Why we should Tax the Rich and Support the Poor

There are many who feel that programs like social security, unemployment benefits, publicly funded health care and even public education amounts to a kind of forced generosity, or worse, outright theft. After all, publicly financed programs like these involve taxing the relatively affluent in order to pay for services and benefits for the less fortunate. I think this view is mistaken. To diagnose the mistake in this thinking, we will want to evaluate the argument for this view, examine its philosophical roots, and see where it goes wrong. I will then take up an alternative conception of social justice that supports property rights, but also supports social institutions that provide a safety net, continued opportunity for all and a bit less desperation and hunger for those at the bottom of the social pile.

The notion that there is an injustice in funding a social safety net for the less well off with taxes on the more affluent has its roots in a Lockean conception of property rights as natural rights that are closely tied to human liberty. On Locke’s view, when we mix our labor with the stuff of the earth, the fruit of our labor is ours by natural right. It is an extension of our natural right to our own selves. Thus, property rights, on Locke’s view, are closely tied to human liberty. Nozick’s entitlement conception of social justice follows in this tradition. On Nozick’s view, any distribution of property and wealth, no matter how unequal, is socially just so long as it was arrived at by just means. Acquiring wealth by one’s labor and then building on that through fair trades (those not involving coercion or deception) will be fair. Taxation beyond what is necessary to keep property rights (and hence human liberty) secure will be an injustice. In fact, it will be a variety of theft. Something along the lines of the views of Locke and Nozick has inspired a good deal of the anti-tax, small government sentiment that has been so influential in US politics for the past 30 years or so. Liberty is seen as closely tied to property rights. To the degree that the government taxes citizens, it takes their property and thereby limits their freedom.

As appealing as this picture is, it does not correspond very well to the realities of our economic lives. We do not create wealth from our own labor in a social vacuum. With the possible exception of the vegetables I grow in my garden, none of my wealth is entirely the product of mixing my labor with the stuff of the earth. Rather, nearly all of our productive activity is carried out in the context of a complex fabric of social interrelations buoyed by a substantial technological infrastructure. Enjoying the fruits of my labor nearly always requires doing business with someone else and the benefits that accrue to me depend as much on the favorable social environment that makes doing my business possible as it does on the efforts I contribute to the deal. The view of property rights offered by Locke and Nozick is unrealistically individualistic. The Locke/Nozick approach to social justice is like field biologists aiming to secure the welfare of various mammals without giving any regard to the health of the ecosystem that sustains them.

Locke might be excused as he was writing at a time when natural resources appeared to be endlessly bountiful and any motivated person who wasn’t happy with the available social arrangements could hop a ship to the new world and homestead a piece of land (albeit one that was likely formerly occupied by Native Americans). But there is less excuse for Nozick’s blindness to the necessity of functioning social institutions and the vital role the public sector plays in sustaining these.

Having a functioning well ordered community is a necessary condition for succeeding in most lines of business (arguably even for gangsters and pimps). The businessman who has profited from a fair exchange with his customers has not thereby paid his dues in maintaining the social environment that makes it possible for him to do his business in the first place. His success requires a healthy and well educated workforce, stability in the economic system, a citizenry that is well informed enough to politically sustain just social institutions, a citizenry that respects the law, a customer base that is doing well enough themselves to afford his product and so forth.

Supporting the social institutions that make the success of the affluent possible will only look like “redistribution of wealth” to those who have it in their head that their income before taxes is their own wealth which is being taken from them to pay for the needs of others. People who see things this way already have grabbed more than they are entitled to.

We live cradle to grave supported by an intricate social and technological infrastructure. As is the want of human beings, we are quick to take all the credit for our success and project all of the blame for our failures onto the external world. Neither inclination is correct very often. But when taking credit for all of our successes manifests itself in reluctance to support the social institutions and arrangements that have made our success possible, we become freeloaders.

Under the influence of the Locke/Nozick line on property rights, our society has become one where the well off enjoy their affluence thanks to social arrangements that benefit them at the expense of the less well off. People have a hard time seeing this when they are constantly presented with the near mythical example of the welfare queen living comfortably off wealth generated by others. Assuming she once existed in our society, I’m pretty sure she doesn’t anymore. Over the past decade I’ve watched a steady stream coming through my classes of very stressed out and overworked single mothers trying to juggle multiple jobs, higher education and parenting, working desperately hard to attain financial independence on a tight clock before their state support runs out.

