Taxes and inequality

by Russ Roberts on September 21, 2011

in Inequality, Media

Is it a good idea to raise taxes on the rich to fight inequality? I debate Chuck Collins on the topic here on Wisconsin Public Radio. It goes for about an hour.

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{ 71 comments }

Josh September 21, 2011 at 11:40 am

Yes

Ken September 21, 2011 at 1:46 pm

Why?

Regards,
Ken

Greg Webb September 23, 2011 at 12:09 am

Josh, why do you the government should raise taxes on the rich to reduce income inequality? And, who is to be considered rich?

Rob September 21, 2011 at 12:08 pm

It’s on odd way to ask that question, Russ. A better question would be: “Is inequality such a problem that we should consider taxing the rich to remedy it?” As states, yes, taxation and redistribution would reduce inequality. I know this is not what you intend though.

Frank33328 September 21, 2011 at 12:44 pm

I agree with Rob, the question itself makes me squirm.

How about: Is it a good idea to “force feed junk food to those who workout deligently” to fight “fitness” inequality?

How about: Is it a good idea to “scare the faces of attractive people” to fight “beauty” inequality?

Martin Brock September 21, 2011 at 12:55 pm

Great wealth is a product of forcible propriety imposed by states. The fitness of a fit person is not.

ArrowSmith September 21, 2011 at 1:14 pm

I disagree. People who live in wealth have opportunities for good, healthy food, gym memberships, personal trainers, yoga classes, etc…

Martin Brock September 21, 2011 at 9:51 pm

Then personal fitness need not be a product of forcible propriety imposed by states. Great wealth always is.

Fred September 21, 2011 at 1:19 pm

Property is not an initiation of force and does not require anything imposed by the state.

Theft, on the other hand, is an initiation of force, and if government is to be an instrument of justice it is duty bound to respond.

House of Cards September 21, 2011 at 1:47 pm

Urban sprawl is an initiation of greedy theft by developers to line their pockets and destroy natural habitat and the quality of life in a community by adding more traffic, pollution, crime, etc. and by reducing open spaces, natural or man made. Property rights must be restricted by the state to prevent this theft from society that makes a greedy developer rich over night, and the rest of us poorer forever.

Ken September 21, 2011 at 1:55 pm

House of Cards,

Nothing in your comment is true. It is clear you have zero understanding of property rights if you think they “must be restricted by the state to prevent this theft from society”.

Regards,
Ken

Fred September 21, 2011 at 1:59 pm

HoC – google ‘externalities’

Chris O'Leary September 21, 2011 at 2:21 pm

HOC: But what should be done to the property owner who sells to the greedy developer? Who gets to decide who gets to sell and who doesn’t? Are there no parks where you live?

PrometheeFeu September 21, 2011 at 3:29 pm

“Property is not an initiation of force and does not require anything imposed by the state.”

That doesn’t make much sense. If I show up with a bunch of guys with guns, your “property” will not be something that will help you. Property is only a useful concept if some other bigger group of guys with more guns can stop me from taking said property. Call that bigger group of guys what you want, but they sound a lot like the “state” to me.

J. W. September 21, 2011 at 5:58 pm

HoC wrote (in part): “Urban sprawl is an initiation of greedy theft by developers [...] Property rights must be restricted by the state to prevent this theft [...]”

On the contrary, urban sprawl is largely the result of the restriction of property rights by the state. Local governments use zoning laws to restrict owners’ use of their properties; when they restrict available living space within the city (via rent control or some other mechanism), designate large areas just outside the city as “residential,” place height restrictions on new buildings there, etc., we get about what you’d expect.

If you want something different, advocate for individual liberty over one’s own property and then we can get something different. You can even use some of your own money to provide for whatever sort of space you want.

Fred September 21, 2011 at 8:13 pm

“That doesn’t make much sense. If I show up with a bunch of guys with guns, your “property” will not be something that will help you. ”

In this case who is initiating force? You.
You are the thief. The thief initiates force, not the property owner.

Perhaps you don’t know what “initiate” means. Buy a dictionary, or better yet use the internet. It’s free.

