Paul L. Caron

Wednesday, March 2, 2022

Thomas: Cognitive Bias And Income Inequality

Kathleen DeLaney Thomas (North Carolina; Google Scholar), Why Is It So Hard to Reduce the Wealth Gap? Cognitive Bias May Be Partly to Blame (reviewing Joshua Conrad Jackson (North Carolina; Google Scholar) & Keith Payne (North Carolina; Google Scholar), Cognitive Barriers to Reducing Income Inequality, 12 Soc. Psych. & Personality Sci. 687 (2021)):

JOTWELL Tax (2021)The problem of income inequality is well-documented. And for those who support greater income redistribution, the current state of affairs is bleak. Proposals for a wealth tax or heavier taxation of capital income appear to have stalled, and little progress has been made towards meaningful reform measures that would shrink wealth and/or income gaps.

So what gives? We already know part of the story. Progressive tax proposals, such as mark-to-market taxation, tend to be complex, which in turn makes them harder to sell to politicians and the public. Similarly, reform measures like a wealth tax face criticism that they would be too hard to administer. Yet adding to these problems appears to be a general indifference, if not outright lack of support, from the public. This is puzzling because, given the evidence that only a very small percent of Americans holds most of the nation’s wealth, a lot of people would benefit from wealth or income redistribution. So why isn’t there more popular support for redistributive tax policies? A recent empirical study offers compelling evidence of another major barrier to reform: our irrational, subjective beliefs about where we fall on the income distribution.

The study’s authors, Joshua Conrad Jackson and Keith Payne, describe several cognitive tendencies that may explain why preferences for income redistribution are weaker than they should be based on economic self-interest. ...

Jackson’s and Payne’s article is insightful and well worth a read for any scholar interested in wealth and income inequality and redistributive tax policy. As the authors acknowledge, cognitive bias clearly isn’t the only reason redistributive policies are so hard to enact. And the cognitive barriers identified by Jackson and Payne are surely not the sole explanation for why there isn’t more public support for measures like a wealth tax. For example, overall mistrust in the government, or tax aversion, might also be contributing factors. But understanding why more people aren’t at least upset about income and wealth inequality is illuminating. And, as the authors suggest, perhaps this understanding can help inform future policymaking.

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