Is Redistributive Taxation Justifiable? Part 1

Do the Rich Deserve their Wealth?

The statement “taxation is theft” feels¹, in the literal sense, at least sort of true. If you do not pay your taxes, after a few strongly worded letters, the IRS (or equivalent government agency) will send armed men to take your money by force and maybe put you in jail for good measure. Nevertheless, it is generally held by most people that taxation is a legitimate object of government; revolts and rebellions over taxation occur not on general principle, but against excessive taxation or taxation without representation. So why do we accept taxation?

This post will not, to be clear, be a general argument against taxation. I am no anarchist; I’m not even a libertarian. Rather, I seek here to explore the moral and practical underpinnings of redistributive taxation. For this purpose, it is worth thinking about in what ways taxation is similar to, or different from, theft, since theft is something of a moral calibrator: most people pretty much agree that it is bad, and even in what ways and for what reasons it is bad.

In this (first) post on the topic, I will be asking whether the rich can be said to ‘deserve’ their wealth. Most of my argumentation will not, I expect, be novel; rather, think of this as a crash course on the standard back-and-forth which has been going on for ages, so that after reading this, we’ll all be able to engage on the topic on a deeper level and with a certain amount of common knowledge.

First, though, I must take you on a brief detour to make it clear what I am not talking about.

Public Goods

The classic, econ 101 solution to the conundrum of ‘why do we accept taxes’ is that taxation is a necessary evil to provide public goods. These are the sort of things that, if individuals are left to act freely, tend not to be produced even though many would want them to be. A standard example is national defense: most people would rather prefer not to be invaded by the nearest dictatorial regime. Most people would also rather prefer not to have to pay for national defense. But defense is a non-excludable good: you can’t have a selective invasion where everyone living here who has paid into the army fund gets protected from attack, while everyone who hasn’t paid gets a bomb dropped on their house. So to make sure it gets paid for, and to prevent freeloading, everyone has to pay their share.

There can of course be disagreements about how much money a given public good should get; this is where democracy comes in. If the measure to fund public good X to the tune of €Y per person gets more than Z% of the vote, it is passed.² Taking the money from the people who voted in favor is definitely not theft - they just agreed to it!

Taking the money from the people who voted against is only sort of theft.

1. First of all, they may have voted in favor of funding the good for €W < €Y per person, in which case only (€Y-€W) euros of theft has occurred.

2. Second, in the future they will presumably have opportunities to get their preferred measures passed even when others are opposed. So in this sense they are somewhat compensated for their loss.

There are problems here, especially with the second argument, but public goods are not my main topic today, so I will not dwell. The argument that democracy implies consent will return (in a later post) when talking about redistributive taxation, and there I will consider some objections.

Public goods (broadly defined) are acknowledged by all strains of political thought but anarchism as, at least to some degree, a legitimate reason for taxation. Minarchists believe this should be limited to protection of person and property; classical liberals add infrastructure and prevention of externalities; technocrats both left and right believe in public (mandatory) insurance; many conservatives would have government support church and family; and socialists, of course, see no natural limits to the Leviathan’s reach. It is very fun to debate where exactly we ought to draw the line, but the point is, nearly everyone agrees it’s somewhere to the right of zero on the real number line.

Not so for redistribution.

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What is redistributive taxation?

Now I’ve told you what I’m not talking about, here’s a definition of what I do mean. Redistributive taxation is a forcible transfer of money, imposed by government, from one person or group to another with the objective of increasing the wealth or income of the person receiving the money, or of decreasing income inequality. Examples include disability payments, food stamps, and basic income guarantees.

This may include taxation with the primary or stated purpose of solving a coördination problem, but a secondary or true purpose³ of redistributing money, if the stated objective could be more effectively accomplished by restructuring the program in a less redistributive manner. Examples include public health insurance and government pensions.

It does not include any form of voluntary redistribution, tithe, or charity.

Opinions on redistributive taxation vary wildly, with on one side those who see it as taking back the birthright of the downtrodden poor from the rich oppressors (with overtones of Robin Hood), and on the other those who see the government stealing from the industrious creators of wealth and giving to those too lazy to work. I will outline a number of different moral intuitions and empirical beliefs one might hold, and their effect on the answer to the titular question: is redistributive taxation justifiable?

