Height Taxes and Utilitarianism
How should a height tax treat the super-duper tall? (wikimedia)
Contra Alex Tabarrok’s cute post here there’s nothing contradictory between pointing out that Greg Mankiw is wrong to imply that utilitarianism-based arguments are the only (or even the primary) arguments available for redistributive taxation and also to point out that considerations related to the declining marginal utility of money do, in fact, militate in favor of redistributive taxation.
For example “Allah forbids it” is not the only reason one might decline an offer of whiskey at breakfast. Indeed, “Allah forbids it” is, for most people, not going to be an important consideration. But of course many people are observant Muslims. And insofar as you are going to be an observant Muslim, Islam will count as a good reason to avoid whiskey at breakfast.
That said, Neil Sinhababu has persuaded me that in principle a modest “height tax” might be a good idea. As with any totally new tax there are a lot of practical questions around rates, enforcement, political feasibility, etc. standing in the way. Since in my experience there are relatively few utilitarians out there this idea probably isn’t going to take the nation by storm. Last, I continue to take the view that American liberals tend to overestimate the importance of achieving a high level of tax progressivity rather than simply acquiring a sufficient quantity of revenue to fund progressive social spending.
34 Responses to “Height Taxes and Utilitarianism”
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July 22nd, 2009 at 11:38 am
I don’t think I understand the argument. Height is a correlate of income, so we should tax height? Why not just tax income directly? By that reasoning, we should tax being white and being attractive.
I also don’t buy the argument that people stop trying to earn more money because they worry the might move up a tax bracket. This is why we have marginal tax brackets. Only ignorant earners would worry about making more money.
July 22nd, 2009 at 11:41 am
“Last, I continue to take the view that American liberals tend to overestimate the importance of achieving a high level of tax progressivity”
Now that is a surprise, no? A guy born with a big trust-fund is opposed to tax code progressivity.
Who woulda thunk it?
July 22nd, 2009 at 11:49 am
BradyB,
The idea is that tall people end up making more money due to their height, for whatever reason (Psychology, etc).
The big problem with an income tax, is that taxes on work tend to, on the margin, decrease incentives to do work. This causes damage to the economy.
But while a heavily taxed person can avoid taxation by cutting down on work, a tall person can’t stop being tall.
So because of this, a height tax works like an income tax, except that it lacks incentive-distortion, allowing us to raise more money for a smaller economic cost.
I mean, obviously, the height effect isn’t that large and is a little noisy, so it couldn’t replace the income tax, but from a utilitarian standpoint, I think it’s a good policy in principle.
July 22nd, 2009 at 11:53 am
‘Allah forbids it’ isn’t the best sort of example to illustrate the point. What you want is to point out that one could be moved by considerations of utility without being a utilitarian. Since a non-muslim isn’t moved by the wishes of Allah, the cases aren’t parallel.
July 22nd, 2009 at 11:54 am
The idea is that taxing height will not change behavior because there’s nothing to be done about it, whereas people in high tax brackets face a disincentive to work/earn more at the margin. If the goal is to tax the rich, that would be ideally achieved in an indirect way that did not change anyone’s incentive to work. You are right that the same logic would apply to taxing being white/attractive, which of course won’t happen, but neither will taxing height.
The “stop trying to earn money” issue is that high earners earn comparatively little for any additional bit of work they might be inclined to do. I don’t think that’s any sort of big problem, but it’s sub-optimal.
July 22nd, 2009 at 11:59 am
Petey: I don’t think trust funds actually work that way. I’m pretty sure the way trust funds work is that you only pay taxes when you get money out of the fund, (similar to a 401(k), I think) which allows you to avoid the bite of progressivity by spreading out your income over time.
July 22nd, 2009 at 12:04 pm
If I have to pay an additional tax for being tall, I damn well better get some decent airplane seats thrown in at no extra charge.
July 22nd, 2009 at 12:08 pm
The height tax should consist of a corvee requiring tall people to get things off of high shelves for short people when it is convenient.
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It’s interesting how people go blind halfway through reading Matt’s explanations of less progressive taxation funding more social spending. They get to the “less progressive tax” and go blind before reading “increased social spending”.
