Endowment and Inequality
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Tax policy literature, particularly that written by lawyers, often cites either income or consumption as an “ideal” tax base—the very thing we want to tax. Warren, for example, embraces the admitted tautology that “the personal income tax follows from, and is justified by, a societal judgment as to the appropriate distribution of income”. If we want to redistribute “income,” then of course it is the right thing to tax—although why it is the thing we want to redistribute remains unclear. On the other side of the debate, Andrews favors a consumption tax because “it ultimately imposes a more uniform burden on consumption, whenever it may occur, than does an [income] tax”. This distinction “keeps the tax from bearing more heavily on one person than another on account of differences in need or taste for particular goods and services, nor or in the future”. As we will see, there may be considerable appeal to Andrews’s argument that mere taste differences should not lead to unequal tax burdens. However, this argument can be taken a step further, as demonstrated in the following examples: 1. Two individuals differ only in their taste for consumption goods; otherwise, their circumstances are the same. One prefers to spend more on clothing, less on food; the other likes high-quality food but does not care so much about clothing. 2. Two individuals have the same wage rates and in all other respects are in similar circumstances. However, one prefers to work long hours in order to purchase more goods; the other prefers less work and therefore accepts having fewer goods. That the two individuals in the first example deserve to bear the same taxes probably seems obvious. We are not likely to regard the differences in taste as relevant to the sharing of tax burdens. Example two is essentially the same, except that the choice is not between food and clothing, but between leisure and goods. Bradford’s reasoning about the firs example, and is extendability to the second, rules out any possibility that consumption, income, or wealth could be the very thing we really want to tax. Consumption taxes burden decisions to work and thus the taste for work (or market consumption), while income and wealth taxes burden work and saving. Estate and gift taxes burden decisions to work, save, and engage in gratuitous transfers. All of these taxes, therefore, penalize tastes that have no obvious distributional relevance, and burden behavior that is not bad in and of itself and does not, at least not as obviously as pollution, impose external burdens on others. The defense of any of these tax bases therefore lies in its capacity to provide a crude proxy for some set of attributes that are relevant to distributive justice but cannot be observed directly. But what are these underlying attributes? While analysts are unlikely to agree on them completely, most would say that they have something to do with inequality. After all, if society did not agree that people who are better off should bear a greater tax burden, it presumably would not object to raising revenue through a uniform head tax (at least where benefit taxation was infeasible). Inequality, therefore, has a prominent place in a variety of views of distributive justice, although under any view it rests at least one “turtle” from the bottom. (I refer to the old story of the woman who claimed that the earth rests on the back of a turtle and, when asked what the turtle rests on, responded that it was “turtles all the way down.”) That is, the move from describing who is better off under some metric to claiming that tax burdens should vary by reason of the differences identified by this metric requires motivation. Many tax policy experts have recognized the conceptual need for a lower-lying distributional “turtle” than merely some definition of a tax base, such as the Haig-Simons income definition. The true, but unobservable, underlying measure that income is thought to represent, for reasons lying at least one more turtle down, can be termed “ability” or “ability to pay.” However, the spirit in which analysts typically discuss this hypothetical measure (or, more often, deliberately do not discuss it) was well illustrated by Simons’s argument that efforts to poke too far behind the supposed objectivity of an income definition “lead…directly back into the utter darkness of ‘ability’ or ‘faculty’ or, as it were, into a rambling uncharted course pointed only by fickle sentiments”. Such “hard-nosed” views notwithstanding, this chapter argues that consideration of the presumed underlying measure of inequality—for which, wealth, income, and consumption are merely rough proxies—is crucial to developing a coherent and defensible view of distributive justice. The following sections attempts to flesh out an underlying measure, which we might call “endowment,” “ability,” or “wage rate.” The third section considers this measure’s possible significance under two leading distributional approaches: utilitarianism, or weighted welfarism, and the liberalism, or liberal egalitarianism, much discussed in recent legal literature about taxation. It argues that conventional rejections of endowment taxation as an orienting idea—usually on the grounds that such taxation would require enslaving a beachcomber who could have been a Wall Street lawyer—are confused in key respects. The last section briefly concludes.
Source Publication
Tax Justice: The Ongoing Debate
Source Editors/Authors
Joseph J. Thorndike, Dennis J. Ventry, Jr.
Publication Date
2002
Recommended Citation
Shaviro, Daniel N., "Endowment and Inequality" (2002). Faculty Chapters. 1758.
https://gretchen.law.nyu.edu/fac-chapt/1758
