I have always lived with roommates. As many as 80 at one point. Then six or seven for a couple of years. Now two. In every case, there has been substantial financial inequality. Some people had parents that were loaded. Some had better paying jobs. Others had vastly higher potential earnings. Yet, in every situation we all paid equal rent.
So my question is this: How many Americans, if they shared a house with equal ammenities, would propose paying rent based on wealth? How many think rent in an apartment building should be indexed to income?
My guess is very few. The unfairness of progressive rent seems obvious. Once we can afford a reasonable standard of living, we pay based on what we get, not based on what we have. Duh. When I go out to dinner with my roommate who is in law school, I don't suggest that he pay for more of the bill because he will make more money when he graduates. He would laugh his ass off at me.
So why do so many people, who would reject the concept applied to their personal life, approve of progressive taxation.
The whole idea of progressivity relies on the ability to exploit an anonymous minority. I would suggest my rich roommate pay for dinner if a third person agreed with me and was willing to help enforce the rule...and if my roommate weren't my friend.
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3 comments:
I think it all gets back to how you define fairness and equity. Your specific example of students living together is a very unique example of mixing, all while accessing the very same amenities.
You imply that we all have access to the same amenities of American society by virtue of being taxpayers, regardless of our wealth. I'm not convinced that this is the case. Even if I'm wrong and the wheels of the system are greased equally for all Americans regardless of wealth, it may be that when it comes to paying for the benefits of living in a specific society it is fair to expect a each person to kick in what he can afford, in a different way than roomates would approach the task of divying up the total cost of a utility bill.
Second, if I'm not mistaken, having raising tax rates at the lower end of the income range would be a disincentive to work at all, which could be problematic for unemployment rates and crime (in turn higher costs for law enforcement and incarceration), among other things. I'm guessing you'll say that this disincentive also exists higher up the tax bracket, but I would imagine that it's much weaker, given that individuals higher up the tax bracket have far more discretionary income. I would also guess that the unintended consequence would be lower productivity, which may or may not be less serious than my guesses above depending on its magnitude. These are tradeoffs that I assume have already been weighed.
Again, I think it all gets back to what you see as fair and equitable. When you take your experiment to a larger scale, is it really unfair to assume that people will kick in what they can afford?
Anon-
You make some really good points. I think I will challenge them.
I’m not (primarily) suggesting that progressivity isn’t a reasonable moral position. I’m saying that whatever people’s morals, they seem to apply them inconsistently.
At what point does a *society* become relevant. My house is a society of sorts. An apartment building is a kind of society. A neighborhood. At some point you have to reverse your ethical standard. What I am saying is that people seem to be willing to make the moral adjustment on progressive taxation when (1) they are in the majority, (2) institutions are in place for them to enforce the policy, and (3) the minority being exploited is sufficiently anonymous. The wealthy are an especially vulnerable demographic. People seem to think that it’s virtually impossible to be rich and a victim. No guilt in sticking it to the rich guy!
The wealthy would still pay much more for their amenities without progressive taxation. They would just not pay an increasing percentage. In fact, my example isn’t really all that good. Progressive dining isn’t saying, “You make more money, therefore you should pay a higher percentage of the bill.” It’s saying, “As you make more money, you should pay an increasing percentage of the cost of the meal.”
What public goods do wealthy people consume in larger amounts, anyway? The opposite seems to be true. Wealthy people don’t hangout at the park. They go to the Cape. Perhaps, what you’re saying is that the wealthy have gained more by living in a free, democratic, safe society. But how has earning1,000,000th dollar used more resources than their 40,000th dollar.
The work disincentive of a higher marginal tax is ambiguous. But empirically, the income effect dominates for lower incomes. So, there would be a positive work incentive. Substitution effects dominate for high incomes, so progressive taxes are extremely inefficient in terms of optimal taxation. If that were the goal (which is not what I am suggesting), then we would prefer regressive tax rates.
Non-employment is not the same as unemployment. Unemployment is basically entirely cyclical. Why has there not been growing unemployment as tax rates have raisen over time?
You are correct that higher marginal tax rates have negative consequences. That seems like a great argument for smaller government.
KLR,
Great post. Good questions brought up by Anon. One thing to point out, as per an earlier email, did you notice the use of the "class" student?
I'm looking forward to Anon responding to your rebuttal.
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