Assume we have a perfectly acceptable progressive tax system. A new federal program is proposed in which the government can gain efficiency due to volume that more than offsets deadweight loss of taxation. The program frees all Americans from paying for a service that costs the rich and poor alike about the same amount. To pay for this service, the federal government taxes everyone the same amount.
End result – everyone is in the same situation as before, but they have a tiny bit more money.
If the government decides to pay for the new program with a progressive tax, the end result is that everyone is getting the same service as before, but the rich have less money, and the poor has more. This makes the tax code more progressive, but we are starting with the assumption that the tax code was already progressive enough. Just because the government finds a way to save people money, the rich should lose money and the poor shold gain it?
Progressivity should be achieved via taxes on the sources of wealth disparity, like income and inheritance.
I don’t happen to think we are at a point of optimal progressivity right now. Considering the disingenuousness of the political opposition, I see no way to get to that point without matching their deviousness. In view of that, I believe in getting progressivity by any means, but if we were governed by honest men with honest differences, I would adopt Matt’s view.
July 22nd, 2009 at 12:13 pm
I’m still not getting either Mankiw or Matt’s argument here. Utilitarianism is a theory of Jeremy Bentham and John Stuart Mill and involve the idea that individuals should engage in activities that will bring them happiness. There is some argument as to whether this happiness will be the result of meeting desires or informed desires. Part of the theory is one of consequentialism, which is why I believe Sedgwick (sp? don’t want to look it up again) suggested that utilitarians might be in favor of egalitarian income distribution. Each individual should have an equal opportunity of meeting their desires, or obtaining happiness. For Bentham especially I think the idea that each person in society should have a relatively equal opportunity to acheive happiness through meeting of desires is important.
What the hell does all this have to do with height?
July 22nd, 2009 at 12:19 pm
Well in defense of importance-overestimating liberals, the progressive income tax makes Keynesian economics automatic in both directions. In recessions, as incomes fall, tax rates fall automatically. The stimulating tax cuts are built in. During expansions, incomes rise and tax rates rise too, raising revenue to pay for it all while simultaneously reducing inflation.
Progressive income taxes, done right, would accomplish much of what the Federal Reserve does via monetary policy, only the redistributive impact would be very different. Keynesian fiscal policies redistribute wealth inwards to the middle class, whereas Monetarist policies redistribute wealth to bankers.
Naturally, bankers are Monetarists. But nobody in the middle class should be.
July 22nd, 2009 at 12:21 pm
David Shor,
Taxing height because tall people make more money on average would inevitably result in taxing tall people who don’t, in fact, make more money than their short counterparts. Shouldn’t that instance invalidate the argument?
Also, does anyone have data showing that small increase to the marginal tax rate actually decrease work output? The idea makes sense in theory, but I can’t see anyone actually thinking that making an extra $1 million is useless since they’ll only get to keep $500K of it.
July 22nd, 2009 at 12:23 pm
The prime funders of propaganda against highly progressive taxes “earned” their money by inheriting it.
Besides My there is Steve Forbes (inherited Forbes magazine), Pete Coors (Coors beer), Richard Mellon-Scaife (Mellon bank), the Walton kids (Walmart), etc.
Some people who are somewhat self-made are in favor of more progressive taxes (Warren Buffett, Bill Gates). These types are apparently not “rational”.
July 22nd, 2009 at 12:24 pm
Petey, I’m sure I’m not the first one to say this, but didn’t you think the Dems should run with Edwards? Please stop expressing opinions.
July 22nd, 2009 at 12:25 pm
Hmmm…. I guess I’m confused. Matt Y described the declining marginal utility of money as “a strong argument” for treating progressive taxation as “welfare-enhancing.” Obviously I lack his subtlety, and familiarity with the arguments that go winging around Emerson Hall, because I read that post as saying that utilitarian considerations were an argument, and not a weak one, that progressive taxation would bolster the well-being of our nation. But it turns out Matt Y was just saying that one *could* think this, if one lacked subtlety, and familiarity with the arguments that go winging around Emerson Hall. My bad.
