What's the Purpose of Taxation?

Carol Platt Liebau
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Posted: Apr 17, 2008 12:02 PM
Obviously, the good part of the debate was the first half -- wherein the candidates answered questions about "small towns," Reverend Wright, corkscrew landings in Bosnia, and the like.

But there was a very revealing -- and disturbing -- revelation about Barack's ideology that emerged during the discussion about the capital gains tax.  Here's the exchange:

MR. GIBSON: [I]n each instance, when the [capital gains tax] rate dropped, revenues from the tax increased. The government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down. So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?

SENATOR OBAMA: Well, Charlie, what I've said is that I would look at raising the capital gains tax for purposes of fairness.  We saw an article today which showed that the top 50 hedge fund managers made $29 billion last year -- $29 billion for 50 individuals.  (emphasis added).

Look, it's never seemed right to me that private equity guys can structure their income based on "carried interest" rather than being taxed at higher, ordinary income tax rates.  That's a glitch in the tax code that certainly needs to be worked out.

But that glitch is not a reason to raise the capital gains tax on everyone -- especially when, as Charlie Gibson noted, a lower capital gains tax actually brings more money into the national treasury.  And someone's notion of economic levelling, of "fairness," should never be a rationale for raising taxes, especially when doing so actually results in less revenue collected.

So which is it, Barack?  Is the purpose of taxation so that the government can collect money, or is it to impose some kind of collectivist notion of "fairness"?  We need some clarification, please.