Martin Brock September 21, 2011 at 9:38 pm

Many things called “property” by statesmen involve the initiation of force. If you use the word otherwise, that’s great, but when I use the word, I also refer to all of these other things.

vikingvista September 23, 2011 at 3:31 am

It is at least of theoretical interest to an economist. What if, in fact, economics shows that raising taxes on the rich *increases* inequality? Is that counterintuitive? If so, perhaps there is something to be learned.

Martin Brock September 21, 2011 at 12:29 pm

I favor “raising taxes” on the very rich to limit forcibly unequal consumption, after the fashion of Adam Smith among others; however, I oppose raising state revenue by taxing the rich. As supply sider, I see no contradiction here. If we believe the “Laffer curve” and want lower state spending, we want higher tax rates, right?

A highly progressive consumption tax can lower state revenue collected from the rich. Essentially, this consumption tax is a progressive income tax with unlimited deferral of the tax for income reinvested. In this utopia, a very rich person consuming like a less rich person pays the same tax as the less rich person. This form of propriety leaves more resources organized by markets without entitling anyone to organize vast resources to produce for goods consumed by very few. Of course, states organize resources this way routinely.

Methinks1776 September 21, 2011 at 12:59 pm

Part of my consumption is giving to charity. How does your progressive consumption tax deal with that?

Martin Brock September 21, 2011 at 9:56 pm

Charity is not consumption. You do not consume what you give to others expecting nothing in return. Charity is more like an investment with a negative expected negative yield, so my ideal progressive consumption tax would not tax charity. It would tax politics.

Methinks1776 September 21, 2011 at 10:12 pm

Charity is consumption. My money is a consumption credit and I transfer some of that consumption credit someone else when I give it away. Moreover, I consume something when I give to charity. In return for the check that I write, I have the pleasant feeling of helping someone. We only consume because we find it pleasant.

I mainly asked because we’ve had this conversation before. I pointed out that discouraging people from consuming discourages them from producing. We only produce to consume. There is no other reason to toil or to take risks.

I abandoned the conversation after you said that we produce for other reasons. The only other reason I could think of was charity or to support family members (which is family charity). All of those are consumption.

Why would people be encouraged to continue to toil and take additional risks if less and less of the income can be consumed?

muirgeo September 22, 2011 at 1:21 am

“Why would people be encouraged to continue to toil and take additional risks if less and less of the income can be consumed?”

Because the best people don’t toil just for income. They toil to make the world a better place. And they will do so regardless of the marginal tax rate.

Now we have traded CEO’s who seek to make their company the most successful for the sake of the company for scum bag CEO’s who simply use companies others made successful simply to indulged themselves for the rights to be named the richest person on the world. Bunch of GD Nero types of sociopaths walking around down there on wall street.

Instead of toiling to become rich and benevolent with your extra earnings you stole in the first place how about doing something useful to the world in the first place?

Methinks1776 September 22, 2011 at 7:44 am

Muirdiot,

You’re going to have to come to terms with one simple fact: As long as I own the politicians you eagerly hop to the polls to elect, you will always be my bitch.

muirgeo September 22, 2011 at 9:00 am

“You’re going to have to come to terms with one simple fact: As long as I own the politicians you eagerly hop to the polls to elect, you will always be my bitch.”

Oh I HAVE come to terms with it and I am just pushing for everyone in the America to understand it…. see those crowds out their on Wall Street? They are figuring it out…

Martin Brock September 22, 2011 at 12:31 pm

O.K. Your charity typically is consumption though it’s not your consumption, not because of how you feel about it but because the expenditure does not organize resources seeking more profitable production. It’s consumption because it’s not anyone’s investment.

I would still exempt it from a progressive consumption tax, because I want wealthy individuals absorbing more functions of the welfare state. Shifting authority away from the center is the point of a progressive consumption tax, but unfortunately most people don’t understand this point.

A well-structured, progressive consumption tax does not discourage production. It encourages production by encouraging investment. Wealthy people govern the balance between consumption and production far more than less wealthy people, and they do so as a consequence of forcible propriety imposed by states.

We don’t only produce to consume. Parents do not raise children only to consume their output. The opposite is more nearly true. People bear and raise children to satisfy an innate, creative impulse, and entrepreneurs start and build businesses to satisfy similar impulses. At some point, the additional consumption that greater wealth provides is irrelevant.

