Mathilde Robinson

year to the movie that got shot the quickest? I really don't get it” (Gladwell 2019). Why is everything about how fast one can do something? Our obsession with timed testing only ensures that we do not get all the brightest thinkers at the top of every field; instead, we get the brightest who happen to be the fastest. We even use timed tests to judge elementary school students and even to decide whether their teachers are effective. Hence, Americans are obsessed with getting to the answer the fastest, but that does not show any signs of anyone being more intelligent than others.

The timed part of the tests also causes pressure on students and hurts their focus. “These parents [of SAT test-takers] went to such great lengths to get extra time for their kids only because these tests run at breakneck speed—a feature that routinely stresses out test takers of all abilities” (Escobar, 2019). Escobar shows that the tests run at high speeds, which causes students to read through passages lightly, and so timed testing and preparing for the test is anxiety-forming. Many lawyers have said that their most nervous moment was taking the LSAT, which is the test that people need to take to get into law school, meaning the legal system is filled with pressure-resistant hares not just anxious tortoises at the highest levels of the justice system

What is the most important rationale for timed testing? Timed tests are made to award those who work the quickest and to see who works well under pressure and that they are also a tie-breaker between people who get correct answers. So why do I disagree with that reasoning? Tests in other countries are taken home. In Eastern European countries, they only have to answer a few questions with no time limit. This shows that you do not necessarily have to answer questions fast to get into the best school. The tests put more pressure than they need to on students. People even said that they were the most nervous on the LSAT. So why is this debate important? Why should the system be fairer to tortoises? Colleges should accept people who are more thoughtful, slow, and steady in their work because not everyone is a hare. How might the system be different if everyone could finish assessments at his or her own pace? We may never know if the system is made for only hares to succeed.

Just Taxes: Outlining a Philosophical Framework for Redistributive Taxation

Mathilde Robinson

“We can either have democracy in this country or we can have wealth concentrated in the hands of a few, but we can’t have both.” ~ attributed to Associate Supreme Court Justice Louis Brandeis (Campbell, 2013)

I. Introduction

In 2020, the wealth of Jeff Bezos, Warren Buffett, and Bill Gates exceeded the wealth of the entire bottom half of the United States population (Collins et al.). More broadly, as of 2017, the highest 1% of earners in the U.S. brought in 29 times the income of middle-income households, on average; the wealthiest 1% held an average of 263 times the wealth of middle-income households (Looney, 2021). And economic opportunity—perhaps America’s most vaunted ideal—has become a mirage, thanks to the enervating effect of inequality on social mobility (Rank & Eppard, 2021).

Although the United States has a progressive system of taxes and transfers, along with every other country in the Organisation for Economic Co-operation and Development (OECD), a 2010 study found that its taxation scheme nonetheless does less to reduce inequality than that of all but three of the thirty-one OECD countries examined (Huang & Frentz, 2014). In the face of soaring disparities, it is necessary to examine how the U.S. can change its fiscal structures to better confront economic inequality. (After all, is any human being—no matter how hard-working or astute— worthy of billions while others can’t afford food, housing, or medication?) Yet we should not only explore what policy changes would make our tax system more just, but also interrogate what the aim of taxation ought to be. As law professor Charles O’Kelley writes, taxes are “part of society's distributive mechanism and must be designed in accordance with the governing principles of social justice” (1981). In this essay, I contend that reducing inequality should be a priority in any just system of taxation— sometimes, although not generally, to the exclusion of other social goods.

II. The Laffer Curve is Not the Arc of the Moral Universe

To arrive at a normative idea of how taxes should be used, we first have to examine how taxes are used in contemporary policy. Law professor Reuven Avi-Yonah suggests that taxes operate with three principles in mind: revenue-raising, redistribution, and regulation (2006). In today’s

discourse, it is the former two purposes—raising money for the government, and levying higher taxes on the very wealthy—that are characterized as being at odds.

