Monday, October 18, 2010

Tax morality

Jonathan Cohn attempts to make the more case for soaking the rich:
According to the Republicans and many of their supporters, allowing tax rates on upper incomes to rise would punish the rich for their success, taking away money that the rich have earned. But this argument suffers from two key flaws.

One is that it fails to account for the power of luck. Almost by definition, people who are successful have benefited from some measure of good fortune. That fortune can take the form of obvious, material advantages--like access to advanced technology and good schools. Or it can take the form of more subtle, but still important, assets for moving forward in life--like good health or loving parents.

Yes, a good work ethic will take you far. And I know many well-educated professionals convinced that nobody works as hard as they do. (I’ve been known to indulge the thought myself.) But I’ve met many people at the bottom of the income ladder who work just as hard, for far less reward. Between 1980 and 2005, the richest 1 percent of Americans got more than four-fifths of the country's income gains. Does anybody seriously believe that the other 99 percent didn't deserve to take home a much larger share?

The other, albeit related, flaw in the conservative argument is that it fails to acknowledge the debt wealthy people owe to society. As Gar Alperovitz and Lew Daly argue in their 2008 book, Unjust Desserts, the proverbial self-made man is not exactly self-made. He (or she) is benefiting from the accomplishments of past generations, not to mention the support of public institutions (like the National Science Foundation) and services (like schools) that foster innovation and lead to greater productivity.
Let's leave aside how much the rich benefit from luck and how much of a debt they owe to society, and for the sake of argument assume that both are true and play a hugely significant role in separating the rich from the rest. There are still at least two significant flaws with Cohn's argument.

First, to the extent the rich owe anything to society, it has already been repaid through the actions that led to them getting rich. While obvious exceptions exist, the vast majority of people who have become rich did so by providing goods and services that society found valuable. Steve Jobs, for example, played a key role in organizing the thousands of people and many millions of dollars that were required for the computer I am typing on to be produced. He has provided incredible benefits to society both through the products he created, technology he has helped foster and people he has helped provide direct employment to. Whatever debt he owed has surely already been repaid many times over.

Second, why should taxation be regarded as a means of providing assistance or compensation to the rest of society? Taxation funds government, which in turn uses the money on -- among other things -- schools that are consistently sub-par, social welfare schemes that have proven disastrous, vanity projects for politicians, a drug war that has produced untold misery, armies of bureaucrats that cook up new regulations to harass the country's citizens and businesses, etc. That's not to say that all government is bad, of course. Courthouses, police, fire departments, and basic infrastructure all readily spring to mind as vital government functions. But they also don't require confiscatory tax rates to fund.

Further, every dollar taken from a rich person to fund some government function is one less dollar that person has to spend. That spending, be it in the form of consumption or investment, means one less dollar that is helping to employ someone or is being invested in the economy. Unless one believes the dollar would be spent to a more productive end by the government, that's not a good way of helping or compensating the less well-off.

Lastly, it's hard to think of any good public policy that has ever been borne out of a desire to punish a certain segment of the population.

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