Did Bill Gates make his last 49 billion because he wanted a vacation to the moon or because he wanted Microsoft to be the best software development firm possible, because he wanted to be the top dog in software development? Why do Olympic athletes spend years preparing for the competition, to increase their personal consumption?

You may abandon this conversation too, but these questions remain.

Methinks1776 September 22, 2011 at 10:43 pm

Martin,

You do not and cannot know at what point any individual’s consumption becomes irrelevant. Thus, you cannot construct a progressive consumption tax well. A well constructed consumption tax is as abstract a concept as a good regulations.
Progressive income tax faces the same issue.

You claim that progressive consumption taxes will shift authority away from the center. However, if the central authority must decide for the entire population at what point their consumption must be curtailed, then you have not shifted authority away from the center.

Martin Brock September 23, 2011 at 10:47 am

I can’t well construct the myriad of forcible proprieties that exist either, but statesmen have created these proprieties, and the wealthy are wealthy as a consequence. Rather than a progressive consumption tax, we might repeal many of these property rights, starting with all entitlement to tax revenue, most intellectual property, many entitlements to land and other rents, but I don’t expect that to happen.

At a sufficiently high level of consumption, a progressive consumption tax does not discourage productive investment by denying the investor rights to consume yields, because countless people will pursue entrepreneurial opportunity that others more inclined to consume will not pursue.

I don’t know any optimal consumption level, like a million dollars a year, but a sufficiently high level is easily conceivable. Capping personal consumption at a million dollars a year would not reduce investment by a dime. Anyone consuming a million dollars a year has little time left for investment and can hardly be anything but a rent-consuming parasite.

Methinks1776 September 24, 2011 at 8:48 am

Anyone consuming a million dollars a year has little time left for investment and can hardly be anything but a rent-consuming parasite.

My oh my.

Methinks1776 September 21, 2011 at 10:14 pm

Unless you’re toiling to be able to give more away, that is.

ArrowSmith September 21, 2011 at 1:15 pm

What’s wrong with ostentatious trappings of wealth? People ate up “Lifestyles of the Rich and Famous” show! People *aspire* to a BMW, day spa and the Riveria.

vikingvista September 23, 2011 at 3:38 am

I will never understand this vicious envy some people have against great wealth. I guess a rich person bit them when they were young or something.

There are two kinds of rich people–those who politely mind their own business, and those who aggress against me. But guess what, there are those same two types of every other kind of people too. Other people’s wealth just doesn’t matter one iota to me. Except, as you say, I sometimes enjoy seeing some of the cool stuff they can buy.

Ken September 21, 2011 at 1:53 pm

MB,

“I favor “raising taxes” on the very rich to limit forcibly unequal consumption”

Why not favor forcibly scarring of the beautiful? I mean is it really fair that Wilt Chamberlain had sex with over 10,000 women, while some men die virgins?

Why not favor forcibly sterilizing those you think have “too many” children? After all is it really fair that Antonin Scalia had nine children, while some die with none?

Maybe what you should be in favor of is thinking.

Regards,
Ken

Martin Brock September 21, 2011 at 9:42 pm

Because beauty, unlike a Treasury note, is not a product of the force of the state.

If 10,000 women want to have sex with Wilt Chamberlain and none of them want to have sex with me, that’s fair enough.

I’m not in favor of comparing apples with oranges.

Ken September 21, 2011 at 10:07 pm

MB,

“I’m not in favor of comparing apples with oranges.”

Of course you are. You just did.

“I favor “raising taxes” on the very rich to limit forcibly unequal consumption” and “unlike a Treasury note, is not a product of the force of the state.”

What are you saying with these two things? That rich people are rich because they have a treasury note? People with no treasury notes, yet millions of shares in various companies, acres of prime land, etc cannot be rich? That they got that treasury note through the force of the state?

None of what you are saying is really making any sense.

Regards,
Ken

Martin Brock September 22, 2011 at 12:37 pm

I’m saying that a Treasury note is “property”, because it is as a matter of law. People with no Treasury notes own other things called “property”, like mortgage backed securities and software patents and shares of Lockheed-Martin and titles to parcels of land.

