Ask, how much? Part 2

In the same EconTalk podcast with Morris Fiorina that I wrote about in this post, Fiorini describes another ‘how much’ scenario:

…I saw a paper presented yesterday on taxes. And it was very interesting that the population according to these surveys does think we should have more taxes on the rich. But then when you ask them, what are the rich actually paying, they underestimate, of course, what the rich are currently paying. And, what’s interesting is they think the rich should be paying less than they actually are. But you ask them, what is the fair tax to pay for various income brackets? They come in at figures that are actually below what the rich, what people in those brackets are actually paying. So here’s a case of people being uninformed and mal-informed at the same time.

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9 thoughts on “Ask, how much? Part 2

  1. You’ve undoubtedly seen this video on a survey that some folks did on wealth distribution and perception:

    Admittedly, it has nothing to do with taxes but it seems related in terms of what people THINK is happening with money.

      • In spite of his admission that he does not want a filed system like socialism, the author of the video favors a system that carries the same incentives (or lack thereof) and rationale as socialism. He favors a system where income is distributed not by a free market, where individuals, rather than the government (or the collective mass), freely choose what it is they value and how much of something they possess they are willing to exchange for something someone else possesses, but by diktat of some government authority or a tyrannical majority. The essence of socialism is not that everyone gets to share equally in what is produced, but that the government (or the majority), rather than the market, gets to determine the distribution of the profits. In terms of incentives, there is no doubt that when one’s share of the profits is determined by some government formula rather than by what the free market is willing to reward that individual in exchange for what he produces, the person has less incentive to work. At best, the author can claim that he favors “socialism light”, but once the camel’s nose gets under the tent, it’s only a matter of time until he’s inside. Indeed, when the amendment authorizing the federal taxation of income was enacted, it’s proponents virtually guaranteed that it would never rise above 3%! The last time I checked, we were “supposed” to be a nation founded on the basis of rule of law and protection of property rights, a nation where the individual’s rights would not be usurped by the tyranny of the majority. All of this has been slowly disappearing – as de Tocqueville warned – by the soft despotism of the left’s paternalistic state that has undermined our individual freedoms and produced a set or perverse incentives that reward sloth and punish productivity. What the author of the video leaves out is that while the system he cherishes would result in more equal slices of pie, the entire pie would be smaller. Those who worship at the alter of “equality of outcomes” naively ignore the basic economic law that incentives matter.

        From a moral and ethical standpoint, it makes not a rat’s butt difference what the majority of the population thinks. We are a representative republic with a Constitution that (is supposed to) protects the rights of the individual. If the majority of the population thinks that some minority group should be slaves again, that does not make it right for us to permit these people to be enslaved.

        In regards to “fair”, that’s a very subjective word. “Fair” means you hold up your end of any agreements you make and I’ll do the same.

        • I agree that the author showed his preferences and fair is a subjective word. In this video, it seemed like doing things that moved toward the ideal would be considered fair. However, I would ask why what folks, on average, believe is the ideal statistical distribution of wealth is valid.

          If the people in the top are there because they scratched a politician’s back, I’d like to entertain ideas for preventing that.

          If they’re there because they earned it by making iPads, allergy meds or something else we all seem to value, then maybe we should reconsider what we think is ideal. Because if that distribution is more likely to get me to the life improvements that I’ve seen in my relatively short life, I’ll take more that please, even if I’m not at the top.

          • Hi Seth – The problem – as I believe you imply – is “Who gets to decide what is ideal?” When people imagine that they can elect government officials to dole things out in a “fair” manner, they create a series of unintended consequences and, as always been the case in all instances when people try to replace free markets with some form of capitalism in order to eliminate the uber wealthy, what we see is that rather than markets determining who the uber wealthy are, politicians determine who the uber wealthy are.

          • Well said, Mike. It’s important to consider changing what we think is ideal based on new information, rather than assuming that what we thought before we assume that we were right to begin with.

  2. Hi Seth – Please let me clarify. When I posed the question, “Who gets to decide what is ideal?”, what I meant to imply was that there is no expert (or government) who possesses the knowledge to determine what is ideal, especially in terms of what will continue to provide incentives for the optimal productivity of our economy.

    Also, as we have discussed in the post regarding bureaucracy being a major pitfall of government planning, allowing government officials to decide who gets what and how much will necessarily be tainted by cronies, lobbyists, rent seekers, etc. The human condition and failings of politicians assures us that government control of income distribution will result in bribes, payoffs, kickbacks, etc.

    Our government has often been terms a great experiment for the very reason that it has always been uncertain if humans, given their nature, could maintain such a government and by this I mean one whose powers were limited and enumerated and whose primary function was to protect the personal and property rights of INDIVIDUALS.

    As I tried (perhaps unsuccessfully) to emphasize is that (1) neither Smith nor Smith’s experts can determine what is best for Jones, (2) even if Smith could determine what’s best for Jones, it’s more likely that Smith will act in Smith’s best interest rather than Jones’, (3) even if Smith could determine what is best for Jones and would act in Jones’ best interest, Smith has no right to do so – and we head down a slippery slope when we permit he to do so.

    • I think you did it successfully before. I think in my haste I added another thought in my reply, but made it sound like I was trying to restate your point. My reply should have started with an ‘Also, It’s important to consider…’ .

  3. Pingback: What’s fair? | Our Dinner Table

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