Since the 1970s, the Laffer curve—introduced to American political discourse by supply-side economist Arthur Laffer—has been a fixture of conservative politicians’ tax-cutting crusade (Berman, 2019), revived during the Trump administration’s passage of the 2017 Tax Cuts and Jobs Act (Baker, 2017). Laffer’s argument was intuitive: As tax rates increase, incentives to work and invest diminish. Eventually, the behavioral changes caused by higher tax rates reduce the revenue collected by the state (Berman, 2019). The revenue-maximizing rate, the “tipping point,” is sometimes denoted T* (Hayes, 2021). As recently as this March, former Trump economic advisor Larry Kudlow criticized the Biden administration’s proposed tax increases, claiming “[T]he way to get upper-income people to pay more in taxes is to lower their tax rate” (Porter, 2021).

However, economists dispute that we are anywhere near T*. A 2012 survey of forty leading economists found that none believed lowering federal income tax rates would increase tax revenue over the course of five years (IGM Forum). More recently, Swedish economist Jacob Lundberg calculated that the Laffer curve in the U.S. would peak at a 76% top marginal tax rate for the highest income bracket (2017). For comparison, the top rate, which affects households earning over half a million dollars annually, currently stands at 37% (Internal Revenue Service, 2020; Tax Policy Center, 2020).

Lundberg’s model examines only labor income, not capital income. However, closing capital gains tax loopholes—perhaps the Biden administration’s most notable proposal when it comes to taxing wealthy individuals—would actually increase the revenue-maximizing capital gains rate. In other words, they would move the curve itself, instead of moving the tax rate along the curve toward T* (Committee for a Responsible Federal Budget [CRFB], 2021; Hanlon & Hendricks, 2021; Ricco, 2019).

The significant question, therefore, is not whether proposed policy changes would put the U.S. on the wrong side of the Laffer curve—they won’t. Instead, we must ask whether revenue maximization should be the highest policy priority. While this question is, at present, hypothetical, asking it allows us to more clearly delineate our conception of what duties a government faces as it sets tax rates.

Justifications for maximizing revenue originate from perspectives spanning the political spectrum: fiscal responsibility and debt reduction on

the right (FixTheDebt.org) and social welfare on the left (Cochrane, 2021; Grimley, 2015). Yet criticism of this principle can also be found on both sides of the aisle. Daniel Mitchell (2012) of the Cato Institute advances a conservative argument against revenue maximization. He contends that even if we are on a segment of the curve where raising the tax rate will still increase government revenue (that is, left of T*), we should not raise taxes if doing so would reduce private-sector taxable income significantly more than it would boost revenue.

However, a progressive critique of revenue maximization can be arrived at by examining the assumptions, and flaws, underlying Mitchell’s claim. His argument treats private-sector productivity as an end in itself. However, prioritizing private-sector growth is not necessarily beneficial to society if its benefits are not broadly distributed. In the U.S., inflation-adjusted CEO compensation increased 1,322.2% from 1978 to 2020 (Mishel & Kandra, 2021). Meanwhile, median worker compensation grew only 15.8% from 1979 to 2019, compared to a 59.7% increase in productivity (Mishel, 2021). In other words, the benefits of productivity increases do not accrue equally; the vast majority of society does not profit from maximizing growth when that growth is not accompanied by equitable distribution. What materially impacts most Americans is not the size of the proverbial pie, but the size of the slices they receive.

Thus, increasing equality can supersede maximizing revenue as a priority when deciding the ideal tax rate, since extreme economic inequality becomes incompatible with a stable, democratic society. Gilens and Page (2014) found that the probability of policy change is similar (about 30%) regardless of what proportion of average Americans support it; however, when a policy change is supported by a majority of the economic elite, it is adopted around 45% of the time, compared to 18% when the economic elite oppose it. Power disparities engendered by economic inequality, beside their per se injustice, provide openings for authoritarian populism and feed democratic backsliding (Ingraham, 2021).

Essentially, the harms of inequality are not restricted to a loss of material resources; they also encompass a loss of political and social power, and the degradation of civil society. Therefore, perhaps, taxation that reduces inequality generates external benefits, not only the potential to transfer revenue to members of lower socioeconomic brackets. So, in certain cases, it may be appropriate to tax wealthy individuals above the revenue-maximizing rate, if doing so breaks up concentrations of wealth that would otherwise “capture” democratic decision-making.

reduction of poverty and privation—as, given the crushing realities of economic need, we should. Yet it also seems that greater equality qua equality may be a necessary political goal. How, then, should we weigh these competing needs against one another?