Yes, everyone with a Treasury note has it through the force of the state.

You are not making sense of what I say.

Ken September 22, 2011 at 10:08 pm

MB,

“I’m saying that a Treasury note is “property”, because it is as a matter of law.”

Which law? I googled “treasury notes are property” and “treasure note is property”. I got zero hits on both. And that a treasury not might be defined as property is irrelevant to the discussion.

“Yes, everyone with a Treasury note has it through the force of the state.”

So the treasury notes I have in my wallet are there through the force of state and not because I find that using them is the most convenient way for me to consume products?

“You are not making sense of what I say.”

Because what you are saying doesn’t make sense. You say you want taxes to limit unequal consumption, which is a very general statment and doesn’t mention a treasury note anywhere or what you are going to tax and how. Taxation isn’t restricted to the confiscation of treasury notes. Then you claim that you want taxation based on treasury notes, to which I replied that it’s certainly possible to consume unequally WITHOUT treasury notes. Hence your taxation “plan” doesn’t reduce unequal consumption at all; it will simply encourage people to NOT use treasury notes.

What if I use bitcoins, or gold bullions that I mined and minted or whatever type of currency NOT created by the “force of the state”, exclusively to do ALL of my economic transaction? Are you now saying that I can now NOT be taxed becaues I’m not using anything that was created by “force of the state”?

Regards,
Ken

Economiser September 21, 2011 at 1:58 pm

When your justification for imposing taxes deviates from “raising revenue,” you’re simply taxing for the purpose of punishment. Why?

Fred September 21, 2011 at 2:05 pm

Because people should never be put into a situation where they envy someone for having more wealth than them.
It’s not fair.
*stomp stomp stomp*
It’s just not fair.
*stomp stomp stomp*
Mommy!

Chris O'Leary September 21, 2011 at 2:18 pm

I don’t think you’re being very fair to toddlers.

Martin Brock September 22, 2011 at 12:39 pm

A progressive consumption tax does not punish. It limits the consumption of holders of titles to forcible propriety.

Chucklehead September 21, 2011 at 9:35 pm

Interesting construct. You aim at limiting luxury goods and induce greater investments by the wealthy, and at the same time limit revenues to the state. It is not without some merits, except you forget that all modern conveniences were play toys of the wealthy at one point. If you want to know what Chevy will have in 10 years, look at today’s Mercedes S class. Never-mind, Chevy won’t be around in 10 years….

Martin Brock September 22, 2011 at 1:01 pm

Right. Adam Smith advocated the same sort of tax.

Limiting castle building does not destroy innovation to create the next generation of improvements in more common residential housing. Many commercial enterprises offering more common services provide this opportunity, hotels, vacation resorts, Disney’s Magic Kingdom. Automobile racing provides much automotive innovation.

Methinks1776 September 22, 2011 at 10:50 pm

You missed his point entirely.

Seth September 21, 2011 at 1:01 pm

DG?

Chris O'Leary September 21, 2011 at 1:14 pm

One problem is that people aren’t equal, so in many ways inequality is just the way it is.

Some people are simply more intelligent than others and some people are harder workers than others. As a result, some level of inequality is always going to be present, and those discrepancies are going to be more and more obvious as we move to a knowledge economy and generally the new rich tend to have lots of intelligence, be it intellectual intelligence, marketing intelligence, sports intelligence, or whatever intelligence.

Of course, Russ’ point about the failures of educational spending is very important. The failure of the educational system is leading to people not maximizing what they have to work with.

Chris O'Leary September 21, 2011 at 1:18 pm

More on this…

We have to draw the distinction between equal opportunities and equal outcomes. You can’t guarantee outcomes because you don’t know what someone will do with the opportunity that is given to them. However, we should try to make sure that people have similar opportunities (and subsidies that just flow to certain favored or well-connected people are not equal opportunities).

Chucklehead September 21, 2011 at 10:12 pm

I wish someone would explain how my neighbors wealth harms me in any way. They make twice as much, so if both our incomes double, the inequality is even greater, but I am twice as well off as I was before.
We also need to be constantly reminded that that income earners are not in a permanent club. Most only join the club for a few years before being asked to leave by their customers.

