Taxes and ethics
Via Megan McArdle, Robert Reich has proposed a “new tax policy” on his blog.
He begins the title of his post “The Logic of Taxing the Rich” and tries to head off criticism from the right by stating up front that “taxing the super-rich is not about class envy.”
But he also keeps using the word “fair,” not only in his blog post . . .
What’s fair? I’d say a 50 percent marginal tax rate on the very rich (earning over $500,000 a year). Plus an annual wealth tax of one half of one percent on net worth of people holding more than $5 million in total assets….If the Democrats stand for anything, it’s a fair allocation of the responsibility for paying the costs of maintaining this nation.
But also in a comment me left on McArdle’s blog:
If you consider (as the writer of this [McArdle's] blog wishes to do) state sales taxes (which are highly regressive), state income taxes (usually flat and therefore also regressive), sin taxes on cigarettes and liquor (regressive as well), and payroll taxes (regressive because they only hit the first $97K or so of income), then my argument is, I believe, even stronger.
Mankew, for his part, assumes deadweight losses that any tax system creates, and disregards not only the reality of new revenues — deadweight notwithstanding — but also considerations of simple fairness.
Interesting.
Why invoke “fairness” if the argument is based in logic?
No reason that I can see. On the contrary: appealing to “fairness” is obviously an ethical argument, not a logical one.
In fact, the elephant in the room of any tax debate is really an ethical question.
It’s a question with two pieces.
First, are wealthy people obligated, ethically, to shoulder a greater burden proportionally of the costs of running a country?
And second, do we accept a priori that our government has an ethical mandate to serve as arbiter of what that burden should be?
Proponents of “progressive” taxation answer yes to both questions — and so our politicians become the modern day priestly class, endowed with the moral authority to mete out compensation to the wronged — endowed with the moral authority to make the “unfair” “fair.”
What bothers me is that we — and by “we” I mean our nation as a whole — got here without really reconciling ourselves to it. Sure, the ethics of progressive taxation were raised at the time. Here’s Teddy Roosevelt in 1906, for instance:
It is important to this people to grapple with the problems connected with the amassing of enormous fortunes, and the use of those fortunes, both corporate and individual, in business. We should discriminate in the sharpest way between fortunes well-won and fortunes ill-won; between those gained as an incident to performing great services to the community as a whole, and those gained in evil fashion by keeping just within the limits of mere law-honesty.
Of course no amount of charity in spending such fortunes in any way compensates for misconduct in making them. As a matter of personal conviction, and without pretending to discuss the details or formulate the system, I feel that we shall ultimately have to consider the adoption of some such scheme as that of a progressive tax on all fortunes, beyond a certain amount either given in life or devised or bequeathed upon death to any individual — a tax so framed as to put it out of the power of the owner of one of these enormous fortunes to hand on more than a certain amount to any one individual; the tax, of course, to be imposed by the National and not the State Government.
To paraphrase: some rich people got so by being unscrupulous; we can’t really tell who they are, so we should tax all the rich to make sure the bad apples are separated from their ill-gotten gains. It’s only fair!
How many people, today, would agree with this “logic”?
I wonder. Clearly there is residual unease with the whole notion of progressive taxation, which suggests to me we didn’t really tackle it for what it is, head on and honestly. And so we were left with the lingering sense that it was foisted upon us, somehow — that our politicians were overly opportunistic in how they pulled the whole thing off.
I mean, think about it. Within a generation — a generation — of the passage of the 16th Amendment we had a federal income tax rate which — at the lowest income bracket — had increased by a factor of 20.
That’s a stunning leap.
The assumption of a social services agenda by the federal government was every bit as swift. One minute you have FDR outlining, in a Fireside Chat, the ethical basis for social security (and sounding at times an awful lot like his cousin 28 years before):
. . . the primary concern of any Government dominated by the humane ideals of democracy is the simple principle that in a land of vast resources no one should be permitted to starve. Relief was and continues to be our first consideration. It calls for large expenditures and will continue in modified form to do so for a long time to come. We may as well recognize that fact. It comes from the paralysis that arose as the after-effect of that unfortunate decade characterized by a mad chase for unearned riches and an unwillingness of leaders in almost every walk of life to look beyond their own schemes and speculations.
And then, within a quarter of a century, the New Deal — a notion that arose during a period of international upheaval — had given birth to The Great Society, and from there . . . well. According to this Social Security Administration data, between 1960 and 1995 federal spending on “social welfare expenditures” had risen, as a percentage of GDP, from 4.9 percent to 12.4 percent. More than doubled.
We have, in other words, a National Tithe.
Charity — even more broadly, charity to strangers — is a deep-seated Western value. Old Testament scripture is full of exhortations that we should give to the poor — that being kind to the needy honors God.
It’s in our cultural blood; we are reconciled to it. This is why even the most secular of us will likely agree that we’re morally obligated to be charitable.
What is new is the notion that the government ought to be the intermediary.
And that, I believe, is where the unease creeps in — and rightly so.
First, a private, spiritual virtue has been rendered a public, social obligation.
Where’s the redemption in that? Am I a better person for having a Federal Withholding deducted from my paycheck? Put another way: when the sacrifice my “charity” represents was not made by my own free will, does it have the same moral stature as it otherwise would?
And then there’s the potential for corruption, which happens on multiple levels. Here’s one: our politicians buy votes with social programs — that can’t be disputed; it’s woven into every politician’s platform (have you heard any serious political contender advocate repealing social security? I thought not) — but how can we view their naked self-interest for what it is?
We can’t, because it’s clocked in the language of an ethical mandate.
Or this: the huge temptation created by pooling so much money in one place, and so far from home. How many people make a living by administering our public social programs? It’s an industry unto itself. How well is it policed? How efficient is it? How selfless are these people? Some are, I’m sure — but others are assuredly not. Is that — any bleeding off of this money for less-than-charitable uses — not another corruption?
Step back and look at federal spending as a whole. Compare total federal spending as a percent of GDP in 1940 to today. It’s doubled, from just under 10 percent to about 20 percent. How much of that rise is, honestly, justified? Were there other ways to fund the things we’ve funded? Would our foreign policy now be different had we not handed over so much of our money to our government?
How much corruption have we funded?
There’s no way to know. We’ve ceded control. All we know is that our “needs” as our politicians define them have magically kept pace with the amount of money available.
Or how about this. People who advocate progressive taxation can’t part “the super rich” from their money unaided. They know they can’t. They need help. They need . . . politicians.
And so you have one group of Americans turning to the government — a source of Power — to force another group of people to contribute more to the national budget.
When “conservatives” suggest that progressive taxes are a form of communism, this is the crux of their complaint: that a centralized government has been made the vehicle for parting citizens with their money. And it’s at bottom an ethical objection, because while this may be couched in terms of leveling the difference between the powerful and the weak, it is also an act of overriding the powerful with the yet-more-powerful.
Is that fair?
The whole issue feels muddy to me. It cries out to be argued, as I alluded to at the beginning of this post, honestly: in terms of the ethics that underpin it — not falsely; not as if the ethical questions have all been answered, because they haven’t.
If they even can be answered. Perhaps they can’t be. Perhaps we’re too secularized, too unmoored from the old fashioned truisms that we once used to settle ethical questions.
But in that case we can at least be honest in another way, and admit that what we’re really doing is jostling for power, jostling for control over the pot of money the Roosevelts caused to be set aside by the richest country in the world . . . and that “fairness” has nothing to do with it.
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