III. (Re)distributive Justice

Here, I will attempt to define some of the parameters of a just system of taxation using the concept of “justice as fairness” as outlined by political philosopher John Rawls. Rawls’ ideas are particularly relevant because of their focus on the “basic structure” of society, i.e., the institutions that distribute the “benefits and burdens of social life,” including wealth, income, and social recognition (Wenar, 2021). Taxation is one component of this basic structure. Indeed, there is considerable precedent for analyzing tax policy in the context of Rawlsian justice (see Bird-Pollan, 2013; O’Kelly, 1981; Sugin, 2004).

In Justice as Fairness: A Restatement, Rawls presents his conception of justice as fairness through two principles:

First Principle: Each person has the same indefeasible claim to a fully adequate scheme of equal basic liberties, which scheme is compatible with the same scheme of liberties for all;

Second Principle: Social and economic inequalities are to satisfy two conditions: first, they are to be attached to offices and positions open to all under conditions of fair equality of opportunity; and second, they are to be to the greatest benefit of the least-advantaged members of society (the difference principle). (Rawls, 2001, as cited in Ten, 2003, p. 564)

In practice, the difference principle stipulates that the accrual of more wealth to the already well-off is just if, and only if, it elevates the position of the worse-off in society. We’ll call this Scenario A. In contrast, if this accumulation of wealth harms those at the bottom of the distribution (we’ll call this Scenario B), it is unjust—even if the overall amount of wealth generated is greater in B than A.

Rawls derives these principles from the original position, a thought experiment in which each real person in the world is represented by a hypothetical negotiator. The representatives stand behind a veil of ignorance: that is, they do not know the characteristics (race, gender, class) of the people they represent. Debating from a free and equal standpoint, these representatives are tasked with negotiating the basic structures of a society.

Each representative, Rawls reasons, would wish to assure certain equal basic liberties for all members of society. This stands in contrast to a utilitarian system, which could justify the restriction of a minority’s rights to protect the happiness of a majority—a consequence that the representatives would reject, unwilling to gamble away the civil liberties of their real-world counterparts. Moreover, a system that safeguards equal basic liberties encourages cooperation and respect within the polity. Therefore, the representatives would endorse Rawls’ first principle.

To arrive at the second principle, Rawls supposes that his representatives would contrast it with the idea of restricted utilitarianism, or a theory of maximizing utility (i.e., well-being) that is limited only by Rawls’ first principle, not the difference principle. Under restricted utilitarianism, the representatives might fear that the worst-off in society would become resentful, feeling that they are making sacrifices to make the best-off even better-off (as in Scenario B). Thus, the difference principle, which considers only Scenario A just, allows all members of society to participate more fully in public life, without requiring undue sacrifices from those on the lower rungs of the socioeconomic ladder (Wenar, 2021).

Of course, one could argue that other theories of distributive justice are preferable, e.g., a libertarian stance that advocates minimizing state interference with property rights. Of these frameworks, perhaps the most prominent is that of Robert Nozick. Nozick’s libertarian argument claims that any patterned theory of justice (i.e., one that pursues a particular pattern of distribution, such as egalitarianism or Rawlsian justice) necessitates ongoing interference with liberty. Instead, per Nozick, we should recognize the absolute right of an individual to property which that individual acquired in a just manner, a doctrine known as “historical entitlement” (Mack, 2018). The trouble with applying Nozick’s principles to tax policy is that, as Nozick himself noted, any historical theory of distributive justice requires that property entitlements have indeed been justly acquired. This, of course, is not the case—a fact which probably contributes to our present economic disparities—and rectifying these countless injustices would be practically impossible. Thus, “it is difficult to see how Nozick’s entitlement theory could provide guidance as to what the current distribution of material holdings should be or what distributions or redistributions are legitimate or illegitimate” (Lamont & Favor, 2017).

Therefore, because it is more responsive to the conditions of the world we live in, a Rawlsian principle of justice seems suitable for evaluating the theoretical role of tax policy.