Methinks1776 September 21, 2011 at 10:34 pm

reminds me of a question that I think was asked as an interview question that went something like this:

Imagine two scenarios:

A.) You’re making $500K and the more experienced guy next to you on the desk is is making $1MM.

B.) You’re making $100K and the more experienced guy next to you on the desk is making $150K

Which scenario do you prefer?

You would be surprised how many people choose scenario B. Personally, I prefer to hire Chucklehead – a guy who is smart enough to recognize opportunity and to seek to maximize his income rather than nurse his envy.

Chucklehead September 21, 2011 at 10:55 pm

69% of program listeners voted for envy. Proof that NPR funding should be abolished so deny these sinners their public forum.

MarketJohnson September 24, 2011 at 10:33 pm

What you fail to understand is that the whole point is to maximize happiness, not just economic well-being. You and your like seem to be all for letting people make their own decisions with their own money, personal liberty, homo economicus, etc. (all good things, btw). But as soon as there is some evidence that contradicts your ideology (like the question you posed, or the fact that suicide rates are lower and life-satisfaction levels are higher in many countries with less absolute wealth but more wealth-equality) all of the sudden people are idiots.

You also fail to understand that in a two person economy where one makes 100k and the other makes 150k, the 100k person will have more purchasing power than the 500k person in an economy with a 1MM person.

Chucklehead September 22, 2011 at 1:49 am

It should read:
We also need to be constantly reminded that high income earners are not in a permanent club. Most only join the club for a few years before being asked to leave by their customers.
Can we get a edit function? I need it more than most. Is this rentseeking?

Josh September 22, 2011 at 2:35 am

So you would agree with abolishing private schools?

Matthew September 21, 2011 at 1:16 pm

Nice conversation Russ. I love your professionalism, very refreshing when the majority of these conversations are done but pundits. I wonder if Chuck was expecting to be going up against some hard-core ideologue. Your continual demonstrations of being agreeable while disagreeing is another one of your important contributions, IMHO.

Economic Freedom September 21, 2011 at 2:20 pm

I’m delighted that everyone in Wisconsin is so agreeable: Russ “basically agrees” with Chuck; Chuck “mainly agrees” with Russ; caller A “essentially agrees” with both Chuck and Russ; caller B “substantially agrees” with Russ but only “somewhat agrees” with Chuck; caller C “completely agrees” with Chuck but “would have to agree” with Russ on some small details.

(Yawn)

This is why the cause of liberty is doomed. Those who ought to be both promoting it and defending it — such as free-market economists — wind up agreeing with their adversaries’ basic premises regarding the supposed right of some people to redistribute forcibly the property of others in order to appease the envy of some third group.

Sorry, Russ. You had the chance to advance, capture, and hold the moral high ground and instead you retreated. You debated as if the issue were a purely technical one regarding the “best kind of redistribution” rather than one dealing with — as the moderator often repeated — “the BIG questions.” Big Questions demand Big Answers . . . or at least Bit Attempts at Big Answers.

You could have, and should have, pointed out that there are no objective definitions of your opponent’s key terms: “rich”, “poor”, “common good”, “social justice”, “socially beneficial”, etc. These are weasel words that mainly act as cover for envy. You could have quoted Milton Friedman (“The reason I favor small government is that when government becomes big, it’s always taken over by Big Businessmen”); you could have pointed out the benefits of liberty and economic freedom instead of harping in a basically irrelevant point — better education. Object lesson: young people in the former Soviet Union generally had an excellent education: they were literate, they all spoke a second language, they had solid math skills, and — most importantly from your opponent’s point of view — their incomes were all equal. Yet it was a miserable economy and a cruel society. Chuck’s bit about income quality leading to “people watching out for one another” is simple bull that begged for a pointed retort from you. (Then again, perhaps you agree with his sentiment.)

We all know the story about Mises at one meeting of the Mont Pelerin Society. Participants were milling about, seriously discussing Milton Friedman’s idea of a “negative income tax”, a form of redistribution. Mises was so disgusted by it all that he loudly declared to his colleagues “You’re all socialists!” He might have exaggerated a bit . . . but only a bit. In fact, his insult (and it was intended as an insult) was a much needed slap across the face to a distinguished group of thinkers who really should have known better.

