By: Derek Thompson
October 18, 2010
The debate about higher taxes for the rich is a debate about money. But for some people, it's also a debate about morals. The question isn't merely how we should fund our programs, but how we should use the tax code to reflect our sense of fair income distribution.
In the last few weeks, I've written a few pieces on the moral dimension of income inequality. In short, I recognize growing income inequality, I support progressive taxes (higher taxes for the rich, lower for the poor), and I would like to see taxes rise (first on the rich and then, to a lesser extent, on everybody). And yet, I'm baffled by the argument that the wealth gap between the rich and the poor is a moral problem that we know how to fix.
The New Republic's Jonathan Cohn presents two moral arguments for "soaking the rich" to correct for their high incomes. First, the rich aren't working hard enough to deserve all that money, he says:
I've met many people at the bottom of the income ladder who work just as hard, for far less reward.
Taxing based on how hard people seem to be working opens up Pandora's Box. Let's grant that hard-working poor people are an argument for progressive taxation. Does that mean that harder working rich people and lazy low-income people are an argument against progressive taxation? Because I've met plenty of both categories.
If we taxed people based how hard they seem to be working, tax rates would have nothing to do with income. Our tax code that looked like a volatile day of stock trading, with a million rates at every income, depending on their perceived effort. I know this isn't what Cohn is suggesting, but it's the logical extension of the idea that we know how to align the effort, productivity and income of folks we've never met.
Cohn's second argument is that society and public institutions made the rich rich, and higher taxes should strengthen society and public institutions. I think this is right. A progressive tax code is the only way to pay for the infrastructure, services, and government we want, while providing low- and middle-income families with a decent standard living -- which is something we also want. If we didn't have the schools, roads, and basic means that an expensive government provides, we might have a poorer country with less opportunity and commerce and development.
But then Cohn quotes a provocative passage from Gar Alperovitz and Lew Daly's 2008 book, Unjust Desserts that makes things personal again:
Warren Buffett, one of the wealthiest men in the nation, is worth over $60 billion. Does he "deserve" all this money? Why? Did he work so much harder than everyone else? Did he create something so extraordinary that no one else could have created? Ask Buffett himself and he will tell you that personally he thinks that "society is responsible for a very significant percentage of what I've earned."
I feel queasy, because we're back to critiquing the tax code with a person-by-person inquiry into what rich people deserve. The tax code isn't supposed to be a personal evaluation of each person's productivity. That's what compensation is for.
We should want a tax code that is pro-growth, that aligns incentives, that pays for the promises we've made, and builds the country we want. A progressive tax code is the most efficient way to collect enough money to provide rich services without impoverishing millions of people who enjoy those services. Higher taxes for the rich are justified because life costs more for the poor. As Adam Smith put it:
The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable. It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.
That just about sums it up for me. Once we start getting into arguments about rich people we don't know being inherently undeserving of their income, I'm worried that liberals are starting a debate they can't win.