The visible hand in economics

Vonnegut on taxation

Posted on: March 10, 2008

In the comments for my post on taxing observable characteristics that are correlated with income, CPW asks what I think about Kurt Vonnegut’s tale of Harrison Bergeron. I don’t plan to venture into literary criticism which I have no expertise in, but I liked the story enough that I can’t resist posting on it!

The first thing to note is that Vonnegut presents a very dystopic view of society. Everyone is handicapped to have equal capabilities and reduced to the lowest common denominator. Nobody is allowed to excel at anything in any way. However, the counterfactual scenario implicitly presented is a society dominated, if not ruled, by eight foot tall supermen like the eponymous Bergeron. I doubt that either situation is particularly appealing to many people. What, then, distinguishes taxation of ability from Vonnegut’s rather disturbing tale?

First, taxation of ability doesn’t reduce everyone to the lowest common denominator. Those who are above the median are taxed, but those below the median are subsidised.

Secondly, and most importantly, it is the monetary return to effort that is equalised, not ability. What is so distasteful about Vonnegut’s story is that the best and brightest are prevented from shining. Taxation in no way removes their ability to demonstrate their talents, it only prevents them from earning monetary returns over and above those that the median person would earn from putting in the same effort. Note also that, in practice, only observable characteristics are taxable and ability is not generally measurable.

If it seems unfair to those with talent to monetarily penalise them, consider the current tax scheme. The current scheme of progressive taxation means that those who are paid the most are taxed a far higher marginal rate than everyone else. Since income is a relatively good proxy for ability, the current scheme also indirectly penalises those with talent and transfers income to those endowed with less. Not only that, but it reduces the marginal return to effort as one earns more. If one supports the current scheme then surely a scheme which also penalises the same talent, but at less of an allocative cost, is preferable.

6 Responses to "Vonnegut on taxation"

Thanks for the response. My thoughts:

“First, taxation of ability doesn’t reduce everyone to the lowest common denominator.”

So the deadweight losses are small not large. But your statement implies that we are taking deadweight losses into consideration; the equity principle is not absolute.

“What is so distasteful about Vonnegut’s story is that the best and brightest are prevented from shining. Taxation in no way removes their ability to demonstrate their talents”

it seems you’re implying that the talented derive significant non-monetary benefits from “shining”. If so, shouldn’t we try and equalize these returns too?

Alternatively, I could interpret “shining” to mean that there is actually a significant positive externality to people’s achievements (a contestable point, some would argue that the externality is negative). In this case, it is inefficient for the talented to receive the same return to effort as everybody else

In reality, human societies are constantly celebrating people for achievements that are mostly due to luck and/or endowments. This strongly suggests that we don’t think unequal endowments represent an inequity that needs to be (fully) corrected for.

As a further side-note, can we really say that there is a choice about effort that is distinct from your genetic proclivity for hard work (and genetic preferences that make your chosen field seem less arduous than it might to others)?

“the equity principle is not absolute.”

Returns to effort are equalised so that doesn’t violate the principle, does it? Smaller deadweight losses are surely a good thing and the losses from lump sum taxation are minute compared to other forms of taxation. Isn’t that part of the benefit of taxing things like height?

“If so, shouldn’t we try and equalize these returns too?”

Well, originally I was talking about efficient taxation happening to coincide with a particular view of equity, so this is a bit of a departure from that. I’m not advocating any particular taxation regime here so I’m not interested in advocating any particular normative view of equity. As far as these posts are concerned I have no particular view of what equity should mean.

“This strongly suggests that we don’t think unequal endowments represent an inequity that needs to be (fully) corrected for.”

I agree: I think the negative tone of Vonnegut’s story tells us a lot about perceptions of this sort of regulation. The point of this post is to note that the story is not a direct analogy for such taxation of height, and that the taxes are likely to be ‘less bad’ than Clamper’s regulation even if they’re not appealing to most people.

Well to quote from your original post:

“To engineer a society where effort was rewarded at an equal rate we’d have to tax all of those innate characteristics of the talented and transfer the wealth as a subsidy for those who are less gifted…. [T]hose who are born talented start with an unfair advantage over the rest. Taxing them at a higher rate merely levels the playing field.”

Which seemed like an endorsement of equalizing the return on effort, there’s nothing particularly efficient about any of that. But, again, I agree that lump sum taxes are more efficient than other forms of tax in terms of incentives on effort. But “why don’t we have more lump sum taxes” seems like quite a different question from “why don’t we have more lump sum taxes on variables that correlate with income”.

The distinction I would make on the Vonnegut story is whether we find it distasteful because a) we reject the underlying equity principle or b) we think it is an non-optimal implementation of the underlying equity principle. I think a), whereas I would interpret your two points as arguing both for a) and b) (which seems unnecessary).

First, my ‘support’ for transfers to the less gifted arises from the premise that we want people to have equal opportunities. I’m not suggesting that there are not other views of equity, or that this is the best one. I merely pointed out that lump sum taxes on variables correlated with income would kill two birds with one stone, if we presumed that that is what we meant by equity. SHOULD we have such taxes? Well, that is a normative question that I don’t want to address here, but if we view equity as being the establishment of an equal-opportunities society then they might go some way towards efficiently achieving that goal.

Regarding the story, I think you’re drawing too close an analogy between the taxation and the handicapping. I think there’s a huge distinction between preventing excellence and preventing people from gaining monetary rewards commensurate with their absolute level of excellence. I would suggest that the tow equity principles are different and so support for the taxes is not equivalent to support for Vonnegut’s handicapping.

The difference in the nature of the two forms of equity requires that they have different implementations. While it is possible to transfer income from the gifted to the less gifted, it is not possible to transfer beauty. Thus, Vonnegut needs to reduce everyone to the lowest common level, while a tax does not. I don’t dispute that his implementation might be optimal, but a direct analogy can’t be drawn to taxation here either.

Internet discussions are all clarification and no progress. I didn’t intend to imply that the world of Harrison Bergeron is closely analogous to height taxes. I do think it is analogous to the thought experiment that the Mankiw paper is encouraging. Both propose an equity principle and explore a possible implementation of that principle to see how comfortable we are with the underlying equity assumption.

But… I still find your positions contradictory. Is is the case that we would tax and subsidize beauty if we could; or is it the case that monetary excellence is somehow different from other forms of excellence? You seem to imply the latter, but I just don’t see the “huge distinction” between excellence in producing beauty and excellence in producing goods and services.

Perhaps an example would clarify the distinction. Taxing a supermodel’s income because she is naturally beautiful is not the same as making the model wear a paper bag over her head. I don’t think there’s a distinction between taxing talents in service provision and beauty.

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