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Friday, October 17, 2008

Flat Debate (what debate?) over the Flat Tax

Ah, yes, the flat tax. A substantive idea with a panoply of economic data supporting its usefulness. It gets chucked into a presidential campaign by a dude known to us, affectionately, as "Joe the Plumber": the ultimate softball for the always eager to swing Huffington Post. Huffington delivers the easy ad hominem dismissal. I have a different take. Contra Huffington, and digging deeper than Joe the Plumber's endorsement (Joe, no fault to you), it's clear that the flat tax proposal has earned a place in American politics and around the world generally. It has, and continues to be, richly debated. Why is this so? Where Huffington offers only arrogant, dismissive rhetoric, I'll take the time to explain.

Let's cash out the theory first. We go right to the meat of it with the notion of fairness, or "justice".

Libertarian Philosopher King Robert Nozick offered a memorable picture of the sort of fairness that undergirds the flat tax proposal, when he proposed the following thought experiment. Imagine that there is some distribution of wealth in the U.S. that we all accept as fair (call this, following the usual academic love of unnecessary variables, D1). So, ex hypothesi, we all start with the cash in our pockets that we all agree is fair; we start with distribution D1. Now suppose a celebrity (Nozick's example was the dated but still venerated Wilt Chamberlain) decides that he or she wants more than D1, but proposes only to allow people to choose how they spend their fair share. Now here's how it happens. Loving our celebrity and his or her enrichening performances, many of us end up freely contributing some portion of our fair share to enjoy the performance, with the result that he or she ends up with more money than the rest of us.
This is to say, D1 no longer holds. The celebrity ended up with much more cash.

And this is exactly Nozick's point: D1--we all agreed--was just. But we only freely gave our share to others, with the result that our celebrity ended up with more. So where did the injustice sneak in? Where did it enter in? We all freely parted with some of our wealth. But, ex hypothesi, we all started with a fair distribution. So by the free exersize of human interest, some of us ended up with more. Which is contrary to D1. And, Nozick says, so much the worse for D1. Fair is fair.

What underlies this conception of justice is the notion that fairness is simply equality of opportunity, rather than outcome. Nozickian fairness is fairness that gaurantees that everyone can spend or create wealth according to their interests and abilities. If this scheme--a scheme where people have freedom to spend or create--ends up with inequalities of outcome (we ended up giving our celebrity more gold), then so be it. The government ensured that we could fairly exersize our interests using our resources; the outcomes are however this works out.

Great, but what, you may well be thinking at this point, does this have to do with flat tax proposals? Here's how it works. Government needs some of your money, in order to perform the functions of government (e.g., provide for defense), but it doesn't take more from you because you have more. Fair is: a certain percentage of your money goes to the government, according to the rules we've agreed (voted) on. If you happen to be the celebrity, it's not the business of government to take this into account when it comes time to pay taxes. Bully for you, celeb. You ended up with your gold however you did. (Forget, for our purposes here, questions such as what to do with inherited wealth, or we'll never get through this.) Government doesn't care if others gave you more gold. It only sets a rate that it taxes, and demands that you pay taxes at that rate. It's blind, by design, to your own particular wealth-accumulating accomplishments. On the Nozick line, that's what "fair" means.

In contrast, equality of outcome theorists such as John Rawls (and many others) consider, well, outcomes. Do we all end up with a fair distribution of resources, regardless of how we started? To Rawlsians, inequalities of wealth are ipso facto examples of unfairness, because "fair" means aiming for equality of outcome. (This is, of course, at loggerheads with the "opportunity" camp, and one might insightfully conclude at this point that the two views of fairness are incommensurable. The fact that such discussions in America tend to ground out in incommensurability is a troubling fissure in our intellectual landscape. The problem has been discussed at length by others, notably philosopher Alasdair MacIntyre in his seminal 1980s work "After Virtue", but as weighty philosophical discussions typically go, it hasn't percolated up into discussions of policy, as I think it should.)

But back to the flat tax. The pressing point is that Huffington Post types, either ignorant or uncaring of this rich philosophical discussion, simply act as if Conservatives, like poor Joe the Plumber, spout out flat tax proposals because they're either too dim witted or poorly educated to realize that it's not fair. But as I hope I've shown, it depends on what you think fairness is in the first place. How dare they presume that there's only one take on it.

Now, for some "praxis" to all this theory, it turns out that there are many countries that have actually implemented a flat tax. I'm not a comparative politics guy, and I'm well aware that the success or failure of particular economies are the subject of much debate, but my point is simply that there is a debate. It turns out that Joe the Plumber's not alone. To take one example of a debatable flat tax success, consider Lithuania. Wikipedia has this to say:

"Lithuania, which levies a flat tax rate of 24% (previously 27%) on its citizens, has experienced amongst the fastest growth in Europe. Advocates of flat tax speak of this country's declining unemployment and rising standard of living. They also state that tax revenues have increased following the adoption of the flat tax, due to a subsequent decline in tax evasion and the Laffer curve effect."

Sounds pretty dim witted to me. Again, I'm not claiming to be an expert on Lithuania, or on flat tax policies in general for that matter. But my point is simply this: knee jerk condemnations of particular tax proposals, like those cheerily published by the Huffington Post, are not, shall we say, the paragon of educated, liberal democratic discussion. It would be preferable, in my view, for us to dig a little deeper before pulling the trigger on ridicule. Whatever its ultimate merits, the flat tax is an idea that has played a key role in intelligent debate from first-class thinkers far back into our history. Arguably, it also has been put to the empirical test by countries with, it would seem, not so dim witted results. Maybe Joe the Plumber is on to something.


mijopo said...

In a two party system the parties end up being so similar, at least in the moderate way they present themselves in an effort to appeal to the undecided voter, that presidential campaigns always end up being personal attacks and cheerleading. The onlookers are more like supporters at a football game, cheering on their childhood favorites with time worn, but contentless, cheers and fight songs, than participants in a debate. As you note, this is an issue in which the participants seemed almost willing to articulate very different positions on a substantial issue, would be nice if the onlookers could do more than resort to the tired old fight songs.

Erik said...

I am completely destroyed by all of this. I am a man without a party. There are no words to describe the profound sense I have, that American politics has become a circus, and worse than that we'll have Democratic congress and administration, the feeling that there's nothing on offer from Republicans any more. Empty vessels, with yesterday's views. It's a party so roundly defeated, and in such manifest disrepute that nothing but disgust emanates from so many of its prior supporters. The country is now in a different era, and, all partisanship aside, good.

PaleoAustin said...

We already have an approximately flat tax, if you take all taxes into account. See http://articles.moneycentral.msn.com/Taxes/Advice/YourRealTaxRate40.aspx (couldn't resist, Erik).

Erik said...

Can you resend the link? It's truncated...

Erik said...

Oops, it's not. Disregard prior.

Erik said...

Great article. Recommend it. It's instructive that we're all--rich and poor--getting excessively taxed together. Of every dollar, about a quarter, a dime, and nickel got to Uncle Sam. With, of course, palpable benefit to us all...