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Thus says the Lord when opining about the tax breaks the rich get when they donate to a charity. For example, take two people, one in the 35% income tax bracket and another in the 20% income tax bracket and consider the “benefits” they get when they make a $100 charitable contribution.

If each of the individuals itemizes their deductions, they can reduce their taxable income by the full amount of the charitable deduction. Given that the wealthy person is in the 35% tax bracket, their taxes will fall by $35 while the taxes of the hard-working middle class individual will only get to enjoy a $20 tax break. We can talk about whether any deductions should be given in a future post (I don’t believe in deductions for anything), for now I just want to examine the consistency of the Messiah’s proclamation that allowing richer folks to get a larger benefit for the same activity that a poorer person participates in is “unfair.”

  1. In Obama’s world, this unfairness can therefore only work in one direction. Thus, when he wants to provide more funds to colleges, or when he urges the richest colleges to become more accessible for the lower and middle classes, he has no problem with the fact that the rich pay virtually full “sticker price” for college attendance, and the poorer pay a much lower net price, and sometimes even zero. So two different groups of people get to purchase the SAME product, but one group pays FAR more for it than another. That in itself is not unfair to Obama so long as the rich are the ones paying more. Imagine extending that to all goods. Rich folks should pay more for tomatoes, books, water, you name it. In some sense, that is what progressive tax policy is meant to do. However, I am pretty sure it would be against some law for retailers to do this indiscreetly … such as by posting different prices for a good based on income. They must be more creative when they do it (e.g. coupons and airline reservations to name a couple of things).
  2. But let us pose the following question to our President ethicist … what do you think of the following tax policy: giving tax breaks to people for donating to charities is economically identical to charging a penalty to those people that do not give money to charity.
  • This is not an idle distinction, because there are certain expenditures on charity that you can deduct that look no different than expenditures than you would make on the private market-place. For example, I a contribute to the Arbor Day foundation largely because I get some pleasure from the planting of trees. I can deduct most of these contributions from my taxes. However, if I did not know anything about the Arbor Day Foundation, I could spent a similar amount of money each year at the local greenhouse, and plant trees myself. Both actions are doing the same thing, but one gets a favorable tax treatment while the other does not.
  • So now, howwould you assess the fairness of a policy said that the lower income people should pay a smaller penalty for not contributing to charity (e.g. by planting their own trees instead of having the Arbor Day Foundation do it), and one where the rich folks that do it privately pay a larger penalty for not being charitable?
  • My strong belief is that President Obama, and just about anyone else out there, would declare such a policy to be eminently FAIR.

But if that is the case, then we have a profound problem. Why? Because the two policies are 100% identical.

If your judgments about social justice and taxation are central to your moral beliefs, shouldn’t you find such an outcome unsettling? We are very powerfully affected by our sense of “fairness” but our sense of what is fair is really hard to reconcile with a rational appeal to benefits and costs. And it should be really concerting that I can manipulate your thinking on what is fair just by rewording the way a policy is structured. Any progressive tax policy suffers from similar inconsistencies. If you are going to give people a benefit for engaging in a particular behavior, that is the same as imposing a cost on people for not engaging in a particular behavior. Similarly, if you are going to penalize people for engaging in a particular behavior, it is the same as not penalizing people for not engaging in a particular behavior. And in each case, your views on what is fair or unfair are highly unlikely to be the same for each scenario, although the scenarios are identical.

So Mr. President, stop speaking with a forked tongue. We all assumed you are intelligent enough to understand this distinction. Is it possible that you have fooled us? Do you not recognize the hypocrisy of your views? Without a more foundational approach to fairness and justice, you are going to find yourself committing similar embarrassments for the next 8 years. What say you sir?

One Response to “I Don’t Think It’s Fair”

  1. Econobran says:

    Sounds like Allais’ paradox to me.

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