Posted by Don Fullerton on Jul 13, 2012
Filed Under (Other Topics, U.S. Fiscal Policy)
Way back on May 18, I wrote a blog called “Why YOU may LIKE Government ‘Theft’”. In it, I listed four possible justifications for government to act like Robin Hood, taking from the rich to give to the poor. This combination of economics and philosophy is meant to help each of us think about what really should be the top personal marginal tax rate: should it be higher or lower than currently? This topic is hotly debated these days in the newspapers!
In that blog, I listed all four justifications, any one of which may or may not ring true to you. If one or more justification is unconvincing, then perhaps a different justification is more appealing. I put off the last three justifications to later blogs and mostly just discussed the first one, namely, that some “ethicists” in the field of “moral philosophy” have found ethical justifications for extra help to the poor. The moral justification may be the most common or usual one; you might think it morally just or fair to help the poor starving masses. That blog describes a range of philosophies, all the way from “no help to poor” (Nozick) in a spectrum that ends with “all emphasis on the poor” (Rawls).
But that’s not the only reason to have some degree of progressivity in our income tax system (taking higher percentages of income from those with more income). The second justification basically says okay, let’s skip the moral theorizing. Instead, suppose the poor are not deemed special at all. Suppose that ALL individuals receive the exact same weight. Suppose the objective is to maximize the un-weighted sum of all individuals’ wellbeing (or what we call “utility”). Actually, this is perhaps the view of Jeremy Bentham, who came to be considered the “founding figure of modern utilitarianism.” His philosophy is “the greatest happiness of the greatest number”. That is, just add up all individual utilities, without weights, and maximize that sum.
So far, that might sound like no justification for taking from the rich to give to the poor. However, we did not say just add up their incomes, or to maximize total GNP. Instead, one might also believe that utility is not proportional to income, but is instead a curved function, as in the diagram below. In other words, “declining marginal utility”. If so, then a dollar from a rich person is relatively unimportant to that rich person, while a dollar to a poor person is very important to that poor person. In that case, equal weights on everybody would still mean that total welfare could increase by taking from the rich in order to help the poor.
The only remaining question is the degree of curvature, or the rate at which marginal utility declines. If it is a nearly straight line, then we might not want much redistribution. But if it has a lot of curvature, then the sum of utilities could be maximized by taking more from the rich than we do currently.
So, what do you think? I invite your comments.