If You Think Your Taxes Are Unjust, Just Think Again
Is the U.S. tax code fair? That question is always in the air at this time of year, as Americans grumblingly prepare their tax returns and politicians promise them gentler, or at least more equitable, tax policies in the future. But how do we decide what's "fair"?
It's a trickier question than it appears at first. Over the past few decades, behavioral economists and social psychologists have shown that our sense of fairness is both powerful and easily manipulated.
In the 1970s, the Nobel Prize-winning economist Thomas Schelling used to put some questions to his students at Harvard when he wanted to show how people's ethical preferences on public policy can be turned around. Suppose, he said, that you were designing a tax code and wanted to provide a credit -- a rebate, in effect -- for couples with children. (I'm simplifying a bit.) In a progressive tax system such as ours, we try to ease the burden on the less well off, so it might make sense to adjust the child credit accordingly. Would it be fair, do you think, to give poor parents a bigger credit than rich parents? Schelling's students were inclined to think so. If the credit was going to vary with income, it seemed fair to award struggling families the bigger tax break. It would certainly be unfair, they agreed, for richer families to get a bigger one.
Then Schelling asked his students to think about things in a different way. Instead of giving families with children a credit, you'd impose a surcharge on couples with no children. Now then: Would it be fair to make the childless rich pay a bigger surcharge than the childless poor? Schelling's students thought so.
But -- hang on a sec -- a bonus for those who have a child amounts to a penalty for those who don't have one. (Saying that those with children should be taxed less than the childless is another way of saying that the childless should be taxed more than those with children.) So when poor parents receive a smaller credit than rich ones, that is, in effect, the same as the childless poor paying a smaller surcharge than the childless rich. To many, the first deal sounds unfair and the second sounds fair -- but they're the very same tax scheme.
That's a little disturbing, isn't it? Especially if your judgments about social justice and taxation are central to your moral and political beliefs. Intuitions about fairness are some of the most basic moral sentiments we have -- arising, developmental psychologists tell us, soon after we're toddlers. Stanford psychologist William Damon has conducted studies in which he asked groups of children to make bracelets. Afterward, the group got a pile of candies as a reward and was told to divvy them up among themselves. From the age of 5 on, the arguments kids had about dividing the loot were all about what was truly "fair" -- equal amounts for everybody or more candy for more productive bracelet-makers?
One thing we know is that our sense of what's fair can be hard to reconcile with a "rational" assessment of costs and benefits. Not least in the realm of taxation, policymakers ignore the workings of moral psychology at their peril.
Consider the first major defeat of the Clinton presidency. In the spring of 1993, the administration proposed, and the House passed, the nation's first comprehensive energy tax, a BTU-based levy on fossil fuel consumption designed to reduce not only the deficit but also greenhouse gas emissions and the country's dependence on foreign oil. Then senators from oil-producing and farm states came out against it, while heavy industry and energy companies mobilized a battle for public opinion on local radio and TV stations.
Surveys showed that most Americans were swiftly convinced that the tax was unfair because some people, such as truck drivers or farmers with their tractors, had no choice but to burn more fuel than others. When the president tried to assuage the noisiest opponents with a host of exemptions, he only made things worse. (What, special breaks for coal, natural gas and jet fuel? No fair!)
How, in the first Bush administration, did the movement to repeal the estate tax prevail? Not just because it was craftily renamed the "death tax." The number of Americans who told pollsters that they opposed the "death tax" was just a few percentage points higher than the number who said they opposed the "estate tax." As Yale scholars Michael Graetz and Ian Shapiro have shown, it mattered more that proponents of repeal made a moral argument (however specious): that the tax was unfair because, for one thing, it involved taxing earnings twice.
Defenders of the tax typically countered with an appeal to self-interest: But you're not paying it, because it applies to just 2 percent of households. They didn't quite grasp how powerful appeals to fairness are. In fact, when the barnstorming Teddy Roosevelt proposed the tax a century ago, he made the case for it precisely in terms of fairness: He talked about what the wealthy owe to a nation that made their success possible.
Roosevelt, of course, was one of the great leather-lunged orators. This primary season has seen an ongoing dispute about whether soaring rhetoric of moral uplift has any relevance to the hard work of devising and implementing public policy. But once you start thinking about how powerfully affected we are by our sense of fairness -- and about how powerfully that sense can be affected by the way issues are described to us -- it's hard to dodge the fact that whiffy moral rhetoric can have practical consequences when April 15 rolls around.
At some level, we're those kids with the candy bars. We may change our minds about what's truly just, but not about how much fairness matters. As faltering as our intuitions about fairness in public policy are, success comes to the politician who can enlist them effectively. It's not enough to craft good policies, you have to convince people that they're wise and just. Some individuals, for reasons we grasp only dimly, are a lot better at that than others, however smart, engaged and sensible. Almost doesn't seem fair, does it?
Kwame Anthony Appiah is a professor of philosophy at Princeton and author of "Experiments in Ethics."