I was going through the blog and noticed this note on an article by Mankiw and Weinzierl who implied that the state only has a right to tax things that are “unjustly wrestled from someone else.” This didn’t make much sense to me–whether it’s the sales tax, the income tax, or whatever, I see taxes as a way to raise money, not as a form of punishment. At the time, I conjectured this was a general difference in attitude between political scientists and economists, but in retrospect I realize I’m dealing with n=1 in each case.
See here for further discussion of taxing “justly acquired endowments.”
The only reason I’m bringing this all up now is that I think it is relevant to our recent discussion here and here of Mankiw’s work incentives. Mankiw objected to paying a higher marginal tax rate, and I think part of this is that he sees taxes as a form of punishment, and since he came by his income honestly he doesn’t think it’s fair to have to pay taxes on it. My perspective is slightly different, partly because I never thought of taxation as being restricted to funds that have been “unjustly wrestled.”
Underlying this is a lot of economics, and I’m not presenting this as any sort of argument for higher (or lower) marginal tax rates. I’m just trying to give some insight into where Mankiw might be coming from. A.lot of people thought his column on this 80% (or 90% or 93%) marginal tax rate was a little weird, but if you start from the position that only unjust income should be taxed, it all makes a lot more sense.
Mankiw most certainly does not believe that you can only tax "unjustly wrestled" income. As most economists and political scientists, he believes that governments needs to raise revenue for public goods and people will have to pay taxes in order for that to happen. This is clearly articulated in his textbooks and he often says as much while interviewed. Believing otherwise would put Mankiw on the extreme fringe.
I do think you are right to say that the editorial makes more sense if you understand he believes that taxing at 80% is wrong for moral reasons. The point of the Weinzerl paper, however, is that most of us have similar views. Most people believe that you have *some* right to your honest earnings. This is made clear by asking whether people generally agree that taxing based on height would be unfair. Agreeing only makes sense if you have a (partially) rights-based approach to taxation rather than a purely utilitarian one.
I haven't followed these various threads & am reluctant to get into the position of rushing to defend a fellow economist. I wonder is the word "incentive" missing from this debate? Whether the state only has a right to tax something that has been "unjustly wrestled from someone else" is entirely normative. Economists, political scientists, hookers, even cab drivers are entitled to their position: it's not science.
But it may be the case that taxing such earnings has no disincentive effects, which is what we worry about in the business. That would be an empirical matter.
If neo-classical economics is correct, taxing unearned income should have no incentive effects since no margin is changed. But maybe its not: behavioural economists can give you reasons (like entitlement effects). The "poll tax"/Community charge in Britain was predicated on this idea. It was not a success. To put it mildly.
I think that you are mistaken in assuming that economists think this way. In fact, the standard taxation problem that almost all economists encounter during their graduate studies is how to collect taxes with the least amount of distortion to finance a given government expenditure (a "Ramsey problem"). The issue of whether endowments were justly or unjustly acquired does not arise in these setups (the very concept would be hard to define), the approach is pragmatic.
I think you misunderstand the point of the paper: It is not about raising taxes in general, but about tax law that is written with the whole purpose of redistribution, arguing (as I see it) that a social planner trying to maximize utility of the society as a whole would try to redistribute income from able people to less able people. As they point out: "You must either advocate a tax on height, or you must reject, or at least signi cantly amend, the conventional Utilitarian approach to optimal taxation. The choice is yours, but the choice cannot be avoided." As I read it, they share your point of view that tax law should not be written as a redistribution tool, but as a tool for the government to raise income.
> The issue of whether endowments were justly or unjustly
> acquired does not arise in these setups (the very
> concept would be hard to define)
Marx had a shot at defining that.
From one economist: no, we don't generally think of taxes as being about punishment. I don't think Mankiw does either.
Their main purpose is to raise money. Every tax also alters incentives, and we would like to discourage stuff we have too much of, such as pollution, rather than useful stuff such as labor. Hence a CO2 tax replacing payroll tax would be broadly applauded. But if the optimal pollution tax is not enough to fund public spending, and the public spending is productive enough that you don't want to cut it, then we will almost favor taxing for the revenue.