Chris O'Leary September 21, 2011 at 2:38 pm

I agree that my first impulse when I heard the question was…

So what.

Really, who cares about inequality (of outcomes)?

People aren’t the same, so why should their outcomes be the same?

Were things truly more equal in the days of the pauper and the king?

I agree that Chuck’s list of the inherent problems with inequality was pretty weak. However, I’ve never heard that list or really thought to come up with responses to those objections.

I think Russ’s point was that we should be more focused on equalities of opportunities than equalities of outcomes (because focusing on equalities of outcomes is usually just envy run amok).

SLAVE of THE STATE September 22, 2011 at 3:18 am

“I think Russ’s point was that we should be more focused on equalities of opportunities than equalities of outcomes ().”

Nah. I could only support a good attempt at “equality before the law.”

Economiser September 21, 2011 at 2:48 pm

Having not listened to the podcast (so assuming your description is accurate), I agree completely. This is not the time for the defenders of liberty to back down.

Methinks1776 September 21, 2011 at 8:34 pm

You slayed me with your first paragraph. I’m still giggling.

Josh September 23, 2011 at 11:46 pm

I take it you aren’t a fan of no child left behind

M.R. Orlowski September 21, 2011 at 3:14 pm

We should start bringing up Hayek’s argument in his second volume of LLL, when we’re dealing with redistributionist arguments.

Chucklehead September 21, 2011 at 10:45 pm

Fair share, ability to pay….
Call your friends and invite them to meet you at a bar for some drinks. Also tell them that whoever brings the most money, buys. See what happens.
Remember, these are your friends. Imagine the result with strangers.

SLAVE of THE STATE September 22, 2011 at 3:19 am

Hah!

muirgeo September 22, 2011 at 1:10 am

What was so horrible about 90% top marginal rates considering we had the highest growth in GDP over the same period.

What was so horrible about Clintons tax rates and 20 million new jobs?

We have the lowest tax rates since before the Last Great Depression … and how are things working out? Shouldn’t the economy be booming if everything revolved around lower taxes rather then trying to find fault with the data.

Chucklehead September 22, 2011 at 1:59 am

If 90% rates were so good, then lets make it better 95%, 100% or 110%. And why should the rich have all the fun? Lets do 110% across the board. Now we have the equality of misery that you long for.
http://www.youtube.com/watch?v=okHGCz6xxiw

muirgeo September 22, 2011 at 9:02 am

Naw I think paying 50% on everything I earn over 250 K is fair. There’s a balance.

Franklin Roosevelt September 22, 2011 at 10:23 pm

George, I think that it’s fair for you to pay 100% of everything that you make over $50,000 each year to the government. Also, there should be no privately-owned property. You should have a government-owned apartment that you will be allowed to live in. Why should you have so much when others have so little? Have you no compassion?

brotio September 23, 2011 at 12:26 am

I think… – Yasafi Muirduck

LMAO!

Tom September 22, 2011 at 9:34 am

l would rephrase the question: Does taxing the wealthy to get MONEY with which to make transfer FINANCIAL payments to the poor provide a viable method for achieving permanent economic equality?

My answer: Never has, never will, never can–but that does nothing to stop those who have a very shallow understanding of what properity is and how prosperity is produced and provided.

—-And this lack of understanding is not necessarily indicative of political leaning.

Greg Webb September 22, 2011 at 11:30 pm

No!

Greg Webb September 22, 2011 at 11:58 pm

Is it a good idea to lower testing standards to reduce grade inequality among students?

Is it a good idea to change scoring standards to reduce rankings among sports teams?

Is it a good idea to give some growth hormone to chidden of parents that are short or of average height to reduce height inequality?

Is it a good idea to force people to eat less and work out regularly to reduce weight Inequality?

Is it a good idea to limit study tine to reduce intelligence inequality?

Is it a good idea to give kids unnecessary plastic surgery to reduce attractiveness inequality?

Is it a good idea to control the time people spend doing things they enjoy to reduce happiness inequality?

No! Income inequality is the typical “politically correct” idea solely designed for corrupt politicians and their political cronies to steal the taxpayers’ money. It is a sham. Nothing more.

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