July 22nd, 2009 at 12:27 pm
Warren Buffett and Bill Gates are only 5′10″. So they probably wouldn’t pay height taxes.
Also: why should point guards pay lower taxes than centers?
July 22nd, 2009 at 12:32 pm
Basketball would be more entertaining if the average height on the court was limited to 6′. Instead of having a bunch of slow-moving uncoordinated giant freaks standing under the basket you’d get weird combinations like having one 7-footer and four speedy 5′9″ guys. Or two tall guys and three below average height guys.
July 22nd, 2009 at 12:59 pm
BradyB,
You’re missing the point.
First, what is the point of redistribution? To subsidize the less-productive through taxation of the more-productive. That isn’t necessarily bad (despite the econospeak that spooks a lot of progressives and philosophy BAs) if you support the concept Lerneresque distributive efficiency.
Second, why do we tax income? Because the government can’t observe productivity, so it taxes observable income as a proxy.
Third, it is not surprising that a “height premium” exists.
Forth, if you were a pure egalitarian, you would have to support redistributive efforts designed to compensate for natural inequalities such as height, beauty, athletic ability, and intelligence — this was famously lampooned by Vonnegut in “Harrison Bergeron.”
http://instruct.westvalley.edu/lafave/hb.html
And Matt DID contradict himself. The diminishing marginal utility of money IS the main [rational] justification for wealth redistribution.
July 22nd, 2009 at 1:24 pm
My understanding is that height at age 18 is a strong correlate with intelligence. I’m not morally adverse to the idea that all immutable and unearned income advantages ought to be taxed to the extent it’s feasible, but I’d like to see a more rigorous conclusion that height is the fundamental advantage and not merely the correlate of other advantages.
I remember in law school my tax professor pitched an interesting hypothetical: imagine if we could accurately assess the maximum earning potential for any individual even if that individual actually earned far less because of his choices in life. For example, suppose we could tell if a blogger were fundamentally competent enough to have been able to get a job at a large law firm earning six figures a year — but did not only because of a personal preference to do something else. In that situation, we could eliminate the distortive effects of income taxation by taxing people not based on their actual income but instead on their potential income. So if Matt Yglesias fit that criterion, he’d pay about $75,000 to the IRS and state/local governments per year (based on his potential $200,000+ salary) even though his actual salary was only that of a blogger.
Sounds good in theory. It’s an interesting test to determine whether a proponent of progressive taxation is sincerely motivated by the interests of the less fortunate or merely wishes hard-working people to subsidize his personal consumption (i.e. his consumptive preference to pursue a fiscally sub-optimal career). Which is it, Matt?
July 22nd, 2009 at 1:32 pm
Anent the marginal utility of money there’s Cross’s Maxim:
-The future, Mr. Gits. The future!
Since the future is infinite, the numerator in calculating the marginal utility (the future/money) will expand to infinity as well. If you want to insure that your great great great great great grandkids will rule the world, you can never have too much money.
July 22nd, 2009 at 1:37 pm
Jeffrey: Yeah, but the thing about that is that as time goes on, uncertainty grows. Maybe giving your distant descendants lots of money will help them, or maybe it will just make them first against the wall when the revolution comes, it’s hard to tell. (And on top of that is the question of whether you really care whether your great great great great great grandkids will rule the world.)
July 22nd, 2009 at 1:38 pm
Pender -
I know it’s breaking the spirit of the hypothetical, but as someone who’s usually unimpressed by these sort of hypotheticals anyway let me be humorless and ask: what does “maximum” mean in this case? Let’s say that I’m competent to go to law school, graduate near the top of my class, and start working for Big Law, which means a starting salary of $155K or so these days. So (let’s pretend I did this straight out of college) today I’d be getting taxes as though that were my income, but by the time I’m thirty-five we assume I’d have become a partner, so I’d be getting taxed as though my income were more like $300K or whatever. But for positions above partner – say, the head of my firm’s labor practice – there are going to be more people competent to do that job – at $500K or whatever – than actual spots for the job. So is everybody going to be taxed based on the assumption that they’d get every promotion that they could also feasibly have not received?
