Republicans and Democrats are locked in a no-holds-barred wrestling match over what to do in the face of the looming expiration of the Bush-era tax rate cuts. Democrats want to deal with the ballooning federal deficit by allowing the tax cuts to expire--but only for those with incomes above $250,000. They also want to extend unemployment benefits for jobless Americans (again) and to preserve Medicare payments at present levels. Republicans argue there aren't enough rich people out there to pay for such entitlements without tax help from the middle class, and in any case they want to keep the tax cuts despite the deficit dangers.
Here's a radical idea for both sides to consider. How about raising tax rates--more modestly--for everyone?
The fundamental flaw in the Democrats' plan to raise taxes only for the relatively rich is that it fails to embrace the idea of shared sacrifice. The Administration's economists argue that we should raise taxes only on the richest 1% of taxpayers, because middle class taxpayers are more likely to spend their incomes in ways that stimulate the economy. This argument may make some economic sense. The problem is that it doesn't make moral sense. Moral sensibilities rebel against the idea that it's okay to solve a broad social problem--a rising deficit fueled mostly by entitlement spending--by imposing new burdens only on a very narrow sliver (admittedly, a well-heeled sliver) of society.
And we are moral--not just economic--animals. In the language of behavioral science, we are "prosocial" beings who are often willing to make individual sacrifices to promote group goals. In contrast to economic theory, which assumes people are selfish, behavioral experiments have proven beyond reasonable dispute that people in fact often act unselfishly when unselfishness leads to a better result for the group. But--and this is a very important "but"--the scientific evidence also demonstrates that people only act unselfishly and prosocially when they think others in the group are unselfish and prosocial.
This basic fact of human nature has been proven over and over in hundreds of "social dilemma" experiments designed to test what real people do when asked to play games that require them to choose between maximizing their own wealth, and increasing the wealth of the group playing the game. Economic theory teaches that rational people playing these social dilemma games should always adopt a "me-first" attitude, and try to maximize their own wealth even if the group suffers. But real people turn out to be quite willing to sacrifice to increase group wealth. The problem is, real people are only willing to sacrifice when they think the other players in the game are also willing to sacrifice.
This evidence from behavioral science tells us a lot about why Democrats and Republicans are at such an impasse over the expiring tax cuts. By proposing to raise taxes only on those earning more than $250,000, Democrats seem to be serving the interests of a majority that is selfishly trying to solve the group problem of a rising deficit by imposing new burdens only on a much smaller minority. Behavioral science teaches that selfish behavior begets more selfishness. Thus many upper-income Americans resist any tax increase at all, believing Democrats only want to take away their hard-earned money while giving them little or nothing in return.
The result is a "me-first" political atmosphere that quashes the prosocial impulses of wealthy and non-wealthy alike--prosocial impulses we need badly if we're going to pull together to solve our current economic woes. We are left instead with an orgy of self-interest, obstinacy, opportunism, and political brinkmanship that hurts us all.
There is a solution. Rather than imposing a large new tax burden only on the top 1% of taxpayers, and no new taxes on the middle class or benefit cuts on the poor, why not impose proportionate and more-modest burdens on us all? These burdens need not be strictly equal--someone earning $250,000 might see their taxes rise by $3,000 while a middleclass taxpayer's taxes go up $300 and a poor person loses $30 in benefits--but the burdens will be, to at least some extent, shared. Of course, it is true that a dollar means a lot more to a poor person than it does to a rich person, but the value of shared sacrifice is important if we want to encourage all to work together to solve our enormous economic problems.
Because only 1% of taxpayers make more than $250,000 annually, asking the other 99% of the population to help out, even a bit, can do an enormous amount to address our deficit woes. Admittedly, in many individual cases the revenue raised may be mostly symbolic. But to moral, prosocial animals like ourselves, symbols of shared sacrifice mean a lot.
Ms. Stout is the Paul Hastings Professor of Corporate and Securities Law at UCLA and the author of Cultivating Conscience: How Good Laws Make Good People (Princeton University Press).