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February 22, 2008
LAST WEEK I argued that no one actually thinks their own taxes are too low. Laura at 11D says she's willing to pay higher taxes:
Megan McArdle had a post up last week about whether or not people willingly pay taxes. (link when I'm not so tired). I'm willing to pay the higher taxes in New Jersey. I'm getting things for that money -- better schools, a home that holds its value, access to better paying jobs, proximity to New York City, access to grandparents. Taxes aren't always about money for other people; it's also about services for you.
The first question is "higher than what?" New Jersey taxes are lower than those in New York City, which Laura moved out of. Higher than Alabama? Even if she weren't particularly willing to pay them, she wouldn't have much choice, because her husband's job is tied to New York's financial services industry. In that sense, I am willing to pay the higher taxes of the United States in order to avoid living as a stateless person in some refugee camp somewhere, but that's not really a very helpful guide to how I feel about the general level of my taxes.
Does Laura think that her property taxes should be raised? Very few people do . . . and those who do seek an increase in their property taxes are almost always looking to fund large increases in spending on the services they use, like the schools, in the knowledge that many of the people who do not use them will be forced to kick in. This goes to the heart of the argument I heard over and over again: that it's perfectly rational to think that you should pay higher taxes, but only if other people do, because taxation is somehow a collective action problem. A collective action problem, if you're not familiar with the term, is one where there is a potential equilibrium that makes everyone better off, but it's hard to get to because of incentives to defect. Think casual Fridays: most people prefer not to wear suits and ties, but unless there's some sort of enforcement mechanism, the hyperambitious will ruin it for everyone by showing up in a suit. Next thing you know, everyone's back in a Brooks Brothers sweat sack, because they don't want to look less serious about their job than those around them. These problems generally require the creation of some enforcement mechanism--including, but not limited to, a formal law--to punish defectors.
Henry Farrell, for example, compared paying taxes to shopping at Wal-Mart. Far be it from me to criticize anyone who sends me free books, but this does not really work. Leave aside my questions about whether people really prefer downtowns to Wal-Marts, which is hard to agree upon empirically--I say I care deeply about poverty in Africa, but if that's true, how come I bought a new iPod instead of sending the money to Chad? Collective action problems generally apply to situations where the outcome is binary: either you have a Wal-Mart nearby, or you don't. Tax revenue is not binary--it's an upward sloping line. Some of the things the government spends the money on are binary--but given the existing level of tax revenues, this is simply not a reasonable objection to sending the government additional money. People who say they want higher taxes on themselves generally think the government does not have enough money to do the things it is already doing; as long as you think the government has a better (in some moral sense) use for the money than you do, then you have a moral obligation to send it in.
(As an aside, I am afraid that Henry made a common mistake in referring to me as an economist. I am but a lowly MBA, and have never claimed otherwise, but for some reason a lot of my readers are confused.)
But most people do not appear to think that the government (or anyone else) has a morally salient better use for their money than they do; otherwise, they would give that money to the government (which will take it even if there is no "tax me more" fund) or charity. Perhaps you'll argue that people's norms about fairness are so strong that they will not give away their money unless other people do. My response would be to ask: is the unfairness of your paying more than other similarly affluent people greater or smaller than the distributional unfairness that you want the government to rectify? Nor is it plausible to believe that you can, by withholding your extra contribution, force other people to kick into the kitty; your contribution is a drop in the budget of any political entity to which you belong.
[Gotcha! You cry. My money alone won't make a difference! Sorry, but if that were true then you'd be morally justified in cheating on your taxes. The small sum you send them is spent on something you presumably think we need more of.]
Or you might argue that since money is a positional good, it's not reasonable to ask you to reduce your income unless everyone else at the same level does, too. So now positional goods races are an acceptable way to spend your life? So important that they should override your moral concerns about distributional justice?
Perhaps you claim that you don't want to send the government extra money because God knows what they'll spend it on. Well, welcome to the libertarian movement. Your subscription to Reason should arrive in four to six weeks.
No, I simply cannot grant that people really believe that they pay too little in taxes. It seems more like they think the government has a better use for everyone else's money, and should therefore take it. They believe this so strongly that if they have to pay some of their own money to rectify the situation, they will do so. In other words, they don't so much want higher taxes on themselves, as to purchase the good "State coercion of other affluent people". That is not the same moral intuition as "I have too much money, and the government should take it away", however much nicer it would be if that were true.
These objections might hold if we were attempting to establish a tax system from scratch, against a background of no previous taxation. If the number of potential taxpayers were small enough, you might then convincingly argue that you need to withhold your taxes until everyone else pays in in order to avoid the free rider problem. But against the background of our current, already extremely large and well-funded tax system, no one who actually thinks that their taxes are too low has much of an excuse for refusing to fork over.