This is the fifth article on the theories defended by Murphy and Nagel in the book The Myth of Ownership
Progressive taxes as a matter of efficiency
Progressive taxes as a matter of efficiency
Murphy and Nagel believe that their ill defined notion of reserve price can be used for another purpose: to prove that if we do not want to disappoint the rich, we have to tax them more. That involves not merely a matter of fairness to the poor –they insist– but of efficiency in regard to rich people’s interests. The argument is this: rich people would pay large amounts of money to have, say, a reliable defense against attacks from other countries. However, it might well happen that poor people cannot afford to pay as much. Therefore, if people were taxed equally, there would be less defense than that for which the rich are willing to pay.
This argument for progressive taxes does not imply a comparison between different scales of utility, though there is always a temptation to engage in it –maybe implicitly– to “reinforce” the point. Certainly, it is one thing to say that the government is right in taking a dollar from a rich man who would like it to be spent on defense rather than on any other thing, and quite another to say that the government is right in taking the dollar from a rich man because a poor one would use that dollar for a good higher on his scale. In the first case we compare values for the same individual; in the second we conflate two scales of values.
As said, if we try to justify progressive taxes using the first comparison, we must avoid sliding inadvertently into the second (always, unless we want to deceive ourselves). Nothing in the first comparison implies that defense is more valuable to the rich. History provides many examples of poor people that have given everything they had to defend their small farms; we know that poor fishermen have died defending their huts; we know that poor people –as anyone else– do not like to see soldiers taking away their goods and abusing their daughters.
That first comparison alone (i.e. among the priorities of the same individual) might allow Murphy and Nagel to deduce that progressive taxes are more efficient from a rich taxpayer’s point of view. However, we must bear in mind the conditions that would make it true –and realize that without them, the conclusion is false.
As the conditions are not taken into account by Murphy and Nagel, we would do well in having a look at them: if there are some services that are in a bad situation according to the views of rich taxpayers, and if higher taxes were to be used to improve the services that the rich want to see improved (as distinct from redistribution, etc.), and if the poor were uninterested in it (or interested but unable to pay more), then it would be a matter of efficiency, from rich taxpayers’ point of view, to make them pay more. However, even then, this would not prove that the tax has to be more than slightly higher for the rich, or strictly proportional, or progressive. It would only discard (under those conditions) a tax that would take the same amount of money from each individual, regardless of income.
The whole argument about the efficiency of higher taxes reminds me of a humorous Brazilian saying: “you have proved your point, but it is only a small point, and then only a meaningless point”. Efficiency could be an issue if we suspected that rich people want to be taxed more heavily. If there are rich people who think that taxes are too low and would like to pay more, they have been very quiet.
We may add more meaning to the argument if we make a shift and start comparing the choices of different people. Of course, it would require dropping the claim that we are talking of efficiency from the point of view of rich taxpayers. Murphy and Nagel slide occasionally into this second strategy, but the change in the meaning of “efficiency” is not always clearly indicated to the reader. This second strategy is in fact the same that gave something resembling a justification to the notion of a surplus value: we would compare different people’s preferences. Of course, when we say “we would compare…” we must understand that the government will do it for us.
Murphy and Nagel write “The more money you have, the less a marginal dollar is worth to you”.[1] That seems to imply –and must imply if the assertion is meant to justify their theses– that an extra dollar is less useful to a rich man than to a poor man. But all we can sensibly say is that both the rich and the poor man would use an extra dollar for the item that is one step lower than the last item that is already covered in their list of priorities. The poor man’s list may be shorter and that would mean that his last item is closer to the top.
Now, if being higher in anyone’s list were an objective reason for the claim that it is more efficient to use an extra dollar for that purpose, then we could say that higher taxes for the rich are a matter of efficiency.[2] In that case, we would have demonstrated that there is a fundamental dilemma between efficiency and respect for ownership. Perfect efficiency would be reached when all earn the same. And if authorities cannot achieve that ideal, then they might try to approach it by using taxes, cash transfers, subsidies, etc. But the argument is wrong: it would prove that another glass of beer provides a more efficient opportunity for spending than another street map for an expensive mobile phone. Why? Because the extra glass is the last unattended priority in some poor man’s scale.
So this is the second strategy to prove that higher taxes for the rich are more efficient –interpersonal comparison of utility–, and it fails. The poor man would have to drink a lot of beer before he starts calling an extra glass “mere efficiency”.
