Notwithstanding the stereotype that libertarians care about little other than low taxes, I don’t write much about tax policy. But I was reflecting today on Nozick’s coyly Marx-inflected comparison of taxation to compulsory or stolen labor—which however overblown as rhetoric got me thinking about how different types of people might respond to the same tax incentives differently. Often you’ll hear opponents of high taxes make an Atlas Shrugged–style argument to the effect that people will be less productive if their take-home pay is decreased, diminishing their incentive to work ever harder for that marginal dollar. Perhaps unsurprisingly, proponents of higher taxes tend to associate that opposition with selfish materialism—the obsession of people with no higher concern than maximizing their bank balances.
But it seems perfectly plausible to me that tax incentives could work quite the other way as well. As a writer and geek, I’m surrounded by folks who could probably be making a good deal more money doing something else, but have chosen journalism or activism or wonkery because they enjoy it, find it interesting and important, and so on. Many people without particularly expensive tastes just want to find intrinsically enjoyable work that will allow them to maintain a middle class standard of living—and if that threshold is met, cannot easily be induced to trade leisure time, or the non-economic rewards of the job, for even relatively substantial sums of money. Folks like this, in other words, are income satisficers for whom the marginal utility of an extra dollar drops off quickly once they have enough to afford some fixed set of amenities. Those requirements can, of course, change over time: I’ll sometimes see a writer who was making a comfortable living writing as a childless single decide—perhaps with a twinge of regret—that with a baby on the way, that it’s time to take a higher-paying corporate job and open a college fund for Junior.
For folks like this, the conventional prediction about the effects of taxation may be quite reversed: Since they are highly motivated to achieve some relatively fixed acceptable income level (assuming the cost of sustaining their lifestyle remains constant), but their interest in money past that point drops off sharply, raising taxes may actually cause them to increase effort or productivity in order to keep hitting the same target they achieved with less work at the lower rate. Something similar might happen in a double-income household (assuming two satisficers with comparable thresholds): If they can make it on one income, they prefer that one partner stays home with the kids, or takes time out of the workforce pursuing a dream of starting a business or launching a new career or, hey, going on American Idol… even if they’d be substantially wealthier with two incomes.
If this is true of a significant number of people, it might sound like a great debating point for advocates of tax hikes: a too-good-to-be-true, tastes great and less filling combination of more tax revenue for the government and more economic productivity! But of course, the folks at the top of the income distribution—the ones paying the bulk of the taxes—are also most likely to be the ones who do care about making a lot of money, and most likely to have the accumulated wealth to sustain their lifestyles even if they are (or, as they age, have become) satisficers.
Intuitively, it’s lower down the ladder you’d expect to find to find the income satisficers whose behavior is more susceptible to being shifted by tax incentives in this way: People who, having met their income threshold (at the lower tax rate), were either taking a good deal of their “compensation” for their jobs in the form of the intrinsic satisfaction of the work, or who had opted for less-demanding jobs that left time for their hobbies or other projects. By the narrow criterion of GDP, this might seem like a good thing: You’re getting the slackers off their butts and mobilizing fallow productive capabilities! But it also seems a little more unsettling from a moral perspective, because it’s more clear that what you’re taking from people is time—time away from the people and projects they love. For the folks at the top, this might not be something we lose much sleep over: Don’t want to give up your leisure time? Well, settle for a marginally less opulent lifestyle (though the cost of that choice in GDP terms is also especially high). For satisficers in the middle whose tastes and expectations are more modest, though, that seems a little colder, because it’s more likely to force a choice between a significant sacrifice of personal time and job satisfaction or a more conspicuous drop in living standard.
Get further down the income ladder, of course, and the argument looks different: You’ve got people who may not be paying much in taxes (though, of course, everyone pays sales taxes) but might be getting by, thanks to public assistance, with one job (rather than having to look for a second, or for outside income), or as a student, or on unemployment while they look for a job that suits their skills rather than just taking the first one that comes along. This is, in fact, exactly the argument you sometimes hear for the benefit of a generous welfare state to creativity and entrepreneurship. In other words, your J.K. Rowlings and assorted indie rock bands can make it on the dole for a couple years while they hone their skills, rather than having to spend every spare hour scrambling to survive; the prospective entrepreneur can take a risk starting a small business without fearing he’ll be wiped out; the out-of-work programmer waits for the market to rebound so she can get a coding job instead of moving out of the Valley to work retail. At the bottom of the income ladder, of course, the whole satisfice/maximizer distinction becomes irrelevant, because pretty much nobody (maybe excepting a few extreme ascetics) “satisfices” in grinding poverty. The further down the ladder you go, the more likely it is that the people situated there would already be deploying any excess earning capacity if they had it—but some combination of market conditions and personal barriers to work just leave them without much choice. Under current economic conditions, that’s presumably a whole lot of people. Still, if you find the safety net argument plausible at the bottom, and a decent chunk of the population are satisficers, it seems similarly plausible that there’s a flip-side phenomenon corresponding to lower tax burdens as you move into the middle.
Maybe this is just my perception, but it seems as though—for all politicians gear their public rhetoric (as opposed to their policies and private assurances) to appeal to the middle class—arguments about tax policy and economic justice tend to focus on the extremes. That is to say, the super-wealthy and those who are just barely scraping by. Both are groups we tend to think of as earning about as much money as they possibly can—one by disposition, the other as a matter of necessity—which tends to reinforce a picture we have of people as income maximizers. But I bet that’s not a terribly accurate picture, and it would be interesting to see some empirical research geared toward figuring out just how much variation there is in our dispositions, and to what extent, especially in the broad middle, people are satisficers at one threshold or another, or tax-rate-insensitive maximizers, or who knows what all.
Talking more explicitly about the range of economic dispositions might make us more apt to think of taxation as much in terms of effects on time and satisfaction as on bank balances. It also might give a little pause to those of us who suspect we probably could be making a good deal more money doing less interesting work (or with less free time) than we currently do. Political ideology aside, I’m as likely as the next guy to feel distaste for the high earner who fails to give more than a pittance to charity and carps at higher taxes: It seems obvious someone that well off should be doing more to help the needy. But what about the journalist and the academic and the non-profit staffer who could be high(er) earners but prefer their compensation in the non-taxable form of leisure and job satisfaction? I don’t think I’d much like being a consultant or practicing corporate law, but I like to imagine that I could probably do one or the other competently, have a hell of a lot more income to transfer to the needy, and still keep a comparable or higher material standard of living. I don’t look as greedy as the guy who fails to share the wealth, because I’m deriving my utility from a less readily quantifiable and transferable source. But if that’s partly a matter of choice (it’s hard to say, since for all I know I’d actually be awful at better-paying professions) is there all that much moral difference between us? (Those of you who think “libertarian pundit” is already about as immoral as it gets, kindly restrain yourselves.)
What I’m calling varying dispositions (“satisficer” and “maximizer”), an economist might say are just arbitrary groupings of personal utility functions, or of indifference curves between income and other goods. And probably there’s already an economic literature elaborating (or falsifying!) with rigor and precision these various crude thoughts. But in popular discussion—and especially moral discourse and conversations about economic justice—it seems as though we more or less treat people as being a good deal more uniform than they are in their pursuit of income versus other goods. (Maybe because those conversations are mostly conducted by people who might be bothered by the ethical implications of acknowledging the gap between their potential and chosen-actual earnings?) For readers in search of the agenda shoe dropping: I haven’t thought it through enough to have a sense of whether it would tend to push us in a more or a less libertarian direction if we did take more explicit account of this kind of interpersonal variation. But it would probably be more interesting.