by Russ Roberts on March 30, 2012

in Taxes

Brad DeLong opines on taxing the superrich:

Saez and Diamond argue that the right marginal tax rate for North Atlantic societies to impose on their richest citizens is 70%.

It is an arresting assertion, given the tax-cut mania that has prevailed in these societies for the past 30 years, but Diamond and Saez’s logic is clear. The superrich command and control so many resources that they are effectively satiated: increasing or decreasing how much wealth they have has no effect on their happiness. So, no matter how large a weight we place on their happiness relative to the happiness of others – whether we regard them as praiseworthy captains of industry who merit their high positions, or as parasitic thieves – we simply cannot do anything to affect it by raising or lowering their tax rates.

The unavoidable implication of this argument is that when we calculate what the tax rate for the superrich will be, we should not consider the effect of changing their tax rate on their happiness, for we know that it is zero. Rather, the key question must be the effect of changing their tax rate on the well-being of the rest of us.

From this simple chain of logic follows the conclusion that we have a moral obligation to tax our superrich at the peak of the Laffer Curve: to tax them so heavily that we raise the most possible money from them – to the point beyond which their diversion of energy and enterprise into tax avoidance and sheltering would mean that any extra taxes would not raise but reduce revenue.

The “logic is clear” “unavoidable implication” “we know” “moral obligation.” I’m glad he’s so confident that after a certain level of income, taking people’s money from them doesn’t affect their happiness. Makes it easier, doesn’t it? For the rest of us, we’re not satiated. But the supperrich are. Who knew? This is called science.

DeLong then quotes Adam Smith. Smith understood that we admire wealth and fame. DeLong argues that this is why we don’t support high tax rates. I don’t think that’s the reason–it’s not sympathy with the rich. It’s a lack of sympathy for those who claim to know what is best for others and who claim to be able to spend other people’s money more wisely than they can.

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