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I am optimistic that–despite their ideological posturing–our elected representatives will come to a workable agreement that allows the gears of our economic engine to keep turning. To quote Michael Goldstein (11/28/12), “The most likely outcome from the fiscal cliff deliberations will be a partial, stopgap measure that marginally reduces the deficit. While that result won’t satisfy some observers, incrementalism is probably the best course of action.”

My angst with the situation is less about the mechanics of resolution and more about the philosophical underpinnings. We hear a lot about the rich needing to “pay their fair share”, which is a loaded statement if ever there was one. How do we define “fair share”? Before we make policy decisions based on such rhetoric, we need to agree on the fundamental definition of fairness.

The Declaration of Independence states that all men are created equal. Based on that very simplistic notion, one could argue that the most basic definition of fairness is sameness; that is, everyone is equally responsible. Thus, each citizen should pay an equal dollar amount. This, however logical, is not practical. Each person has a different starting point, and unless we are going to lobby for equal starting points (road to communism) we have to make an allowance for that. So perhaps an proportionate system—i.e., an equal rate, or flat tax—is appropriate, as it would call on each of us to contribute to the same proportion of our income to the common good. To me, that seems fair.

The system we have today, though, is a progressive tax (the more the income the higher the rate). The notion of a making our progressive tax system incrementally more so in the name of “fairness”—which seems to be where we’re headed—is problematic. In essence, it implies a definition of fairness where everyone contributes as much as they have until everyone is left with the same amount. You make less than x—a basic poverty line, below which we provide a safety net—you pay nothing and receive entitlements that provide you with x. You make 2x, and you pay 1x so you’re left with 1x (i.e., a 50% tax rate). You make 10x, you pay 9x so you’re left with 1x (i.e., a 90% tax rate). You make 1.25x. you pay 0.25x (20% tax rate). Now everyone has x and that, it could be said, is fair. But it fails to explain why it is fair for one person to pay 90% of their income while another pays 20% of theirs when they consume similar amounts of the public infrastructure. Even at a flat rate, one is paying a much higher dollar amount.

Tilting the progressive system not only stretches the concept of fairness (at least how I see it), but it reduces the incentive system that makes capitalism work. If the government is going to legislate outcomes, which is what it is doing with raising rates on the rich, then it exacerbates the free rider problem and shrinks the size of the pie. And that contradicts the superior objective of stimulating economic growth.

I don’t have the answer, and neither does anyone else. But what I do know is that we need to agree on a conceptual definition of “fairness” before we take people’s money disproportionately and claim the moral high ground. The solution I’m most comfortable with at this point is a flat tax for anyone beyond a basic poverty threshold. Set a floor, set a rate, and move on to solving the knock-on implications for the spending side of the budget.