July 22nd, 2009 at 1:58 pm
It means the amount you’d be making — as determined by our infallible crystal ball — had you dedicated your career to the singular end of maximizing your income. Some people don’t make partner despite trying really hard and despite having been judged competent enough to be hired as an associate, and presumably the crystal ball would know when that would have been the case.
No, they’d be taxed based on the promotions they WOULD have received. Obviously we can’t predict this sort of alternate-universe counterfactuals with 100% accuracy, but imagine we could.
July 22nd, 2009 at 1:58 pm
@Pender: The strength of the modal “could” is relevant here. In the broadest sense of “could”, any of us could make billions of dollars a year–it’s not logically or metaphysically or broadly logically impossible. in a narrower sense, most of us could make billions of dollars a year: We’re smart enough to game the system on Wall Street. In another narrower sense of “could”, most of us couldn’t make billions of dollars: We don’t have the right friends, the appropriate academic pedigree, a rich family, etc.
All this is to say that the semantics of the counterfactuals here are really slippery here, so slippery as to make the law professor’s question useless.
July 22nd, 2009 at 2:32 pm
All this is to say that the semantics of the counterfactuals here are really slippery here, so slippery as to make the law professor’s question useless.
Right. Pender says it’s a crystal ball question, and I don’t find those questions interesting because we don’t live in a crystal ball universe; in a crystal ball universe, the issues which we attempt to address via progressive taxation might not exist altogether, because we’d have crystal balls! Even if it’s not intended to be purely a “gotcha” question, it winds up being nothing more than a gotcha question.
My first response would be that there are progressive ideals which push against the idea that we should do even more to disincentivize a skilled lawyer from becoming a district attorney or, better yet, a public defender; having to pay more in taxes than you actually gross in a year is a pretty good way to make sure that only the least impressive candidates enter the justice system, which would be a bad thing. (Unless we paid these people salaries commensurate with the skill levels we’d like them to have, which puts us back into “well, in a different universe than the one we have” territory, which ruins the utility of the hypothetical, because we should really try to stick to one hypothetical universe at a time, in my opinion.)
My second response, elaborating on the initial notion that there are multiple progressive goals which balance against each other – the point isn’t, after all, taxation for the sake of taxation but rather taxation (and other mechanisms) for bringing about a particular vision of society – is that this particular line of inquiry is silly because it erroneously conflates the goals of progressive taxation with the goals of progressive policies aimed at trying to provide equal opportunity. There’s a common intellectual standpoint which develops the justification for each argument, but they’re not actually the same argument.
July 22nd, 2009 at 2:52 pm
Pender, you don’t understand the economics behind the argument. Even if the income advantage associated with height is a correlate of other quantities, taxing height would still be utility-enhancing via Mankiw’s argument. The only thing necessary for it to hold is that height have some correlation, causative or otherwise, with income, and that height be a very inelastic quantity. Both of those things are true.
You could do similar things with sex, race, sexual orientation, where they were born, or really anything immutable. If you wanted you could tax kids proportional to how much their parents paid in taxes at their time of birth. Anything that a person’s behavior can’t modify will work.
The argument isn’t at all reliant on some idea that tall people get unfair advantages in life; it’s simply the fact that they do, fair or not.
July 22nd, 2009 at 3:35 pm
@18, 21-23: The law professor also ought to be aware that those just-out-of-law-school associates at big firms work enormous amounts of overtime. If you tax everyone as though they worked enormous overtime even when they don’t, aren’t you forcing them to work overtime just to pay their taxes? That sounds awfully like slave labor.
There is, maybe, some argument for tax-advantaging people who *do* work overtime, if you think it’s really beneficial to society (although I think rather the reverse: it’s better *for society* for three people to have 40-hour jobs than for two to have 60-hour jobs and one to be unemployed, although the employer has the reverse incentive, which is why overtime exists and needs regulation).
Also: if a qualified candidate works harder to outcompete other qualified candidates for a limited-supply, highly lucrative position like the ones discussed in #21, how beneficial to society was that competitive effort? Should they be rewarded for holding the position even though they don’t do any better in it than an alternative candidate would have? If a moderately qualified candidate works harder and outcompetes a more talented, but more laid-back candidate and wins the position, what then?
