Do you really want to tax ability?

http://www.voxeu.org/index.php?q=node/3651

by anamax • 17 years ago

27 30 17 years ago

iron_ball4• 17 years ago

Disingenuous at best. Tax incentives around mortages, charitable contributions, and child health insurance are social signals: legislation saying 'this is what we value as a society, these are the things we want to help you with.' If you disagree with that kind of legislation, argue against it directly. This business about height determining earning potential is utterly irrelevant to your real complaints.

And the math is foolish to begin with: if height determines income level, and you really want to try to equalize for that factor, you should be applying credits/penalties to bring people of different height to the same level -- not taking people who are already at the same level and elevating the short one above the tall one. After all, if they make the same income despite their height difference, it stands to reason that the shorter person is more productive. Applying a credit/penalty when incomes are already equal is the wrong way to argue the (already misguided) point.

pmorici2• 17 years ago

The difference between height and those other things the government determines taxes on is that height is not a choice, it's an innate characteristic of a person. People find taxing on height repulsive because it is more or less equivalent to taxing on race which everyone would immediately see as wrong and would be prohibited by the constitution.

In order for this guys argument to hold water he should have used a case other than height which involved a component of personal choice and invoked the same feeling of injustice in people.

huangm• 17 years ago

Can you please provide an argument for why choice ought to be the principal factor for some attribute to be taxable? The justification is in no way clear to me.

amalcon2• 17 years ago

Or maybe 4: That the conclusion is misguided. The effect of height on income is already taxed... by income taxes. This proposal would entail double-taxing this effect. Surely we don't want an additional tax on (say) doctors simply because doctors are likely to earn more. The regular income tax handles that effect.

vomjom• 17 years ago

Wow, you completely missed the point. Obviously, the author knows that height is already taxed.

The real point is that some members of society are more productive than others. Apparently, tall people are more productive than short people. What we want to make equal (from a utilitarian point of view) is income per unit effort. If you're from a disadvantaged background, but put as much effort as a person from an advantaged background, then you would make the same after-tax income.

He's demonstrating that this point of view is impractical in reality.

amalcon2• 17 years ago

He doesn't need to demonstrate the impracticality in that. Everyone already knows that measuring effort is impossible in practice.

edit: His final claim -- that the tax on height is an explicit consequence of a utilitarian approach -- is simply flawed (or irrelevant, actually) because we do have a tax on height. A progressive income tax is meant to approximate what would happen if we accounted for all of these variables, but without actually accounting for each one explicitly, as that would be impractical.

Now, I'm not saying that the utilitarian method is the end-all. If it is flawed (which I think it is), this is simply not the flaw.

jjs• 17 years ago

> Apparently, tall people are more productive than short people.

Or, having (fallible!) humans doing the hiring has created certain inefficiencies in the labor market; inefficiencies which could be exploited/corrected by someone clever.

msluyter2• 17 years ago

If you're from a disadvantaged background, but put as much effort as a person from an advantaged background, then you would make the same after-tax income.

I think this misrepresents the notion behind progressive taxation. I'm no expert, but I understand it like this: because of declining marginal utility, the same % of income may mean much more to the poor than to the rich. If my yearly income is 10k, then 10% of it might mean the difference between making rent or not. If I make 100k, 10% of it may mean forgoing some luxury, but needn't substantively impact my overall quality of life.

In that sense, the subjective impact of money is not fixed by its objective value; it's more important to those that have less of it. This is borne out by research. Money significantly impacts happiness until you make enough to basically get into the (lower) middle class, and then it has little impact.

So, if you buy the above intuition and want to use taxation to help maximize happiness (utilitarianism), then you would want some form of progressive taxation in order to alleviate the negative impact of poverty. This doesn't mean "making everyone equal."

To test our intuitions about this subject, I like philosopher John Rawls' conception of a "Veil of Ignorance." Rawls would ask: would you rather live in a society with, say, 1% billionaires and everyone else in poverty, or one more evenly distributed around a middle class -- without knowing in advance where you would end up in this society? The answer may well depend on one's level of risk tolerance, but I'd wager that most people wold opt for the latter.

vannevar• 17 years ago

"If you're from a disadvantaged background, but put as much effort as a person from an advantaged background, then you would make the same after-tax income."

This is clearly untrue. If I have $2M US in the bank, it takes me no effort at all to earn $40K/year. This is part of the rationale behind a progressive tax, that money begets money with little effort, like a snowball rolling downhill. That's why only a fraction of the wealthiest 5% started life outside the top 15%. They love to tell the rags-to-riches story, but the riches-to-more-riches story is about 20 times more common.

dagheti• 17 years ago

Isn't the argument for taxing height not that it better captures the effects of someones advantages, but that because it is taxing something you cannot control, you are removing the disincentives created by taxing something that society may want more of (income).

So while height taxing a more blunt instrument than income taxing, it doesn't distort people's choices in the same ways and avoids some of the deadweight losses. Unfortunately it probably will end up distorting people's choices in new and creative ways that we'd probably only find out about later.

cjlars• 17 years ago

Seems to me like he pretty much nailed the point. Certainly some legislative outcome could prevent double-taxation, but wouldn't it be more efficient to just let the market to take care of it?

astrodust• 17 years ago

This is a pretty weak argument to be making. There's no specific reason to provide for a transfer of wealth from tall people to short people, it doesn't provide any specific social benefit.

At best this is some kind of amateurish Libertarian raving, or a thinly veiled troll.

duncanj• 17 years ago

And this troll wrote a popular economics textbook.

davidw• 17 years ago

Mankiw's a smart guy, but he's also very much a Republican:

http://en.wikipedia.org/wiki/N._Gregory_Mankiw

He served under Bush, and as an advisor to Romney. I'm not saying there's something wrong with Republicans, just that at times he tends to be a bit of a "party man".

Lately, his writing has taken a turn that's more along the lines of "sniping at Obama and company", rather than writing anything particularly interesting... sort of like Krugman with Bush.

Anyway, all very much off topic...

iron_ball4• 17 years ago

That fact in itself confers no legitimacy. In fact, given what I've read about the textbook industry, it does not even imply that his work has been improved by any authorities worthy of respect.

anamax5• 17 years ago

> There's no specific reason to provide for a transfer of wealth from tall people to short people, it doesn't provide any specific social benefit.

Sure it does. It helps people who are disadvantaged.

It's like giving preferences to middle class black people over lower-class white people.

ewanmcteagle• 17 years ago

It's meant to be a criticism of the utilitarian view of taxation. Read this: http://www.overcomingbias.com/2009/06/defending-mankiw.html

It's not logically inconsistent

gojomo• 17 years ago

A similar analysis might be applied along the dimension of age, following the recent observations, in several places, that despite (for example) Warren Buffett's riches, few 20-year-olds would want to switch places with him. 60 years of life is worth more than $60 billion dollars, to most people, so every 20-year-old is in some sense "richer" than Buffett.

So should strict egalitarians tax the young more than the old? (Don't worry, it'll even out over a lifetime!)

Do you really want to tax ability?

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