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Note to the Rich: Very Large Taxes = Very Large Benefits

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In an op-ed in Saturday's Wall Street Journal, Scott Adams, creator of the Dilbert Cartoon series, provides his thoughts on "How to Tax the Rich." Acknowledging the likely need for substantial tax increases in coming years, he undertakes a thought experiment for out-of-the box ideas designed to convince the rich that taxing themselves is a good idea. Adams writes:

In reality, fairness is not so much about the actual distribution of loot as it is about the psychology of how you feel about it. That's important to understand because the rich won't give up their cash unless they feel they are getting something in return. And so far, saving the country doesn't seem to be enough of a payoff.

Adams proceeds to brainstorm a set of policy proposals to help win over the rich. Noting that the rich value: time, gratitude, incentives, shared pain, and power, he suggests that these things be used to compensate for higher taxation. For example, the rich could use the carpool lanes even when alone (time), or we could require those receiving social benefits to write a thank you letter to one of the top 2 percent (gratitude) or higher-rate taxpayers could receive an extra vote (power). Adams totally acknowledges that these are half-baked ideas; in fact, he presents then as "bad versions" -- a television-writing technique used to start the discussion and prompt the development of better versions. And he calls on others to help design these better versions -- creative policy solutions for "how the rich can feel good while the rest of society is rifling through their pockets."

The problem with this approach is that it assumes that the rich are not already getting a substantial set of particularized benefits in exchange for the large sums they pay in taxes. Something is enabling a massive concentration of economic growth among those at the very top of the income distribution. In fact, Hacker and Pierson in their most recent book, Winner-Take-All Politics, note that since 1980, more than a third of all the income gains realized by the American public went to the top 1 percent of households -- with this concentration reaching more than half of gains in the early 200s. And this is over and above taxes. Even after considering the higher taxes paid by the very rich, the top 1 percent saw an average income gain of 256 percent, while the income of the middle-class increased by less than a tenth of that (21 percent increase).

There is no question that the rise in income inequality stems from a range of macro-level changes in our global economy. Yet, there is a growing consensus that government decisions, and non-decisions, also play a key role in enabling these large income gains, as well as their concentration among the very rich. Yet, our political discourse continues to reinforce the myth that the only way government influences inequality is through the passage of new laws that redistribute income from the top to the bottom. Instead, Hacker and Pierson explain that government holds many tools for shaping the economy, as well as determining the winners and losers in our economic system. They state:

Government actually has enormous power to affect the distribution of 'market income'... Think about laws governing unions; the minimum wage; regulations of corporate governance; rules for financial markets, including the management of risk for high-stakes economic ventures; and so on. Government rules make the market, and they powerfully shape how, and in whose interests it operates. (p. 44).

Nathan Kelly, in his 2009 book, The Politics of Income Inequality in the United States, calls these "market conditioning policies" -- government actions that "produces economic outcomes different than those which would be produced by market forces in the absence of government action" (p. 41). It is these actions -- rather than explicit redistributive policies -- that he concludes serve as the main linkage between politics and inequality. This realization -- that government is already rewarding the very rich for their very large contributions toward its coffers -- expands the range of options for winning more of their support.

Maybe we don't need new perks, benefits, and privileges for the rich, as much as clearer communication about the benefits the wealthy are already receiving via government policy. With this notion, my "bad version" would aim to illuminate these benefits. Something along the lines of the "Taxpayer Receipt" proposed by David Kendall and Jim Kessler (at Third Way) a few months ago. But, extending to these more consequential market-conditioning policies from which the wealthy most benefit. To really support such an effort, we need a better accounting of (and academic scholarship on) the causes and consequences of our less-visible government policies, including: regulations and deregulation, agency rulemaking, and the politics of non-decisions and drift toward the status quo. As our understanding of these less visible aspects of our policy process, as well as the importance of market-conditioning policies advances, we can more fairly call on leaders to craft better appeals to those whom we must ask for more.

Note: Cross-posted @ The Monkey Cage: http://www.themonkeycage.org/2011/02/how_to_tax_the_rich.html

Elizabeth Rigby is an assistant professor at the Trachtenberg School of Public Policy and Public Administration at the George Washington University. Her research examines the politics of inequality and the American policy making process. She can be reached via her website: tspppa.gwu.edu/faculty/rigby.cfm

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