Rubber Duckies

by Kieran Healy on September 18, 2003

Jacob Levy revives the debate about the tax system and the poor — or, as the Wall Street Journal called them when it kicked off the argument, those lucky duckies who make up the “non-taxpaying class”. Jacob wants to argue that the underlying form of the WSJ’s argument is very common — indeed, almost inescapable — in political philosophy. He says it goes as follows:

bq. If we subject everyone to the same rules, institutions, or conditions, then there will be political demand to make them fair or otherwise tolerable. If we only subject some people to them, then some may be unfairly singled out or burdened; there will be opportunities to divide the citizenry, play the interests of some against those of others, and to undermine the overall desirable outcome. … The final thing to notice about this kind of reasoning is that some form of it is common to virtually all political philosophies. Stated at a sufficiently general level, it is the standard classical liberal argument for the rule of law, for not being ruled by an aristocracy exempt from the legislation it writes, and for hoping that justice will be blind.

Over at Volokh, Jacob describes this column as his “most contrarian to date“. I worry that he’s putting his talents to waste looking for a neat angle on things. If you end up making the case that the bottom 20% of income earners (that’s people who make $15,000 a year or less) are logically equivalent to “an aristocracy exempt from … legislation” then you have a choice. You can conclude you have a solid new argument for calling someone a welfare queen, or you can wonder whether something’s gone wrong somewhere.

Jacob’s piece is a victim of its own sophistication. It jumps to a much higher level of argument than the WSJ piece was working at, and it abstracts the question away from some empirical data that the editorial deftly and deliberately ignored. The original editorial was able to make its case by detouring around two inconvenient facts. The first is that, in terms of the total federal tax burden, the U.S. system is only modestly progressive. (Here’s a summary.) Some defenders of the piece (though not Jacob) argued as though the WSJ’s neglect of this information meant that it couldn’t be mentioned by critics, either. That was an interesting objection both logically and politically: logically, because it granted the WSJ special dispensation to beg the question; and politically, because you don’t normally see conservatives arguing that some taxes shouldn’t be counted when calculating what the government expropriates from you. Perhaps they think that, in the case of the poor, it isn’t real money.

Second, the editorial glides over the fact that U.S. income distribution is remarkably skewed. Most Americans remain quite unaware of just how skewed, something that Paul Krugman complained about recently. So the WSJ knows it can safely sound shocked when it finds “the top 5% coughed up more than half of total tax revenue.” That would be federal income tax revenue, again. One could just as easily say “The richest 5% earned 32% of all income and paid 41% of all federal taxes. Meanwhile the bottom 20% paid only 1.1% of all federal taxes, earning a princely (should I say aristocratic?) 3.3% of all income.” Not exactly the stuff of tax revolts. The WSJ’s position is that the current tax system is horribly progressive, with the lucky-ducky poor paying nothing and the rich paying everything. In fact, as Kevin Drum pointed out in January, relatively low federal income tax rates on the poor are what keep the tax system from looking very flat, or even regressive. It’s this calculated blindness that irritated people so much when the editorial was published.

It’s possible to use Jacob’s approach to reading the editorial to come to quite different conclusions. As the WSJ says, fewer and fewer people are paying more and more of the tax:

bq. Workers who pay little or no taxes can hardly be expected to care about tax relief for everybody else. They are also that much more detached from recognizing the costs of government.

Why is this happening? Well, mainly because fewer and fewer people are making more and more of the money. (Let’s not even get started on the severity of wealth inequality, which is much more important, and much worse.) So what? The other day, Kevin Drum asked Paul Krugman “Purely on an economic basis, what’s wrong with income inequality? Does it hurt? And why?” To his credit, Krugman denied the premise: he said, “Well, I think you can’t do it on a pure economic basis, you have to think how it plays through the social system and the political process…” Kevin was looking for a value-free way to condemn inequality, but there isn’t one. The WSJ, though, implies a fairly solid rationale. If large numbers of people don’t earn enough to pay much income tax, they probably don’t have much of a stake in society. Things are made worse if the gap between the top and the bottom gapes like the Grand Canyon. A kind of pincer movement ensues. A big chunk at the bottom are detached from civil society and politics. A tiny, tiny minority at the top barely pay taxes at all. A small minority pay most of the tax because they have the largest share of income. These people tend to be more politically engaged. But they’re so ignorant about the shape of their own society — focused on their share of the tax burden, but unaware of their share of income — that they feel like they’re getting a raw deal. That makes for nasty politics. Class-war politics, even.

The WSJ is right: the more people who contribute to the cost of running the state, the better that is for the life of the country. The only provisio is, “assuming they can afford to do so.” So the Journal is really documenting negative consequences, like social exclusion and the politics of resentment, that flow from severe economic inequality and find their expression partly through fights about the tax system. In this regard, the WSJ editorialists have a lot in common with Paul Krugman.

Now, I don’t believe that’s the right way to read the “Lucky Duckies” editorial. But that’s because I believe it to be a piece of ideology — something written by smart but disingenuous people in order to mislead readers about what’s there in the data. For that reason, I don’t think it’s worthy of the subtle tools Jacob brings to bear on it, and it also makes me less inclined to follow the dialogue that’s going to develop between Jacob and Russell Arben Fox, who engages Jacob’s argument on its own terms. Beyond a certain point, it seems to me, the price you pay for the fun of being contrary just isn’t worth it.



Max Sawicky 09.18.03 at 6:37 pm

I don’t think Levy has a serious argument. Everything hinges on what “treating people the same” means. His presumption is that everyone paying an equal share of income is equal treatment, but this is a completely arbitrary choice.

For one thing, defining “income” is a task for which many trees have died. So the idea of an equal share of income leaves much to the imagination. Income received as cash? Intangible income? Income as accrued or when realized? Income received now or later? What deductions legitimately offset income? Etc.

For two, equal treatment could be defined in other ways. Once again, much attention has been devoted to this by economists, among others. Is it equal sacrifice? Is it fair to tax a person on endowments she declines to exploit for the sake of higher money income?

The fact that poor people pay taxes other than income taxes is the least of the complications. The content of “equal treatment,” really fair treatment, is the problem that Levy glosses over entirely.


Katherine 09.18.03 at 7:50 pm

I don’t think this is quite the question asked by Drum or answered by Krugman, but I think income inequality does have real economic consequences for poor people because it drives up the price of some real essentials (like housing in major cities) and really good ways of getting ahead (like college tuition–it also drives up the supply of smart kids who can afford to work for free to break into a field, which is a problem for smart kids who can’t afford to work for free.)


ophelia benson 09.19.03 at 1:46 am

And then of course there’s the whole positional goods aspect, which further complicates things.


Ray 09.20.03 at 10:07 pm

Forgive the self-promotion here, but:

A progressive tax isn’t a penalty. It’s not a personal attack. It’s simply a practical matter, like shooting a mad dog.

The world isn’t socialist, and so governments need funding to provide services. Unless the government gets its funding from other countries (the empire model), it has to be funded by its citizens.

Rich citizens have more money, so it makes practical sense to get more funding from them.

Rich citizens receive more benefit from the government (directly through the pork-barrel; indirectly through property laws, courts, a stable currency, and the military and paramilitary forces needed to secure them) and exert more influence on the government, and so it also makes moral sense.

It all seems pretty straightforward to me.

The problem, of course, is that not all rich citizens care about their country or even about their own long-term viability. Should such short-sighted greedy bastards gain control of the government, things fall apart in a hurry.

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