Minimum wages and welfare payments as a matter of efficiency
After dealing with progressive taxes and concluding that they are efficient from the rich taxpayer’s point of view, Murphy and Nagel try to convince us that a government that imposes minimum wages and social welfare is not really redistributing wealth but only being efficient, even from the rich taxpayer’s point of view. They write: “Such programs are usually regarded as redistributive, but the alternative to a decent social minimum is a society with real poverty, which often results in higher rates of crime, drug addiction, and single motherhood, all of which impose their own costs not only on the poor but on everyone. To be grim about it, the cost of subsidizing wages for unskilled labor to make them sufficient to support a family might well be balanced by savings in the costs of prisons and law enforcement that such a change would produce, not to mention the value for everyone of the change in social environment”.[3]
The alternative between government provided welfare and poverty is misleading: most countries on Earth have both. They have minimum wages and rising crime; welfare payments and single motherhood; redistribution and drug addiction. They have had them for half a century –at the very least. It is already very difficult to claim that this system is in the interest of poor people; it is impossible to claim that it is efficient from a rich taxpayer's point of view.
In a very well known book about welfare Losing ground, Charles Murray has shown that the assumption that welfare expenditure improves the condition of the poor is not necessarily true. Moreover, examining long series of statistics he has argued that the assumption is often wrong, and that welfare often worsens poverty.
Murphy and Nagel deal with these objections as they do with all others that might contradict their theses. They avoid all reference to them.
In a very well known book about welfare Losing ground, Charles Murray has shown that the assumption that welfare expenditure improves the condition of the poor is not necessarily true. Moreover, examining long series of statistics he has argued that the assumption is often wrong, and that welfare often worsens poverty.
Murphy and Nagel deal with these objections as they do with all others that might contradict their theses. They avoid all reference to them.
But even if we disregard the experience we have about the inefficacy of redistribution to prevent crime, single motherhood, and drug abuse, and if we decide that the expectations governments had in the sixties and seventies were right but failed for some unknown reason, we could not deny that we are redistributing wealth, i.e. benefiting some people at the expense of others. Nevertheless, that is exactly what Murphy and Nagel deny: “The reduction of social and economic inequality is in this way seen as a public good, paid for according to its monetary value to different individual taxpayers. This case differs from that of national defense, for example, in that it makes no sense to tax the poor for some of the costs of raising their spendable income. But it is still driven by efficiency, not fairness –a direct appeal to the interests of each, with no sacrifice being imposed on anyone. There are obvious political advantages in portraying social welfare policies in this way, but that doesn’t mean there is nothing in it”.[4]
Actually, there is nothing in it, apart from the political and rhetorical advantages. If redistribution is good, if it prevents social problems, it is still redistribution. If the government taxes some people to give money to other people, we have already a loss for those who pay, and an advantage to those who receive. Therefore, even if we assume with Murphy and Nagel that redistribution has the effect of reducing crime, etc. a reduction that equally benefits both sides on the redistribution scheme, then we still have the original loss and advantage involved in it.
There would be a balance if we assumed that only –or mostly– the rich get advantages from the prevention of crime, single motherhood, and drug abuse. Of course, that is not true; more than that, it is rather the opposite. Poor people are the first victims of crime,[5] a thing that many law scholars tend to forget when they treat crime as if it were a war of the poor against the rich. Stories do not replace statistics, but they may show things statistics cannot tell. I remember the case of a poor woman living in a shanty town in Argentina
The limitations imposed by crime, the daily fear, the petty harassments, the exactions, all of that beats poor people everyday. They might not actually benefit from redistribution, but they surely benefit from the prevention of crime.
Murphy and Nagel must have a surmise that efficiency is not a good argument for redistribution. Just in case rich people do no like their arguments, they have others: “if, for whatever reason, the well off are not unhappy to live in a society full of poor people (it solves the servant problem) then we have to consider the question of distribution independently”.[6] As always, when they say “we have to consider…” they do not refer to unconvinced rich taxpayers, but the government.
If efficiency fails as an argument, our philosophers would base redistribution on some moral standards and public duties that we (that is, the government) think can be reasonably imposed on people. There we have more choices than with efficiency, so we might think that “appropriate foreign aid”[7] for poor countries is one of the duties we can impose on people. We the government, of course.
[1] P. 82.
[2] Even then, we are leaving aside the question: who earned it? But the argument does not hold water even if we evade that essential question.
[3] P. 87.
[4] Same page.
[5] The robbery rate for persons in households with annual incomes of less than $7,500 is 7 times higher than for those with incomes of more than that amount. US Bureau of Justice Statistics http://bjs.ojp.usdoj.gov/index.cfm?ty=tp&tid=92..
[6] P. 88.
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