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Do the rich deserve their wealth?

Central to the claim of redistributive taxation being morally equivalent to theft is the idea that those who the money is being taken from have rightful claim to said money. If it can be proven that they have no more claim than anyone else, then there should be no moral qualms about the money being put to better use, only practical ones (e.g. deadweight loss).

Ignoble Origin of Wealth

The Marxist, of course, would say that no wealth is truly earned lest it derive from one’s own labor (and even then, the strongest shoulders must carry the heaviest loads). This would imply that capital owners, from Jeff Bezos to your grandma who has a 401k, do not deserve a cent of restitution for their capital. The labor theory of value that underpins this idea is, of course, bunk, but there is a steelman to be made if we narrow the scope of the claim.

For though certainly not all capital earnings are exploitation of workers, some are. Wage theft, third-world slavery, labor market monopsony are real issues. Do those who earn their wealth in such a manner ‘deserve’ it? I think not. And worker exploitation is not the only way wealth can be unjustly accumulated. Fraud, monopoly, regulatory capture, corruption, the list goes on and on. As for inheritance, which we will tackle in a minute, much of the wealth of ‘old money’ families derives from colonialism, slavery, and land theft.⁴

The question, then, is: how do we tell apart the good from the bad? Most of the things I listed are already illegal; if we knew 100% for sure who was doing them, we would have punished them and taken their money already.⁵ But if you truly believe that a very large part of the income or wealth of a certain group (e.g. the rich, or capital owners) is unearned in this manner, then you might say: “a pity for those who played by the rules, but most of you did not earn your wealth, so we are taking it now”.

A lot of this comes down to empirics: if most wealth truly is ‘stolen’, as it were, then there is no issue with ‘stealing it back’; redistribution may even lead to some of it ending up back in the hands of the original victims. If most wealth in today’s world is ‘earned’, then this argument breaks down completely - we ought simply to punish the bad apples, and leave the rest alone.

Of course, no normative question can be entirely reduced to empirics. Some might find that even if most of the rich did not earn their wealth, that still cannot justify taxing those who did. Others might say that even though the wealth was unfairly gained, that does not totally void all claims the current owner might have. And the aforementioned Marxists may say that, even if the labor theory of value doesn’t quite work out, in some moral sense the ‘true’ value of a good still fully derives from labor alone, and so all capital profits are exploitation.⁶

Inheritance

Many take the view that inheritance is an unearned gift, and as such, the inheritor does not truly ‘deserve’ the money. We all know the stereotype of trust fund kids spending money they never worked for on ski trips and beach vacations. If we interpret inheritance more broadly, we might also include Ivy grads earning six figures who never would’ve gotten in without Dad’s donation to the school library, or ‘failsons’ with high positions in the family business. These people are leeching off society, and they should be taxed to get the money to those who actually need it; so goes the refrain of those who favor inheritance taxes.

Consider, however: we need not state that the inheritors are deserving, to justify leaving them their money. We need only argue that the benefactors were deserving; i.e. the parents (or grandparents, or whoever made the money in the first place). After all, do we not generally hold to the principle that someone who has moral and legal right to money, also has the right to choose how to allocate that money? What else could the idea of property mean? If something is your property, you may do as you wish with it: use, sell, destroy.⁷ Why should this stop at giving it to someone?

[One may mention that consumption taxes, which impede the allocation of money, are generally accepted. But those are only levied once, and equally on all value⁸; the inheritor (or his descendants) will eventually spend the money, and be taxed on it then. They are therefore not a tax on (re)allocation of wealth, but rather a delayed tax on economic production.]⁹

Summing up: If you accept the moral premise that the right to allocate one’s money as one chooses extends to gifts/wills, and the empirical/moral premise (covered in the previous subsection) that the wealth was rightly earned in the first place, then the inheritor has indirect moral claim to the inherited wealth, even if said inheritor is generally an undeserving person.

[There are also efficiency arguments specific to inheritance taxation, covered in footnote¹⁰.]

