economic growth.

In this conversation, we cannot blindly repeat extremist arguments on either side of the political aisle. Those who advocate a complete rejection of vital government services are as irresponsible as those who bemoan capitalism itself. A civil society has a host of governmental obligations including those to protect the poor, the elderly, the young, and to defend its homeland. Additionally, the free market has served this nation well in building a collective lifestyle that is the envy of much of the world. For all of its faults, the US still accepts more immigrants than any nation on earth. Free markets are heavily responsible. Tax policy in the United States must realistically reflect the totality of government’s commitments.

Tax reform in America is necessary. What is more important than the details of any reform plan is a collective understanding to which we must arrive. As Americans, we have a responsibility to both protect certain populations and to create conditions for individual prosperity. I often discuss with my students the antithetical relationship between democracy and capitalism. One values community and equality, while the other values individualism and competition. The challenge of creating any viable social policy, including tax policy, is working within this reality. Reconciling these forces will take more than tired partisan arguments to create tax policies with which we all can live. Yet as my daughters are learning, nothing can be accomplished without a commitment to sharing and compromise.

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