But more subtle realities tilt the scales in favor of the well to do in such a way that their affluence is, to a significant degree, the product of their being the de facto greater beneficiaries of standing social arrangements. Perhaps the most significant example is public education. The high earners in our society are very often the success stories of public education from K-12 through the state university. Even those who come from a wealthy background and enjoyed the benefits of elite private education have depended on publicly educated employees and associates through all of their business endeavors. Public education plays such a large and pervasive role in the development and sustenance of our affluent high-tech society that virtually no lasting economic achievement in this society could happen without public education. Looking ahead to the innovations and skills that will drive future economic development, we neglect funding education well at our own peril.

Much the same could be said for publicly financed research at our universities. We frequently look to the achievements of IT companies like Microsoft as models of private sector initiative and wealth creation. But the very possibility of businesses like Microsoft is the product of decades of public investment in basic research by public universities and the military. More specifically, the development of this technology is also the product of public investment in basic research by, yes, philosophers. We could not have information technology as we know it and all of the economic growth it has brought over the past few decades without having paid the salaries of philosophy professors like Bertrand Russell and Alfred North Whitehead who developed the formal logic that provides the theoretical foundation for programming languages.

One final example: The government heats up or cools down the economy by adjusting interest rates. We do this to promote growth and the creation of wealth, but not so much so that we get high inflation that erodes wealth. If you watch the business pages (during more normal times) you will note that when unemployment gets much below 5%, the Fed boosts interest rates to keep the economy from "overheating." One reason is that if too few people are looking for work, then employers will have to raise wages to attract good employees. This can lead to an inflationary cycle. But who does that hurt? Inflation really hurts the people who have money and don't want to see it loose value. This includes bond investors, lenders, and, well, the wealthy. Supposing the wealthy own all of their dollars, they certainly don't own the value of the dollar. Protecting the wealth of those who are already wealthy doesn't sound like a compelling or fair reason for managing the value of the dollar so as to keep one in twenty workers out of work and unable to pay their rent. Things, of course, are more complicated than that and out of control inflation ultimately hurts everyone. So managing the economy for zero unemployment with a damn the torpedoes attitude towards inflation is not really a serious option. But the necessity of managing the economy for stability in prices and currency value doesn’t make the arrangement any less fair to the unlucky workers who get layoff notices. In the context of this arrangement, decent unemployment benefits, worker retraining, health care and child care for the unemployed is not charity that should be left to the discretion of generous souls. It is just structuring your society so as to be fair to the people struggling at the bottom

Once the Lockean conception of property rights is uprooted, we need to reconsider just how we ought to think of property rights. I think Locke is on to an important piece, namely that we should get to enjoy the fruits of our efforts without others freeloading off of our efforts. But the question of who is freeloading under what circumstances is much more subtle and complex than Locke could have imagined in the absence of more contemporary sociological factors and insights.

The most influential liberal political philosopher of the 20th century, John Rawls, incorporates this anti-freeloading piece into his conception of justice as fairness. Among the principles of social justice Rawl's would have guide the development of our social institutions (including property rights) is the difference principle which allows that packages of social institutions that generate inequalities (like those that include a market economy) are just so long as they don't allow some individuals to profit at the expense of others. Another way to formulate this principle is as holding a just set of social institutions to be one under which the least well off are better off than the least well off would be under alternative arrangements. This allows for inequalities in a society, so long as they are not enjoyed by some at the cost of the least well off being worse off than they might have been.

Specific social policies produce different results depending on the circumstances of the community and other policies. So, for instance, universal health care in a soviet style command economy might bankrupt everyone. But it might be compatible with a high degree of affluence in an economy that has a healthy market based private sector (think Japan or Sweden). For this reason, social policies must ultimately be evaluated for justness as parts of comprehensive packages of social institutions. This leads to lots of abstract technicalities in Rawl's writing (it is not recommended for the novice). But we can get the general idea by looking at pretty familiar practices and comparing how they perform in the context of different societies having different comprehensive sets of social institutions. Looking at property rights and the market economy, we might consider East and West Germany prior to the fall of the Berlin Wall. East Germany had a Soviet style command economy that dictated a high degree of equality and sharply restricted property rights. West Germany had a mixed economy with a healthy market based private sector. The result was less equality in West Germany. But still, the least well off were substantially better off than the least well off (pretty much everybody) in East Germany. What this indicates is that while, on the one hand, the market economy with its institutions of private property inevitably generates inequalities, it is, still, so much more effective at generating wealth that the least well off will be better off in spite of the inequalities.