By the way, you are wrong to call this an 80% marginal tax rate. The rate is whatever it is on income earned this year — 39.6% plus whatever else from state etc. He got his 80 or 93 per cents by compounding over an entirely arbitrary number of years at a somewhat arbitrary return. To call that the marginal rate deprives the number of any intrinsic meaning. You could equally say gasoline costs $100 per gallon, since you would have $100 if you invested the actual $2.25 for a sufficient time.
To the commenters above:
Yes, I think if asked the question directly, Mankiw would agree that taxes are for raising money and that there's no objection in principle to taxing "justly acquired endowments."
Nonetheless, his use of that phrase (as well as the "unjustly wrested" discussion) suggests to me that, at some gut level, Mankiw sees taxation as a punishment rather than a way to pay for things.
To return to Mankiw's original example of height: it makes sense to tax the people who can afford it, not to tax tall people. What if someone is 7 feet tall, poor, and broke? It doesn't make much sense to ask him to pay lots of tax.
But, just to emphasize, my point here is not to argue with Mankiw about taxes but rather to suggest an attitude that he might hold implicitly–and which comes out in some of the phrases he uses–which cast some light on his attitudes as expressed in his recent newspaper column.
Circa 2006, Mankiw said on this subject that "As an economist, rather than a moral philosopher, I have no idea about the answer."
http://gregmankiw.blogspot.com/2006/04/on-just-de…
He has said he is mostly a utilitarian, but his 2010 paper on this subject says that thinking of taxes in terms of justice might be a good idea because that is how most Americans actually think.
http://www.economics.harvard.edu/faculty/mankiw/f…
Going back to Gelman's note on justly acquired endowments, I think the crux of the argument is in this statement.
"Once you accept the desirability of poor relief, it's just one more public good, and you have to find a way to pay for it."
I think this reveal a certain confusion of the concept of public good. Poverty relief does not seem a consumable good, let alone a public one, the way air, spectrum or national defense are. Invoking public goods seems to be here just to give an aura of quasi-economic respectability to an argument that can be simply rephrased as:
"Once you accept the desirability of poor relief, you have to find a way to pay for it."
I think the "public good" part is not essential, and that there is a lot of unpacked meaning in the term "accept the desirability". I am happy that Gelman is happy with this, but I am afraid that for most people, this is not going to cut it. Even simpletons accept a primitive form of deontological ethics, and are aware of the delicate issues that arise from implementing social welfare objectives anyway.
This is not to defend Mankiw's argument against wrestling money from hardworking top economists being taxes at a marginal rate of 80% (or 90%? Whatever), which I find superficial even if palatable at the antitax sub-cortical level. But Gelman is guilty of no lesser sin and of even more superficial thinking about the justification and objectives of taxation.
Gappy:
I don't quite follow what you're saying but I'm happy to agree that I'm not up on all the discussion and terminology of welfare economics. I do think that Mankiw's choice of terminology suggests that, at some level, he thinks that the state only has a right to tax things that are "unjustly wrestled from someone else." And I think this explains some of his writings on the topic.
Interesting how different politics people are from economists. Mankiw's analysis is a standard look at the incentives generated by taxes. For example, if you tax cigarettes you might expect people to smoke less. The only question here is how large the impact is. Greg makes the impact large partly because it is (marginal tax rates are 50% or more in many places) and partly by incorporating taxes in investment income (something that's complicated enough to deserve a separate discussion). Certainly we could layer other considerations on top (fairness, justice, what have you), but I don't think that's the point. I'm curious why you think it is.
Dave:
I'm with you on this one. I'm inclined to evaluate taxes on their economic effects. It's Mankiw who brought up "justly acquired endowments" and the concept of "unjustly wrestled from someone else."
I thought it was interesting that Mankiw thought of taxation in this moral way, rather than with the more instrumental perspective that I'm inclined to take.
Andrew:
my comment was really convoluted. Apologies. The simple version:
1. Public goods have nothing to do with your argument. Strike that part out.
2. Worthy social objectives are not a sufficient reason for taxation. Or at least, not a self-evident reason. See debate between consequentialists and deontological ethicists.
3. The concept of a worthy social objective (like poverty reduction) is not that easy to define and implement either, even funds were available.