Email Throwdown! (posted by DT)

I thought I would share with you my loyal readers one of the lengthy email chains that we have been involved in. What follows is an edited and hopefully readable version of an exchange about the general issue of fairness and tax policies. I've taken out names to protect the politically innocent:

From JB:
The general question I have is, where is it written that life is supposed to be fair? Actually, life not being fair is what motivates a lot of people to success....and it builds character too. Secondly, if fairness is something that we should strive to achieve for all, why is it fair that those in the higher brackets are paying 60% oftheir money in taxes, and the government wants them to pay even more? Why is it fair that living in the northeast in order to afford a house and a family, and live like people in the rest of the country, you needto make 75%-100% more? Why is it fair that my buddy in Texas lives in a house just like mine and it cost him 1/3 the price of mine, but my taxes are higher because i make more? Meanwhile he probably can buy much more with the money he makes in Texas? When you start playing the "fair" card, it is a very slippery and dangerous slope - none of it is fact based, it is purely emotional andby definition will create inequities for someone else.

My Response:
I think that it would be nice if life were always fair, though of course impossible. I believe that when government can make life more fair (by, to take an uncontroversial example, enforcing laws against robbing and killing people) it should consider doing so. Some unfairness can't be solved by government (like, for example, gov'tcan't stop a child from being born with cerebral palsy), but can be ameliorated (gov't could make sure that that child's family can still afford health care). I think people's motivation is DECREASED by unfairness- if I know that because my parents can't afford college and because there's no financial aid, I have virtually no chance of going to college, I may not bother studying hard, accepting my fate as a low-wage worker. I'd be much more motivated to improve my situation if I felt like I had a fair chance to succeed. As for the tax issue, the more people make the more they should pay in taxes. It doesn't seem like our progressive tax system has stopped high wage-earners from working lately. As for the problem of your house being worth less than your buddy inTexas, that's one of the fairness issues the gov't should not try tosolve. You're welcome to move to Texas if you want, so it's really not unfair at all. That's not quite the same as the parent whose kid has cerebral palsy- can't exactly give him back.

JB respondes:
I am not sure if you have ready any Thomas Sowell - an African American who grew up in Harlem, pennyless, but went to MIT and has become a brilliant economist. He talks a lot about the same general principles that [another correspondent] touched on, how people need to be motivated to improve their own situation. Too much of our society is inherently lazy and does not produce for the greater good. This government is continuing to move in the direction of enabling this behavior, making indiviuals reliant on handouts, rather than motivating. Now, from the perspective on the top of the food chain: as the government continues to take and redistribute, those who create the jobs become less motivated to continue to do so, as they see less and less return on their own invested capital. By de-incentivizing these individuals, it has a spiraling effect on the whole system. With less motivation on the top of the food chain, there is fewer trickle down effect and everyone loses. Since we can both agree that life unto itself is not fair, the governments role is not and should never be to determine winners and losers i.e. fairness. When you take away more money from the top, and give it to the poor, that is exactly what the government IS doing, it is choosing to whom it wants to be fair, and to whom it wants to be unfair. Your thought is, why shouldnt the government be able to make things more fair for some. My question is why should the government be allowed to make things unfair for others. Everything has a cost to society, there are no free lunches.

Me again:
I find your position a maximalist one, that's all. As I see it, gov't can't do everything, but it also can do SOMETHING. The current conservative argument is that gov't can't do a damn thing and shouldn't even try (except use its military to kill lots of foreigners of course). I agree with you that taxes and redistribution can get too high and lead to the things you fear- a sinking economy that helps nobody. I just don't think that's a big danger with current tax rates, or even with Clinton-era tax rates. The economy was running pretty well during most of the '90s, with higher taxes than in the 2000s. I just don't see evidence that going back to those tax rates would be harmful. I'm not arguing that we should go back to 1970s tax rates, which I believe included a 91% marginal rate at the top- that's too high. My position on taxes isn't really radical based on recent US history. What's radical is the current Republican fixation on tax cuts ad infinitum. It is completely impossible to solve the deficit problem without revenue hikes; so when I hear absolute refusal to raise any tax rates, I can only conclude that you're not really serious about the deficit.

JB:
The one piece that you are missing from the Clinton era (I actually really like Bill Clinton) is the growth of the economy. The taxes issue is a much bigger drag on the economy now, since we are not seeing the economic growth, growth in worker productivity, wage growth that we saw in the 90's. Couple that with the reset of the Bush era tax cuts (that not enough people are talking about) and we are all really about to feel this pinch on our wallets. So, its not the tax rates that are the problem in a vaccum, it is the tax rates combined with the spending increases on top of more taxes yet to come with the absence of economic growth that does not provide a lot of optimism for the future.

Me:
To me the key point here about the Clinton years is that, as you say, tax rates "in a vacuum" aren't the only thing that matters. I agree with you. But I don't hear anything else coming from the Right except talk about tax cuts. The '90s certainly showed that the economy can grow with tax rates higher than we have now. The 2000s certainly showed that tax cuts alone don't necessarily produce growth (we had the lowest taxes since I don't know when, and we had the first presidency ever during which the economy didn't grow at all from 2001-2009).So I think we've dispensed with the argument that tax cuts are what the economy needs. Now the argument we're left with for tax cuts is: "it's my money, the government shouldn't be taking it", i.e. the moral one. Certainly that's the one stressed by [another correspondent], and it's a legitimate point of view. But let's face it, tax cuts have not correlated with economic growth over the last 20 years. We have to keep the deficit argument and the tax rate argument separate, which seems hard to do in this debate. HCR does not increase the deficit- why? Because it raises some taxes to pay for itself. And moderate tax hikes don't appear to wreck the economy- the argument against them is just the moral one. Now the moral argument for less taxes is fine, but it's of course impervious to data so I don't know that we can have a very illuminating debate about it.