Paul L. Caron

Tuesday, October 12, 2010

Johnston: American Attitudes Toward Taxes and Wealth Distribution

Tax AnalystsDavid Cay Johnston has published United in Our Delusion, 129 Tax Notes 251 (Oct. 11, 2010):

A clever survey of 5,522 Americans by two behavioral scientists reveals remarkable, near-unanimous agreement on an issue central to our tax debate. [Building a Better America – One Wealth Quintile at a Time, by Michael I. Norton (Harvard Business School) & Dan Ariely (Duke University, Fuqua School of Business).]

Taxes are central to wealth distribution, or redistribution, as we hear endlessly this election cycle. So it would make sense that people who voted for George W. Bush in 2004 think very differently about the ideal distribution of wealth than people who voted for Sen. John Kerry. People who make a lot hold very different ideas than people who make a lot less, right?

Wrong. We don't think differently. In fact, Americans think very much alike on wealth distribution. Amazingly alike. High-income or low, Republican or Democrat, young or old, male or female, Bush voters or Kerry voters, Americans are united in what they believe is the ideal distribution of wealth. And they are just as united about what they imagine to be the distribution of wealth in America.

The problem is that neither the ideals we broadly share, nor our estimated distributions of wealth today, bear much relationship to reality.

Figure 1 

Figure 2 

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Interesting survey.It would be more useful for the US government.
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Posted by: Olivia | Oct 12, 2010 6:53:48 AM

This paper's unstated assumption is that massively redistributing income is the proper role of government. The public does not share that assumption. The people don't even believe that in Europe. Only political activists and academics believe it.

Outside academia, people agree that the purpose of the tax system is to raise revenue, not to redistribute income.

Enough on the hidden assumption. The methodology is also slanted. Quoting the new survey: "In this country, wherever you start after being randomly assigned is where you will stay for the rest of your life, because in this country, there is no social mobility."

Americans don't accept this premise. It's not true for individuals, and more importantly it's not true for their children. We don't want a society where you can't get very far ahead no matter how talented and hard-working you are. We don't believe that is the case, and we don't believe that should be the case.

The paper's graphs don't prove that people believe as that as a matter of principle the government should move more wealth by force. They prove that people are innumerate.

Posted by: AMTbuff | Oct 12, 2010 8:28:30 AM

I question the premise of the article. The purpose of the tax code is to raise revenue for the operations of government, not to redistribute wealth from the hands of one group of people to another. In fact, the Constitution made it very difficult to impose a direct tax on individuals. Given the attitude of the anti-tax cut crowd aimed at "wealthy" individuals and the apparent assumption here that the government is supposed to use the tax code for wealth redistribution, how much more would it take before we come to the conclusion that the modern income tax is a direct tax on individuals in all but name only?

Posted by: Dan | Oct 12, 2010 8:55:11 AM

I am fascinated by how little interest or awareness people have of the black-box mechanisms which funnel our nation's wealth into so few pockets.

The best analysis I know of comes out of the ideas of Henry George, the 19th century classical economist who wrote "Progress and Poverty."

He saw what all too few even notice today: that private property in natural resources and all the things which the classical economists would call "land" -- that is, not capital and not labor -- serves to funnel the value of natural resources and urban land into private pockets.

The alternative, of course, is to shift our taxes OFF of productive activity (that is, reduce or eliminate wage taxes, sales taxes, taxes on buildings and equipment)and ONTO things not of individual human creation:

1. urban (and other) land value -- created by all of us, by investment of public revenue in infrastructure and services; rights of ways for pipelines, railroads, etc.

2. natural resources -- oil, gas, coal, water, minerals of all kinds;

3. landing rights at full-capacity urban airports (Mary Peters asserted that these belonged to the American people; the Bush administration said not);

4. the airwaves, which most of us would say rightly belong to the American people, but which are the private property of corporations, bought and sold at a profit;

5. geosynchronous orbits, to keep those satellites from bumping into each other;

6. urban street parking (see Don Shoup's work) and congestion charges (Bill Vickrey; London, etc.)

This list doesn't even brush the surface, but you get the idea.

Private title to some of these things may be necessary and desirable, but permitting the private retention of the economic rent on them is a key cause of the concentration of wealth we see in America.

If you're not conversant with the data on wealth concentration, see and for data on concentration of stock ownership and ownership of privately held businesses, see

The tax code SHOULD collect the value of these privileges, month in and month out, from the individuals and corporations who have title to them. Whatever they create with them -- including pollution -- should be theirs to keep, without taxation, after they've paid us for that value.

Is this "redistribution?"

No. Pre-distribution.

It would also go a long way to leveling the playing field.

You can read a modern abridgment of "Progress and Poverty" at or

You can read more about its implications in Mason Gaffney's writings at

To respond to Olivia, it seems to me that the proper role of government is to make sure that we are treated as equal, and this approach seems to me best-suited to achieve that.

Posted by: LVTfan | Oct 12, 2010 2:26:00 PM

One slight correction to DCJ's article: the distribution of wealth that the surveyed Americans, aggregated, considered their ideal is fairly similar to Sweden's distribution of INCOME.

I have in mind that Sweden's distribution of WEALTH is rather concentrated -- which is particularly interesting given their more equal distribution of INCOME relative to that of the U.S.

DCJ's antepenultimate paragraph says, "My question is whether we are doing anything to calm the situation and to build a society that not only aligns with our ideals, but that promotes the twin interests of stability and economic growth that benefit all." It seems to me that our best hope of a stable and just economy lies in the ideas of Henry George. You might look for Mason Gaffney's book, "After the Crash: Designing a Depression-Free Economy" (Wiley, AJES) as well as shorter articles "The Great Crash of 2008" and "How to Thaw Credit Now and Forever" -- at

Posted by: LVTfan | Oct 12, 2010 3:53:19 PM

Ariely's paper describes the Rawls constraint incompletely, intentionally omitting the crucial unrealistic portion of the survey prompt: "In this country, wherever you start after being randomly assigned is where you will stay for the rest of your life, because in this country, there is no social mobility."

This omission convinces me that the author is pushing an agenda rather than engaging in objective research. I realize that some causes can seem important enough to warrant cutting corners. Bad methodology and misleading presentation, once they are exposed, end up harming the cause instead. Science needs to be practiced scientifically, not politically.

I am putting this author on my "don't waste my time" list.

Posted by: AMTbuff | Oct 12, 2010 8:06:31 PM

But, AMT, just get into an argument with a rabid liberal, and they will pull out this and similarly invalid or dishonest studies to "prove" their cases...or, they will quote an article from the New York Times. Once you really dig into the details, you find out just how full of bull their claims are, but who has that much time or incentive?

Posted by: Woody | Oct 13, 2010 7:37:54 AM

This omission convinces me that the author is pushing an agenda rather than engaging in objective research
Posted by: AMTbuff | Oct 12, 2010 11:06:31 PM

This must be your first time reading Johnston.

Posted by: guy in the veal calf office | Oct 13, 2010 3:40:43 PM