Innate Ability

Innate ability is unevenly distributed, and those with labor-market-relevant abilities tend to end up with higher incomes. Do these ‘gifted’ people, then, have moral claim to the ‘extra’ fruits of their labor, above and beyond what a less gifted person may achieve with the most profitable application of their labor?

Moral intuitions will vary. Personally, I’m inclined to think that at least some of the innate ability wage differential is ‘earned’. Most people in the world could practice all day every day for years and would never even approach the football skill of a Ronaldo or Messi; it seems absurd, though, to say they should earn the same as a Walmart shelf-stocker (even though the Walmart worker may work harder than the pro footballer!)

Before we continue, I have to briefly sidetrack the discussion of moral desert and innate ability, to tackle a practical concern; an elephant in the room, casting its large (elephantine?) shadow on our moral intuitions. The elephant is named “economic efficiency”. Maybe I really believe that Messi ‘deserves’ hundreds of millions of dollars for kicking a ball around a field once in a while. Or maybe I intuit that if we didn’t pay top footballers a bunch of money, he might never have taken the risk of spending years training for a job that (on an outside view) it was very unlikely he would get, and it would have been a great pity for the world if he’d gone to work at whatever is the Argentinian equivalent of Walmart instead.

Paying people in accord to the economic value they produce is absolutely essential to keeping the world going. A world where people are paid equally, regardless of how well they can do their job, would be a bizzarro world: effete, skinny-armed nerds working on oil rigs, while high school quarterbacks with concussion brain damage write physics papers in LaTeX. Total misallocation of labor; you would end up with no oil in your car and no GPS system either. But this is a practical matter, not a moral - one can believe that capitalism is optimal for economic efficiency and still not believe that one person ‘deserves’ higher wages than another.

Having established that it is *in practice impossible* to tax people only on their innate ability, let us return to the question of whether the ability wage differential is in some sense ‘deserved’. I’m afraid that we are already at ‘ground level’ here; one’s answer to this question is ~directly determined by one’s personal values. The dry, rigorous analytical philosophy style I’m using here takes in values and spits out conclusions; it is not equipped to argue which values one ought to hold. Nevertheless, analytic-style intuition pumps can help in finding out which values one already holds, so here’s one:

Consider innate disability. Some people, through no fault of their own, find themselves unable to support themselves. What are the obligations of others in society to the disabled?

The strict libertarian might say, well it’s very sad that they’re disabled, and certainly it’s not their fault, but it isn’t my fault either, so how could I possibly have an obligation to this person? Legally mandated redistribution would be straightforward theft. Their family and private charity should take care of them.¹¹

The traditional conservative argues similarly, but adds: well, we have a moral obligation to others in our community, so anyone able ought to help somehow, and the church (or other non-gov’t institution) can use whatever manner of social pressure to elicit this aid.

The social democrat’s response: yes, we all have a moral obligation to others, and that, given a democratic decision, justifies the state in forcibly taking money from anyone to help disabled people.

[I will not add my view of the communist’s position for fear of strawmanning 😅]

The position you most closely align with may give you some indication of your view on innate ability more generally. After all, if the abled should compensate the disabled for the difference in earning potential, then why not have the very talented compensate the less talented? There’s no natural divider between ‘disability’ and ‘lack of ability’; it’s a matter of degree. So it might logically follow that, if redistribution to the disabled is justified on account of the career paths that are closed to them through no fault of their own, some amount of redistribution to the less abled could be justifiable on the same basis.¹²

No Just Deserts

Finally, one might also simply reject the concept of ‘deserving’ entirely. This is a meta-ethical position held mainly by consequentialists and egalitarians. If there is no such thing as moral desert¹³, it is of course irrelevant whether or not the rich ‘deserve’ their wealth by conventional standards. We can redistribute as we wish, for whatever reasons we wish.

Most normal people, however, find this a bizarre idea. Moral desert is a deeply ingrained intuition for most of us. How else could you justify the punishment of a criminal, for example? The ‘anti-desertists’ would bite this bullet; in their view we might jail a criminal for deterrence, incapacitation, or rehabilitation, but revenge is an unacceptable reason. Conversely, a person may be rewarded for good deeds to incentivize further good deeds (from them or others), but that does not mean they ‘deserve’ the reward.

