Close window | View original article
Part of our motivation for writing for Scragged is that we like to counter as much of the ongoing liberal nonsense as we can. Once in a while, we run across a liberal idea that so utterly blows our minds that we have trouble believing that the writers are serious.
The latest such paper was "The Optimal Taxation of Height: A Case Study of Utilitarian Income Redistribution" by N. Gregory Mankiw and Matthew Weinzierl of the Harvard Business School, no less. Their views were published as Working Paper 09-139. The abstract says:
Should the income tax include a credit for short taxpayers and a surcharge for tall ones? The standard Utilitarian framework for tax analysis answers this question in the affirmative. Moreover, a plausible parameterization using data on height and wages implies a substantial height tax: a tall person earning $50,000 should pay $4,500 more in tax than a short person. One interpretation is that personal attributes correlated with wages should be considered more widely for determining taxes. Alternatively, if policies such as a height tax are rejected, then the standard Utilitarian framework must fail to capture intuitive notions of distributive justice. [emphasis added]
The first few times we read the abstract, we thought that the paper had to be a parody. We later found it on the Harvard Business School web site where it has every appearance of being a genuine work product of Harvard University, intellectual home of Prof. Gates of recent fame.
Even then, we had trouble accepting the thought that there was such a concept as "optimal redistribution of income." Yet not only is there, it apparently has garnered Nobel laurels. The paper said:
Our results can be seen as raising a fundamental question about the framework for optimal taxation for which William Vickrey and James Mirrlees won the Nobel Prize and which remains a centerpiece of modern public finance. [emphasis added]
We understand the concept of "optimal taxation." We've referred to the Laffer Curve, which points out that when the tax rate is 100%, government gets no revenue at all because nobody does anything that's taxed so heavily. Every time the Republicans have managed to cut taxes, government income went up because the economy boomed.
There is a severe problem with that philosophy of taxation according to these Harvard professors:
More than a century ago, Francis Y. Edgeworth (1897) pointed out that a Utilitarian social planner with full information will be completely egalitarian. More specifically, the planner will equalize the marginal utility of all members of society; if everyone has the same separable preferences, equalizing marginal utility requires equalizing after-tax incomes as well. Those endowed with greater than average productivity are fully taxed on the excess, and those endowed with lower than average productivity get subsides to bring them up to average.
In other words, these Harvard folks are looking for ways in which the government can arrange taxes and welfare payments so that everybody has the same after-tax income.
The advantage of taxing height, they point out, is that a) taller people make more money than shorter people and b) height is easy to measure. As evidence, they cite authors such as Anne Case and Christina Paxson who wrote that
For both men and women... an additional inch of height [is] associated with a one to two percent increase in earnings.
The paper cites many other works which explore various taxation strategies to bring about the "optimal redistribution of income." They aren't seeking ways for government to maximize its tax revenue by encouraging economic activity, mind you; the goal of this research is to discover ways government can redistribute income simply for the sake of redistribution.
They aren't worried at all that high tax rates discourage people from working and lead to loss of government revenue: "fairness" is more important than economic growth.
When we Googled the phrase "optimal redistribution of income", we found "Extremal and game-theoretic characterizations of the probabilistic approach to income redistribution" which was published in the Journal of Optimization Theory and Applications and is available online. The abstract says:
In this paper, we cast the problem of income redistribution in two different ways, one as a nonlinear goal programming model and the other as a game theoretic model. These two approaches give characterizations for the probabilistic approach suggested by Intriligator for this problem. All three approaches reinforce the linear income redistribution plan as a desirable mechanism of income redistribution. [emphasis added]
This paper was written by two professors from Texas state universities and one from UCLA. The sponsorship note says:
This research was partly supported by ONR Contract No. N00014-82-K-0295 with the Center for Cybernetic Studies, The University of Texas, Austin, Texas.
ONR stands for Office of Naval Research. The only reason we can see for the Navy to spend part of its research budget sponsoring research on income redistribution is that we've observed that all bureaucrats like to increase their budget. The more money they can shovel out the door, the more money then can ask for next year.
To our shock and dismay, we find that optimization of income redistribution is not only an active field of academic research, it's being supported by our tax money.
The abstract of the Harvard paper said:
Alternatively, if policies such as a height tax are rejected, then the standard Utilitarian framework must fail to capture intuitive notions of distributive justice.
These professors seem to have convinced themselves that the government must tax people according to attributes such as height because without such taxes it will be impossible to capture "intuitive notions of distributive justice."
This is yet more evidence that liberals regard all income as belonging to them, and that they believe that the government must distribute everyone's income according to their intuitive notions of "distributive justice."
The difficulty with these "models" of redistributive taxation is that they take no account whatsoever of human behavior. Suppose you're overperforming by working very hard and get taxed for the "excess above average." How long are you going to work that hard?
There is a natural tendency for people to follow whatever incentives they're given; people will compete to earn the least so that they can receive the greatest subsidies and profit from the labor of others.
30 years ago, a teacher in a public school in northern Massachusetts was trying to get her 6th grade students to learn arithmetic. "You'll need to know this to get a job," she told them. "Why should I get a job," one of her sharper students replied. "I'm going on welfare like my mom." If a 6th grader can figure this out, why can't a Harvard prof?
Karl Marx's fine-sounding economic model "From each according to his abilities, to each according to his needs" doomed the Soviet Union to lose the Cold War because they couldn't match our military spending. As factory workers found that their pay had little if anything to do with how hard they worked, productivity declined. The money they earned became worthless because there was nothing much to buy. The situation was summed up in the proverb, "We pretend to work and they pretend to pay us."
Despite all the historical evidence that redistributive taxation destroys the economy so that there's nothing left to redistribute, our ivory-tower theoreticians persist in writing about newer and more complex mathematical models of more and more sophisticated redistribution schemes at our expense.
Making things happen in society is all about providing incentives. Income redistribution, like every other liberal social policy, distorts incentives to do well, to make progress, and, yes, even distorts incentives to help other people. Why help your neighbor? Just let the government do it.
The power to tax is the power to destroy; liberal impulses to tax more and more of the economy are just another cover for progress towards totalitarian government. Margaret Thatcher put it best when she observed:
The problem with socialism is that eventually you run out of other people's money.
This paper reminds us, as if we needed reminding, how wise our Founders were to protect property along with life and liberty when they wrote the Constitution. They must have known some pretty goofy liberals in their day to have felt so strongly about property rights.
How sad that we've let our national thought pattern get so far from property rights that liberals can speak of "redistribution" and "justice" in the same paper, and spend our hard-earned tax dollars doing it!