Let’s return to the original claim:
the reason the rich should pay more in taxes is that they were only able to earn their income by hiring people that went to (taxpayer funded) public schools, employ people who drove on (taxpayer funded) public roads and otherwise could not do what they do were it not for the awesome goodness of the government – they used more public services and therefore they should pay more for them too
In today’s installment, we will begin to attack the actual claim itself. The things that the “rich” consume in order to make themselves rich seem to be classic public goods. What characterizes a classic public good? It is a good that is both difficult to exclude non-payers from consuming (non-excludability) and one for which my consumption of it does not reduce your ability to consume it (non-rivalrous). A look at the full moon fits the bill. For nonrivalous goods, the economic challenge is not whether the “right” people consume them, or how much consumption happens, but whether they get produced at all. Once they are produced, it does not matter who and how many people end up taking advantage of it. In other words, for non-rivalrous public goods, the challenge of provision is smaller than if we are talking about a non-excludable good but which is also rivalrous in consumption.
You see, we only need to make sure that some or even just a few of the non-payers get charged for it. Once the good is produced, anyone and everyone can consume it. To the extent that the public services we care about fit the description above (surely national defense does) then there is no economic case for taxing the rich any more than the poor, much less proportionally more. Adding more rich people to the mix does not alter the problem here. Finally, a “rich” person benefits from the national defense system whether they are poor, middle income or rich. Now, you may want to make some sort of ethical appeal that being rich means you have more stuff being protected, but you certainly cannot make an economic justification.
Do we have a system in place that justifies taxes on the basis of consumer surplus? If there are people sympathetic to behavioral economics in the audience, then I think you should say no we don’t have it in place now, but that your optimal tax policy would be to tax happiness progressively, since that is the utilitarian justification for those sorts of policies. But as far as I know, we seem to be repulsed by an idea that says, “Wintercow’s taxes should be higher because he gets more pleasure from watching his garden grow than his neighbor gets from watching her garden grow, even though each garden and circumstance is identical in every way (that’s the non-rivalrous analogy).
Keep your eye on the ball. The tax the rich meme is trying to argue that the rich getting rich because of what government provides not only justifies their being taxed, but justifies their being taxed more, their being taxed proportionally more, and their being taxed even more proportionally more than they are already being taxed now. Doesn’t the fact that many public goods are non-rivalrous make this a hard case to defend?
Here are the previous entries in the series.
- Should the rich … be … subsidized?
- On the logical consistency of the argument – doesn’t the government rely on “the rich” for its very existence?
- A challenge to envious class warriors (note this does not mean all those in favor of taxes do so out of envy, I am directing this at those who seem to have that as a motivation).
- The rich are not a sentient entity.
Very many millionaires are self-made men and women, including Steve Jobs. Take Steve Jobs out of Apple, and it loses money; hire him again and it makes money. Who deserves credit the most?
Karl Marx did not live long enough to consider what would happen if the producers, like John Galt, would just say to hell with it and stop carrying everyone on their shoulders.
[…] if the public goods are non-rivalrous in […]