This facially absurd view is most commonly justified from determinism: since all actions are fully determined by the conditions that came before those actions, there is no such thing as ‘free will’, which means that a person’s actions (not being free) cannot be morally judged, and therefore a person cannot be morally deserving. A full argument in favor of free will¹⁴ is outside the scope of this essay; it will suffice to point out that this argument is self-defeating. After all, if free will is impossible, then nearly all morality is impossible - how could it be ‘immoral’ to steal or hoard money, or ‘moral’ to redistribute it, if the people doing so are not actually making the choice to do so?

This post is running long, and might run twice as long if I were to properly expand on the other arguments as well, so I will take the liberty of referring to Brouwer & Mulligan (2019) for those who would like to see further arguments in favor of ‘desertism’, and the Stanford Encyclopedia of Philosophy’s article on desert for a balanced overview of the topic more generally.

Conclusion

In this post I have given a relatively brief overview of reasons why one might or might not believe that the possessors of wealth in our society generally ‘deserve’ their wealth. If the rich generally do not have a moral claim to their riches, then the only justification needed to redistribute is a good affirmative reason to do so: perhaps that the total welfare of society would improve, or that inequality would decrease.

If one believes that they generally do have moral claim, then redistributive taxation becomes much harder to justify: we need to argue either that there is a sufficiently strong affirmative reason to redistribute that what amounts to theft is nevertheless acceptable, or that taxation is not in fact theft under certain circumstances.

In the upcoming posts, I will lay out the affirmative arguments for redistribution and take a look at the concept of a ‘social contract’, which might (by implying a form of consent on behalf of the taxed) be able to counter the idea that taxation is theft.

1. To some people

2. I am, obviously, abstracting away from how democratic government actually works. The general principle, however, holds - though less so the less democratic a government is.

3. I leave it to the Straussians to figure out which of the two it is.

4. And whether any individual can even rightly lay claim to land or resource rents is also in dispute (George, 1879).

5. Or, if the government is too corrupt or incompetent to do so, then it would also not be able to selectively tax those people.

6. I don’t think I’m presenting a strawman here; as far as I can tell, this is what Marx himself believed later in life, after having tried and failed to properly solve the transformation problem of the LTV.

7. Yes, I know you can’t destroy actual paper bills of money, but that’s because what one owns when one owns money is not the bills, but the claims to resources and labor that those bills represent. You can, if you wish, buy a table with the money and burn it, or buy a TV and throw it off a cliff.

8. At least, in economically sophisticated countries that use a VAT rather than the moronic sales tax.

9. One might also argue that inheritance is not, in fact, a free gift (cf. eigenrobot). Rather, it is resources to be spent on the family project, an implicit contract: the benefactor pays the inheritor to provide the service of keeping the family {legacy, house, lineage, etc.} intact. In return for the efforts involved in perpetuating the family, the inheritor may perhaps also be said to have moral claim on the money, independent of the original earner’s moral right of allocation. But exploring this argument properly would take a whole blog post of its own.

10. Pro: Inheritance taxes may be less distortionary than income taxes, since (especially in the modern era, as family obligations wane and hearth-fires dim) people are more inclined to earn money for their own consumption than for their children’s future consumption.

Contra: Inheritance taxes may not reduce employment as much as an income tax, but they disproportionately reduce savings, which may be even more distortionary.

11. Necessary implication: if the family is unable/unwilling to help, and private charity is not forthcoming …

12. A confounding issue is that of the labor-leisure tradeoff. Some people genuinely prefer to work more, or less, than others do. If we redistribute from higher to lower income workers, then we will not just be redistributing from the able to the less able, but from hard workers to leisure enjoyers. Surely if there is one thing that entitles a person to more money than another, it is making the free choice to work more! And yet the redistributive income tax makes no distinction; it eliminates this difference just as it would any other. An economist would say that it would be best if we could directly tax innate ability, but that of course has its own set of practical issues.

13. ‘Moral desert’ is the philosophical idea that the concept of ‘deserving’ is both coherent and relevant to morality.

14. I personally prefer compatibilism.