Taxation, fairness, inequality, poverty and the confusion of language in modern discourse.

NPR debate: Are The Rich Taxed Enough?

At the link above there is a broadcast of a debate I heard today that prompted this post.

Robert Reich is insufferably smug, though he is smart. He has these rock-solid views on economic policy and he is not even a trained economist - though, goodness knows, that may be an advantage these days - but not in his case. And on the other side they have two ineffective spokesmen in Art Laffer and Glen Hubbard. Mark Zandy, arguing against the proposition, is fair and intelligent, but, in my opinion, sadly wrong where it counts. So frustrating.

Everyone tries to use history (historical statistics) to support his case. The problem (I repeat again) is the irremediable uncertainty that attaches to the attribution of cause and effect in the interpretation of historical events and eras. I see the economic growth that occurred during the Clinton administration resulting from the momentum of the Reagan era reforms (as limited as they were), and in spite of the increase in taxation that occurred. Reich opines confidently that raising taxes did no harm to economic growth and value creation and may have done some good. There is no way to resolve this kind of disagreement. One can offer coherent theories for each - and other interpretations besides.

So what's left? Well faced with this uncertainty one has to appeal to values! We have to decide where, in our ignorance, we want to put the burden of proof. Who should bear the burden of proof - those advocating an activist economic policy or those opposing it? In the former case, it would have to be shown beyond a high level of doubt that higher taxes on the rich DO NOT harm economic growth, productivity, etc. In the latter case, to effectively oppose it, it would have to be shown that higher taxes DO so harm these things. The policy adopted absolutely depends on where you put the burden. So how to decide?

A couple of things that could have been mentioned in this debate.

1.       At the very top it should be clearly stated that taxation is an inherently coercive act. There is no escaping this. Taxes are compelled under the threat of forcible extraction or incarceration. Taxes are an aberration in a free and peaceful society. This should dramatically color the burden of proof requirement. Those who favor more and higher taxes, on anyone rich or poor, should have to overcome a fundamental moral objection to coercion. If taxes are a necessary evil, then they should be kept to a minimum, continually examined and increased only under the weight of a powerful argument to do so. Absent the ability to prove the absolute necessity of increased taxes such a proposal should fail, just as any proposal to further increase coercion should fail unless some very compelling overriding purpose can be discerned.

2.       Why this preoccupation with inequality of earnings? All these misleading numbers about how it has increased? Why is inequality a problem? Surely poverty is the problem, not inequality. Anti-poverty programs are not the same thing as anti-inequality programs. We need to get this straight before we can discuss policy. If everyone in America earned a minimum of $1million in today's purchasing power, and the richest earned $1billion, would that be a problem? If the answer is Yes, then what is the norm, the value, that is informing that answer? Envy, resentment? How does one defend distribution policies without bringing in resentment, albeit dressed up in respectable terms? These are unworthy norms, destructive values, for which we chastise our children. How have they become part of respectable national policy?

3.       So, inequality should not have been part of this debate. Maybe poverty, but not inequality of earnings. That being said, the focus then shifts to how best to tackle the question of poverty and one has to note the grossly ineffective anti-poverty programs of the last sixty years and the fact that there is now a “poverty industry” in the US – a huge sector of the economy devoted simply to serving the poor, and thus maintaining poverty. There is simply no denying that there is a huge public sector constituency that has a vested interest in the maintenance of poverty. (They have achieved a lot of mileage simply by continually redefining it).

4.       What the hell does "fairness" mean? Why on earth would anyone consider it fair that someone with greater earnings which they came by in a legitimate way, should pay a higher proportion in tax. If I earn $100 and pay 10% in tax, I pay $10. If I earn $200 and pay 10% in tax, I pay $20. I earn more I pay more, in direct proportion to my increased earnings. Seems very fair to me. Fairness, as justice, is about treating people equally regardless of who they are, rich or poor. (The Talmud teaches that the rich are entitled to equal justice and should not be victimized because of their advantages.)

Armchair second-guessing is easy. I probably could not have come up with all of this spontaneously. But given preparation time, surely Hubbard and Laffer could have done better. I can think of a number of “Austrian types” who would have.