I'm always surprised that, in this discussion, marginal utility hasn't come up. The usual pro-tax argument is that the marginal utility of a dollar to a poor person is much higher than to a rich person, so taxes should transfer dollars from rich to poor. The usual objection to this is that you can't compare interpersonal utility. But eve…
I'm always surprised that, in this discussion, marginal utility hasn't come up. The usual pro-tax argument is that the marginal utility of a dollar to a poor person is much higher than to a rich person, so taxes should transfer dollars from rich to poor. The usual objection to this is that you can't compare interpersonal utility. But even if you could, the argument has another gaping weakness.
The problem is that, for rich people, marginal dollars have relatively low utility - but marginal time has relatively high utility; the rich are invariably run off their feet. The fact that they're rich means that a lot of economic activity - multiples of their marginal income - depend on... their decision whether, at the margin, to work or go to their kids' ballgames.
As a society, we want - we NEED - them to work. And offering them money isn't as strong an incentive as it would be for the rest of us (who can't - or don't - create the same kind of economic value with an additional hour of work). So, BECAUSE marginal dollars have relatively low utility to them, taxing them can be disproportionately expensive to the rest of us.
In other words, the marginal tax rate on the rich should probably be - I hate to say it - lower than it is for the rest of us.
I'm always surprised that, in this discussion, marginal utility hasn't come up. The usual pro-tax argument is that the marginal utility of a dollar to a poor person is much higher than to a rich person, so taxes should transfer dollars from rich to poor. The usual objection to this is that you can't compare interpersonal utility. But even if you could, the argument has another gaping weakness.
The problem is that, for rich people, marginal dollars have relatively low utility - but marginal time has relatively high utility; the rich are invariably run off their feet. The fact that they're rich means that a lot of economic activity - multiples of their marginal income - depend on... their decision whether, at the margin, to work or go to their kids' ballgames.
As a society, we want - we NEED - them to work. And offering them money isn't as strong an incentive as it would be for the rest of us (who can't - or don't - create the same kind of economic value with an additional hour of work). So, BECAUSE marginal dollars have relatively low utility to them, taxing them can be disproportionately expensive to the rest of us.
In other words, the marginal tax rate on the rich should probably be - I hate to say it - lower than it is for the rest of us.