IV. Applying Rawls’ Principles to Taxation

Acknowledging the validity of claims in favor of revenue maximization, there appear to be conditions under which it is nonetheless desirable to prioritize redistributive taxes over revenue-maximizing taxes under a Rawlsian framework.

In order to be considered just under the difference principle, a redistributive tax must reduce inequalities in a manner that benefits the worse-off. Viewed in light of the competing priority of revenue maximization, this poses three constraints:

First, tax rates must be raised in a manner that actually promotes equality more effectively than maximizing revenue would. The effect of the higher rates must be to reduce the proportion of wealth held by the very rich, not to cause tax evasion or tax flight. Considering that risks of tax flight have been exaggerated (Young & Varner, 2014; Young, 2017), and that increased IRS funding could significantly reduce tax evasion (Marr et al., 2021), this condition may be easier met than it seems.

Second, tax revenues must remain high enough to provide necessary social services. An expanded safety net kept millions out of poverty in 2020 (Haider et al., 2021); for a tax increase to comply with the difference principle, revenue should not be lowered to levels that jeopardize such gains.

Third, the decrease in the concentrated wealth of the economic elite must not result in decreases in the well-being of the worst-off. As it turns out, despite the prevalence of “trickle-down economics” in contemporary political debates, allowing the wealthy to become wealthier does not generally benefit everyone else. Zidar (2017) found that tax cuts for the top 10% of the U.S. population by income have little impact on employment growth, while tax cuts for lower-income groups have much larger effects. Globally, a 2015 analysis by researchers for the International Monetary Fund examined the relationship between GDP and inequality (using the Gini coefficient, an index that accounts for taxes and transfers) and found that “increasing the income share of the poor and the middle class actually increases growth while a rising income share of the top 20 percent results in lower growth” (Dabla-Norris et al.). Most recently, a 2020 study identified that tax cuts for the very rich increase income inequality, while having only statistically insignificant effects on GDP and unemployment (Hope & Lindberg 2020). Thus, lower levels of tax progressivity are rarely compatible with Rawls’ difference principle.

Applied in conjunction, these three conditions are stringent, but the first and third conditions may at least be met with greater ease than political

pundits might suggest. The second condition largely depends upon which programs and social goals a government prioritizes in the face of budget cuts. Yet, if we consider factors beyond the bare distribution of economic goods, a Rawlsian framework actually provides a broader—and less restricted—justification for redistributive taxation.

To understand this, we can turn to Rawls’ first principle of justice, the requirement of equal basic liberties. At first blush, this principle seems less directly related to the distribution of material resources, but it is actually central to our discussion of economic inequality. Because of the corrosive effects of inequality on democracy, redistribution should not be conceived only as a question of economic justice but also of individual political rights. When demoralized, divided, and dominated by powerful interests, members of a society are no longer able to interact as free and equal citizens. Therefore, as Linda Sugin argues, “where concentrations of wealth produce concentrations of political power, the first principle would require the tax system to break up politically threatening concentrations of wealth so that equal liberties of citizenship are possible” (2004).

Indeed, Rawls is explicit in stating that “a departure from the institutions of equal liberty required by the first principle cannot be justified by, or compensated for, by greater social and economic advantages” (Rawls, 1999). We could conceive of a redistributive tax system that reduces the absolute material standing of the worst-off in society, thereby failing to satisfy the difference principle. However, if that tax regime was necessary to disperse agglomerations of wealth and thus protect the equality of basic political liberties, as outlined above, it could be justified with respect to Rawls’ first principle, without needing to invoke the second. So, even if a redistributive tax system fails to satisfy the economic constraints of the second principle, it may still be considered just under the first.

V. Conclusion

Designing actual tax reforms requires expert analysis of policy options— taxes on income, wealth, capital gains, consumption, etc.—and a throng of lawyers. This paper has explored a more basic question: What makes a tax just?

Many contemporary invocations of the Laffer curve represent ideological panic, not economic reality. In all likelihood, we are nowhere near T*, and the tradeoff between revenue and redistribution remains purely hypothetical. Therefore, the ideal system of taxes and transfers—one that promotes a fairer post-tax distribution, without reducing government revenue—is, in all probability, entirely possible.