Optimal Majoritarian Taxation

by Don Boudreaux on July 26, 2017

in Budget Issues, Myths and Fallacies, Taxes

While writing my commentary on today’s “Quotation of the Day” I recalled Jim Buchanan’s and Yong Yoon’s excellent April 1995 Southern Economic Journal paper, “Rational Majoritarian Taxation of the Rich: With Increasing Returns and Capital Accumulation.”  In this paper – reprinted in Debt and Taxes (2000), which is volume 14 of the The Collected Works of James M. Buchanan – Buchanan and Yoon ask, on the assumption that majority coalitions are free to tax and spend as they wish [page 321 of Debt and Taxes]:

What rate of taxation should the political majority rationally impose on high-income recipients if this majority is motivated strictly in the interests of its members?

Buchanan and Yoon discover that, under a variety of different assumptions, a rational and materially self-interested majority that has no more than purely instrumental interest in the well-being of high-income recipients will moderate its taxation of the rich.  Here are Buchanan and Yoon [page 337 of Debt and Taxes]:

The thrust of our argument has been one of demonstrating that the political majority need not exploit the richer members of the polity to the extent suggested by the elementary models of revenue maximization.  We suggested … that the presence of economy-wide increasing returns requires the recognition of the non-fiscal benefits, to members of the majority, that stem from the income-generating activities of the rich.  This effect becomes more pronounced as the share of income received by the rich increases and as the predicted negative responses [by the rich] to taxation increases.

One can legitimately question the sets of assumptions used by Buchanan and Yoon.  One can also, or alternatively, legitimately question the logical coherence of their analyses.  But what one cannot legitimately do is to leap from Buchanan’s and Yoon’s argument that the non-rich majority has a material interest in not soaking the rich minority to the conclusion that Jim Buchanan specifically, and public-choice economics generally, are ideologically blind apologists for the rich and, hence, enemies of the non-rich.  Indeed, this Buchanan-Yoon paper can be read as practical advice – perhaps even constitutional advice! – given by Buchanan and Yoon to non-rich political majorities on how best to get the most material benefits over time out of the rich.

This Buchanan-Yoon paper is not mentioned in Nancy MacLean’s Democracy in Chains.  Indeed, MacLean mentions very little of Buchanan’s analytical work – of which there is much – on the positive economics of taxation.  To be fair, to understand most of this work requires an understanding of advanced economics, which MacLean clearly doesn’t possess.  (She doesn’t even understand elementary economics.)  But inability to understand significant and relevant portions of a scholar’s work is no excuse to substitute for that scholar’s actual meaning one’s own ignorant suppositions of what that scholar is imagined to have meant.  It does not follow from Buchanan’s opposition to soaking the rich that he was an enemy of the non-rich.  This Buchanan and Yoon paper features one (although not the only) reason why this conclusion about Buchanan is unwarranted.

Buchanan and Yoon, in their 1995 article, argue that a rationally self-interested non-rich political majority would not, for their own good, wish to maximally tax a rich political minority.  Even if Buchanan’s and Yoon’s analysis is incorrect (although I do not believe it to be), why not read it as an attempt by Buchanan and Yoon to give helpful fiscal advice to the non-rich – that is, as evidence against Nancy MacLean’s lazy assumption that Buchanan and public choice are at best indifferent to the well-being of the non-rich?


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