July 22nd, 2009 at 4:22 pm
Umm, since men average several inches taller than women, are tax rates going to be gender normed? What’s more, I can see Acromegaly victims and others of abnormally tall stature having an Americans with Disabilities Act claim.
July 22nd, 2009 at 4:44 pm
Umm, since men average several inches taller than women, are tax rates going to be gender normed?
No, if the advantages of height aren’t gender-normed.
(There is, however, an entirely different proposal, bruited by some Swedish feminists, for a man tax. I leave that as a problem for another time.)
July 22nd, 2009 at 4:54 pm
Don’t tall people generally eat more, suffer more back aches, and other abnormal expenses? Shouldn’t the tall also get a subsidy?
July 22nd, 2009 at 5:15 pm
Yao. Love ‘em. Miss ‘em Don’t tax him Matt. The poor bastard no longer has job. At least he has health insurance. Send him to a poor, country doctor. Only Bones can resurrect his career now.
July 22nd, 2009 at 5:29 pm
No, I actually understand that perfectly. My point was simply that we shouldn’t tax the correlate of a cause if we could instead tax the cause itself. If height correlates with income only because it also correlates with intelligence, we should forget about height and simply tax intelligence.
This is merely fighting the hypothetical in a pretty unenlightened way. If we must, let’s say these are not general-purpose crystal balls but rather crystal balls whose only use is to answer the precise question posed by the hypothetical: how much income would someone have had they dedicated their career to maximizing their income? If you oppose all counterfactual hypotheticals as “not interesting” on principle, you close yourself off to an extremely useful intellectual tool.
It does not ruin the utility of the hypothetical, you’re merely fighting the hypothetical from a different angle. Paying indispensable people like DA’s more than they receive now would be one obvious and inevitable outcome of the proposed policy, and it’s not clear that on balance the net effect would be for more or fewer DA’s.
Progressive taxation is a progressive policy whose (sole?) goal is utility maximization based on the theory of the declining marginal utility of money. But from an economic perspective, why should we treat as income that which is spent on certain kinds of consumption (buying a fancy car) but not others (declining or quitting a high-paying job to have more free time)? They’re both forms of consumption, and given the means to accurately evaluate the latter, we should treat them both the same. Treating them differently creates a ton of dead-weight loss in society.
Yes, that’s the immediate intuition, but the alternative way of framing the issue is that under the current regime we are giving people an enormous subsidy for laziness. How is it fair that some people are inherently incapable of earning a living income by working fewer than 60 hours a week, but other big-brained types like you or me or Matt Yglesias could probably coast by on 30 hours per week or fewer if we really wanted to? You could see it as a form of slave labor under the current regime that some people are forced to work harder than others for the same benefit; my proposal would at least somewhat offset the inherent unfairness in this disparity by repealing what is effectively a policy of subsidizing laziness among smart/competent people.
July 22nd, 2009 at 8:28 pm
So now we’ve gone from ridiculing Mankiw to talking about practical considerations? Better quit while you’re behind.
July 22nd, 2009 at 9:04 pm
Glad to hear you’re coming around to the height tax idea. I have never found it odd that I (about 5′7″) and prof Mankiw (about 6′) disagree so strongly on the issue. I understand that your height is closer to his, so your moderation on the point convinces me that, on this issue, where you stand doesn’t just depend on [how far your head is] from where you sit.
July 22nd, 2009 at 9:51 pm
I’m a bit tall, and I’m all for a height tax! That is, provided short people have to pay first-class rates for airplane seats, and that my clothes get subsidized (try finding a Large-Tall shirt that’s not special order…), and my car gets subsidized (or at least the gas, because through no fault of my own, I may have to buy an SUV). And could the government pay short people to tie my shoes? It’s a pain bending down.
And what about hearing aides? I can’t hear conversations when I’m at the bar, because everyone is talking below me. And can there be recessed flooring closer to the stage at a show, so I can be closer to the stage without feeling like an ass, or have people ask me to bend down a bit?
And can I charge short people for my services of having to reach up and grab things out of high places for them? Or, if you think that’s unfair, shouldn’t be acceptable for me to ask them to tie my shoes, since they’re closer?