Will Raising Taxes Make a Difference?

The debate over the last few days and weeks in the wake of Occupy Wall Street has been around income inequality.  For the Occupy folk the solution is simple: raise taxes on the wealthy and the middle class and poor will have opportunities they don’t have now:

The idea that government raising taxes on the wealthy won’t matter because that money will be used for programs that benefit the “relatively poor young” —a.k.a Social Security — is self-refuting. I’m not even sure how to respond to it, honestly, it’s so steeped in wing-nut and impenetrable to anyone who doesn’t find Tucker Carlson a font of wisdom. But in any event, if government has more money to spend on Pell Grants, public schools, police, firefighters, public land reclamation — in other words, “politically favored groups,” that often are comprised of human beings — this all quite obviously will have an impact on inequality. Safer neighborhoods and better schools means young people with a better chance to get into prestigious colleges and universities; Pell Grants mean that those very same kids can get into those schools without amassing utterly unmanageable and self-destructive levels of debt. They can then go and get jobs, make money, live the dream and so on.

This is what people are talking about when they say equality of opportunity, and it’s what people are talking about when they say inequality. There tends to be an attempt among ideologues to portray taxation and opportunity as somehow disconnected, as if people who want to raise taxes on the rich don’t particularly care about what’s subsequently done with that money. By holding onto this bizarre piece of analysis, not only does one get to pretend they’re in favor of equality of opportunity and simply against taxation; but the generic and brain-dead nonsense about liberalism being an ideology of envy becomes less patently useless, too. It’s hard for me to imagine that many people are actually silly enough to sincerely believe that I think Clinton-era tax rates would be a good idea because I hate everyone who makes over $200,000 — but I can guess how useful a tool for rationalization and self-righteousness this grade school-level psychoanalysis must be.

A few days ago, Ross Douthat refuted the notion that raising taxes would somehow heal the growing gap between the rich and the rest of us:

From the drum circles of Zuccotti Park to the hustings of Barack Obama’s re-election push, a suddenly invigorated liberalism thinks that it has the answer to this angst: a renewed demand for higher taxes on America’s richest 1 percent. And if all you care about is reducing measured income inequality, then the Occupy Wall Streeters and their Democratic admirers have it right. Tax millionaires sufficiently and you’ll end up with a more equal society. The tallest poppies will be trimmed, and some of their income will find its way to someone’s else pocket.

But true social mobility and broadly shared prosperity are not so easily achieved. Remember that those tax dollars, once collected, would not be disbursed with perfect effectiveness to the most deserving members of the American middle class. Instead, they would be used to buy a little more time for our failing public institutions — postponing a reckoning with unsustainable pension commitments, delaying necessary reforms in our entitlement system and propping up an educational sector whose results don’t match the costs.

More spending in these areas won’t necessarily buy us more mobility. The public-sector workplace has become a kind of artificial Eden, whose fortunate inhabitants enjoy solid pay and 1950s-style job security and retirement benefits, all of it paid for by their less-fortunate private-sector peers. Some on the left have convinced themselves that this “success” can lay the foundation for a broader middle-class revival. But if a bloated public sector were the blueprint for a thriving middle-class society, then the whole world would be beating a path to Greece’s door.

 

It’s no surprise to anyone that I would tend to favor Douthat’s understanding of the issue.  I would differ by saying that raising taxes could help alleviate some of the problems of inequality, but not necessarily.  Just because we raise taxes, doesn’t mean that some kid is going to get a free ride to Harvard.  As Douthat notes extra revenue could also go to things like shoring up public sector pensions, or papering over Social Security, things that don’t help ease the wealth gap.

Does this mean we shouldn’t raise taxes on the wealthy?  No, but we shouldn’t think that raising taxes is going to easily solve our problems, either.