Everyone seems to be obsessed with taxes. Warren Buffet and Barack Obama believe we ought to raise taxes on the wealthy. Michelle Bachmann seems to believe that Americans shouldn’t pay any income taxes at all. Ben Stein has read too much Ayn Rand, and believes taxes are a form of theft. Well Ben, The United States is not the Sherwood Forrest, and IRS agents are not Merry Men in tights.
Taxes are an integral component of our economy. Like it or not, tax dollars support vital government services that everyone benefits from. We have a problem in the United States. We like all the services we receive, but we really don’t like paying for them.
Everyone agrees that this trend cannot continue. The question is; how do we restore financial stability in the United States? A balanced approach – one involving both spending cuts and revenue increases – is needed. Because the middle class and poor rely more on social services, an approach that only cuts spending disproportionately harms those who can least afford it. Cutting spending is a necessary step in balancing the budget, but we also ought to increase taxes on the wealthiest Americans.
When we think about whether or not we ought to increase taxes on the wealthy, we often think in terms of economics consequences. Will increasing taxes create jobs, or hurt “job creators”? Will GDP be boosted, or stunted? Will real wages for the middle class go up or down? While these are important questions, before we address the economics of a highly progressive tax structure, we must address whether or not such taxes are just.
There are two related justifications for placing a higher tax burden on the wealthy. First, there are arbitrary factors that made them rich. Second, they owe something to the community that supported them in their rise to riches. I will address the first of these below, and discuss the second justification in my next article.
Generally speaking, when wealth is acquired by luck, rather than skill or merit, the government is justified in taxing some of that wealth with the intent of redistributing some of it to people who weren’t as lucky.
For example, we don’t have a problem with heavily taxing lottery winnings. Why? Because we recognize that wealth opens doors for people and gives them unique opportunities. Arbitrary factors that give some people greater opportunity than others violate the principle of equal opportunity. In a just society, luck is not a good reason for gross inequality of opportunity.
What we must acknowledge is that some people in our society have already won the birth lottery. I’ll use myself as an example. I am a white male born into an upper-middle-class family. My parents were loving and supportive, and did not fall victim to divorce. As a child, I enjoyed remarkable opportunities. I went to good schools in relatively wealthy neighborhoods, and my parents have helped me cover burdensome college expenses.
Now consider another individual in a vastly different situation. Jason was born to a single mother in inner city Detroit. His school was dilapidated and his friends are unenthusiastic about academic pursuits. He was exposed to drug abuse at a very young age, and did not have the community and family support that I enjoyed. Clearly, there is nothing “equal” about the opportunities afforded to Jason and me. Resorting to platitudes about how Jason can “pull himself up by his bootstraps” ignores the reality of his situation. Jason and I aren’t competing in a genuine meritocracy, because I was luckier in the birth lottery.
Anecdotal evidence may paint a picture, but it doesn’t substantiate a claim. In order to truly show how opportunity is arbitrarily distributed in society, we need to look at broader trends. If there truly exists a “cycle of poverty” that systematically prevents people from accessing economic opportunity, then measures designed to equalize opportunity are justified.
Moreover, if there exists a “cycle of wealth” that gives people born into rich families a demonstrable advantage in our economy, then redistributive efforts are further justified.
According to the Oxford Handbook on Economic Inequality, both cycles are somewhat paradoxical. While most impoverished people tend to experience relatively short bouts of poverty, they experienced repeated bouts of poverty throughout their life. In other words, if you took a snapshot of everyone in poverty today, you would be right to say that most of those people will only be in poverty for a short period of time. However, the majority of these people will move in and out of poverty throughout most of their lives, never reaching a level of economic stability sufficient to keep them out of poverty. The cycle of poverty does not keep people in poverty per se, but keeps them returning to poverty.
A similar story exists at the other end of the income spectrum. People born into wealthier families tend to become wealthier themselves. While there are certainly anecdotes of rags-to-riches success, most of America’s wealthy come from rich families. While most rich people experience wealth for relatively short periods of time, their social capital, superior education, and general experience means that they have a much better chance of returning to wealth. So the cycle of wealth does not perpetually keep money in the pockets of the rich, it tends to readily return money to their pockets. This means that when economic strife washes over the entire country, the wealthy are able to bounce back much more easily than the poor or the middle class.
The bottom line is that a person’s place in the birth lottery absolutely influences their success later in life. The birth lottery is arbitrary. No amount of hard work will change where you were born. The arbitrary nature of the birth lottery means it’s justifiable to place an increased tax burden on the rich.