The Agenda

Arguments About Tax Policy Shouldn’t Rest on the Awesomeness or Terribleness of Rich People

Paul Krugman, with an assist from Robin Wells, writes:

What? You’re driving me back to the airport in Sao Paulo, in all that traffic? Don’t I rate a helicopter?

I’m being unfair. Krugman is being self-effacing for once, and he deserves kudos for that. I’m mainly amused because I imagine that this thought has indeed crossed his mind at least once. But you should read the entire post. Here’s another excerpt:

 

But 30 years ago people with high but not super-high incomes generally felt ashamed of themselves for griping — or at least, felt that they would be ridiculed if they gave voice to their gripes. Today, all restraints are off. The fuss over Messrs. Henderson and Stein is the exception that proves the rule: they wouldn’t be providing this spectacle if they didn’t normally swim in social circles where complaining that you only have 9 or 10 times median family income is considered totally acceptable.

Pretty soon, we’ll be having serious, completely un-self-conscious discussions in major magazines about the servant problem.

This is very important to understand: many advocates of rolling back high-income rate reductions understand that this is the most economically damaging way to raise tax revenue, yet they see raising taxes on the rich as an essentially moral issue. Equitable burden-sharing and diminishing marginal utility are part of the story, to be sure, but there is also a mix of Puritanical sentiment and self-loathing at work.

Fortunately, Ezra Klein and Matt Yglesias have written more sensibly on this subject. Ezra writes:

The argument for taxing people who make more than $250,000 isn’t that they’re bad people, and it isn’t that they won’t notice the tax increase. It’s that we’ve got a very large budget imbalance, and we’re going to need to do a lot of things to correct it. Taxes on the rich have dropped even as the incomes of the rich have skyrocketed. So one of the obvious things to do is update the tax code to correct for that drift. But eventually, we’ll need to do much more than just increases taxes on the rich, and though politicians have tried to sell this one as a change that most Americans won’t notice and needn’t worry about, eventually, they’re going to have to start talking about changes that people will notice, and should worry about. 

And Matt adds:

To me, a big part of what this whole series of back-and-forths does is re-enforce the idea that it would be desirable to tax consumption rather than income, and simultaneously to make the rate structure more differentiated and more progressive. I think it’s difficult in most cases to persuasively argue that people are doing something wrong or unseemly merely by earning a lot of money. 

As Ezra and Matt understand, there are many American stories, at the top and at the bottom of the income ladder. That’s why I think the central question is finding the mix of taxes that will do the least damage to our economic well-being. There is plenty of room for disagreement on this question, but that is what motivates my desire to keep marginal tax rates as low as possible. 

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