A Fallacy about Taxes

Copyright © 1994, 1999 Kevin T. Kilty, All Rights Reserved

Each year, around April 15, Senators James Jeffords, and Daniel Patrick Moynahan complain about the unfairness of certain states having to subsidize the others. Their argument goes like this.

The senators take the total of all income taxes paid by people in Vermont or New York, and find that it exceeds the money that flows back to these states from the Federal Treasury. Then they calculate the money paid in Federal Taxes by states like New Mexico or Utah and find that the taxes paid does not cover the payments that come back to them from the Federal Government. Therefore, they conclude, Vermont and New York are being made to subsidize Utah and New Mexico.

Demonstrating that this argument is fallacious requires no data what so ever, and only a passing acquaintence with the Federal Tax system. We do not even need to consider whether the accounting is accurate and truthful. Consider only that the Federal income tax system is progressive, which means that higher income is subjected to higher tax rate. Then wealthy people, and as a result wealthy states, will pay more in Federal Taxes than they receive in benefits. (Many people will dispute that this is so, but the IRS's own statistics bear it out clearly.) The disparity that the two senators villify is directly the result of a tax system that the Senators, in any other venue, would argue is just and fair. I am certain this is not what the Senators intend to argue here.