The example of the market economy and its institutions of private property provides a major motivating factor for Rawl's difference principle. So the 20th century's reigning liberal political philosopher is a fan of market economies and institutions of private property. This may come as a surprise to some.

Where Rawls is going to differ from Locke and Nozick is that for Rawls, property rights are not inviolable sacrosanct extensions of natural human liberty, rather they are social arrangements that will be limited in various ways as a part of a more comprehensive package of social arrangements that aims at fairness. Indeed, the very title of Rawl’s major work on social justice is “Justice as Fairness.” The kind of fairness that Rawls conception of justice aims at is not guaranteed equality of outcome for all, but rather a system of social arrangements that doesn't advantage any particular group of individuals at the expense of others. Inequalities that result from excellence, helpful innovation or hard work are fair in this sense. But inequalities that result from social institutions that are biased in one way or another towards the interests of some at the expense of others are not. Within this context, property rights are seen as social arrangements that aim at fairness by allowing the excellent and diligent to enjoy the rewards of their efforts. But property rights on the Rawlsian approach are not inviolable natural rights to be secured even to the detriment of maintaining the social institutions that make an affluent society possible.

So far, it should be clear how the a Rawlsian approach to property rights allows for taxing the well off in order to provide things like education, health care and a social safety net for others. But to what degree will this be just on Rawls' view. Clearly taxing the successful members of society  to the point where they are no better off than those who are largely unproductive will not meet the Rawlsian ideal under the difference principle. If people are not rewarded for hard work and innovation, then it's liable not to happen and everyone suffers as a result. Too much taxation of the well of will be unjust on Rawl's view precisely because it doesn't work out to benefit of least well off (or anyone else). Rather, Rawls would aim for that sweet spot where the hard working and innovative are well rewarded, so everyone has a reason to do their best, and yet those who fail for whatever reason, are not left by the wayside, but still have opportunity and enjoy some modest quality of life.

I won't try to get more specific about just where that sweet spot lies (say in terms of top marginal tax rates on income or capital gains), nor will I try to get more specific about just what benefits and opportunities should be secured for the least well off. But I will finish with a bit about how Rawls' motivates the general approach to social justice. And this will ultimately provide the best guide to what set of social arrangements would be just.

Recall that Rawls is aiming at a conception of justice as fairness in the sense that social institutions won't advantage any particular king of person at the expense of others. Rawls' proposes that we can get onto the ideal of justice as fairness in this sense by means of a thought experiment that involves reasoning from what he calls "the original position." From the original position, we imagine that we are perfectly rational agents with full information about the consequences of the various possible social arrangements. We are then given the task of designing the principles of justice that will structure our society and we are expected to do so with an eye to what will be in our own best interest. But there is a catch. In reasoning from the original, we operate behind a veil of ignorance about our own personal circumstances and characteristics.  So in the original position, behind the veil of ignorance, I must think about what set of social institutions will work out best for me without knowing whether I will be weak or strong, healthy or diseased, clever or dull, beautiful or ugly, black or white, born to a wealthy family or a poor one and so forth. If I am rational and self interested, I will want to set things up so that I can substantially enjoy the benefits if I have characteristics that are highly valued in my society and I put them to good use. But at the same time, I will want to hedge my bets to assure that I still have a decent life in case I am not so lucky or my best efforts fail.

What we have in Rawls is a way of thinking about justice that gets us out of the well worn false dilemma of absolute allegiance to free markets and property rights vs the assorted ills of big government socialism. There is plenty of room for reasonable disagreement and debate in working out the details of a just society in this framework. But it is debate that promises fruitful dialogue and mutually agreeable compromise, rather than the stagnant confrontation we have grown accustomed to in popular political discourse.

W. Russ Payne