Since my post Friday I’ve been considering different responses to Eduardo Porter’s piece about why it makes sense to raise the top tax rate. The most substantive one, I think, runs like this: of course the wealthy can pay more — if they couldn’t, we wouldn’t be contemplating raising their taxes. Models of revenue-maximizing tax policy are great, but not absent of considerations about justice, fairness and ideology. In other words, we can’t just jack up rates on the rich without seriously reflecting on whether the economic efficacy of doing that outweighs the potential injustice to rich people.
That’s right on the mark; justice, fairness and ideology do matter, it’s highly difficult to remove their influence from the political process, and it’s not clear that we should even try to do that. But if fairness, justice and ideology form the rightful basis of tax policy, then it would seem that a reasonable argument for raising taxes on the rich might turn on, say, the fact that income inequality has grown so dramatically over the past four decades. That, to be sure, would be an ideological point-of-view about fairness, although it would be very different from the ideological point-of-view about fairness that Ari Fleischer holds.
The trouble is that reasonable people can agree that fairness and justice matter in the abstract, but once you get down to specific tax policy proposals it’s very hard to get a broad swathe of people to agree that anything is fair or just. Ari Fleischer might believe that fairness consists in taxing everyone equally irrespective of income. Grover Norquist might believe that fairness consists in not taxing anyone at all. Eduardo Porter might believe that fairness consists in taxing according to a mathematical model of revenue maximization. Barack Obama might believe that fairness consists in progressive taxation in order to maintain or reduce gaps in income inequality. It’s not that these people disagree about fairness, they just disagree about what is fair.
Developing a shared criteria for fairness to unify these different perspectives — a multi-directional compromise, as it were — would be hugely helpful, although what could be less realistic? What might actually be worthwhile would be to bracket our concerns about fairness, critical as they may be, and try to base the tax code on some other concern or set of concerns. Which is where Porter’s piece comes in.
I don’t read Porter as saying that we should raise taxes on the rich irrespective of fairness, or worse, as a jab at rich people. I read him as saying that, given the intractability of the fairness debate, if we did raise taxes on the rich up to a certain limit, there would be significant economic upside and negligible economic downside. Further, I think he’s saying that, after decades of slashing taxes, the top rate is currently so far below the Laffer maximum that there’s plenty of wiggle room to raise that rate without stunting revenue. The Diamond/Saez paper he refers to claims that the top rate could be raised to somewhere between 48% – 76% without stunting revenue, depending on the extent to which loopholes were closed. I don’t think Porter is making a judgment about the fairness of doing that, he’s just saying that it would make good economic sense to do that. It’s more of a “coast is clear if we decide this is fair” argument than a “here’s what’s fair” argument.
So, would raising the top tax rate be “fair” to rich people? Maybe, maybe not. It depends on how you define “rich people” and how you define “fairness” — the two major questions we’ve been trying to answer, without much success, for decades. Whatever the case, I think the wealthy, who’ve seen a significant decline in tax rates during that period (thanks mainly to Reagan-era and W-era policy), need a better argument than “raising taxes on the rich isn’t fair because it’s not fair to raise taxes on the rich.” That argument is question-begging, it obscures the massive political victories the wealthy have won on tax policy over the past thirty years (1981, 1986, 2001, 2003) and it’s also an argument that has been roundly rejected in favor of revenue-maximizing math throughout much of the industrialized first world. As I see it, the onus isn’t on the Obama administration to explain why a return to Clinton-era rates wouldn’t be radical socialism; the onus is on the wealthy to explain why a return to Clinton-era rates, not to mention much higher rates, would be a breach of fairness.