I confess that I’m never sure how best to persuade and educate people about the value of limited government.
- Is it best to make a moral and philosophical case against state coercion?
- Or is it best to make a practical case that a free society produces greater prosperity?
Regular readers presumably will put me in the second camp since most of my columns involve data and evidence on the superior outcomes associated with markets compared to statism.
That being said, I actually don’t think we will prevail until and unless we can convince people that it is ethically wrong to use government power to dictate and control the lives of other people.
So I’m always trying to figure out what motivates people and how they decide what policies to support.
With this in mind, I was very interested to see that nine scholars from five continents (North America, South America, Europe, Asia, and Australia), representing six countries (Canada, United States, Argentina, Netherlands, Israel, and Australia) and four disciplines (psychology, criminology, economics, and anthropology), produced a major study on what motivates support for redistribution.
Why do people support economic redistribution? …By economic redistribution, we mean the modification of a distribution of resources across a population as the result of a political process. …it is worthwhile to understand how distributive policies are mapped into and refracted through our evolved psychological mechanisms.
The study explain how human evolution may impact our attitudes, a topic that I addressed back in 2010.
The human mind has been organized by natural selection to respond to evolutionarily recurrent challenges and opportunities pertaining to the social distribution of resources, as well as other social interactions.…For example, it was hypothesized that modern welfare activates the evolved forager risk-pooling psychology — a psychology that causes humans to be more motivated to share when individual productivity is subject to chance-driven interruptions, and less motivated to share when they think they are being exploited by low-effort free riders. Ancestrally, sharing resources that came in unsynchronized, high-variance, large packages (e.g., large game) allowed individuals to buffer each other’s shortfalls at low additional cost.
Here’s how the authors structured their research.
…we propose that the mind perceives modern redistribution as an ancestral game or scene featuring three notional players: the needy other, the better-off other, and the actor herself. …we use the existence of individual differences in compassion, self-interest, and envy as a research tool for investigating the joint contribution of these motivational systems to forming attitudes about redistribution.
And here’s how they conducted their research.
We conducted 13 studies with 6,024 participants in four countries to test the hypothesis that compassion, envy, and self-interest jointly predict support for redistribution. Participants completed instruments measuring their (i) support for redistribution; (ii) dispositional compassion; (iii) dispositional envy; (iv) expected personal gain or loss from redistribution (our measure of self-interest); (v) political party identification; (vi) aid given personally to the poor; (vii) wealthy-harming preferences; (viii) endorsement of pro-cedural fairness; (ix) endorsement of distributional fairness; (x) age; (xi) gender; and (xii) socioeconomic status (SES).
Now let’s look at some of the findings, starting with the fact that personal compassion is not associated with support for coerced redistribution. Indeed, advocates of government redistribution tend to be less generous (a point that I’ve previously noted).
Consider personally aiding the poor—as distinct from supporting state-enacted redistribution. Participants in the United States, India, and the United Kingdom (studies 1a–c) were asked whether they had given money, food, or other material resources of their own to the poor during the last 12 mo; 74–90% of the participants had. …dispositional compassion was the only reliable predictor of giving aid to the poor. A unit increase in dispositional compassion is associated with 161%, 361%, and 96% increased odds of having given aid to the poor in the United States, India, and the United Kingdom. …Interestingly, support for government redistribution was not a unique predictor of personally aiding the poor in the regressions… Support for government redistribution is not aiding the needy writ large—in the United States, data from the General Social Survey indicate that support for redistribution is associated with lower charitable contributions to religious and nonreligious causes (61). Unlike supporting redistribution, aiding the needy is predicted by compassion alone.
But here’s the most shocking part of the results.
The people motivated by envy are often interested in hurting those above them than they are in helping those below them.
…consider envy. Participants in the United States, India, and the United Kingdom (studies 1a–c) were given two hypothetical scenarios and asked to indicate their preferred one. In one scenario, the wealthy pay an additional 10% in taxes, and the poor receive an additional sum of money. In the other scenario, the wealthy pay an additional 50% in taxes (i.e., a tax increment five times greater than in the first scenario), and the poor receive (only) one-half the additional amount that they receive in the first scenario. That is, higher taxes paid by the wealthy yielded relatively less money for the poor, and vice versa… Fourteen percent to 18% of the American, Indian, and British participants indicated a preference for the scenario featuring a higher tax rate for the wealthy even though it produced less money to help the poor (SI Appendix, Table S3). We regressed this wealthy-harming preference simultaneously on support for redistribution… Dispositional envy was the only reliable predictor. A unit increase in envy is associated with 23%, 47%, and 43% greater odds of preferring the wealthy-harming scenario in the United States, India, and the United Kingdom.
This is astounding, in a very bad way.
It means that there really are people who are willing to 
deprive poor people so long as they can hurt rich people.
Even though I have shared polling data echoing these findings, I still have a hard time accepting that some people think like that.
But the data in this study seem to confirm Margaret Thatcher’s observation about what really motivates the left.
The authors have a more neutral way of saying this. They simply point out that compassion and envy can lead to very different results.
Compassion and envy motivate the attainment of different ends. Compassion, but not envy, predicts personally helping the poor. Envy, but not compassion, predicts a desire to tax the wealthy even when that costs the poor.
Since we’re on the topic or morality, markets, and statism, my colleague Ryan Bourne wrote an interesting column for CapX looking at research on what type of system brings out the best in people.
It turns out that markets promote cooperation and trust.
…experimental work of Herbert Gintis, who has analysed the behaviours of 15 tribal societies from around the world, including “hunter-gatherers, horticulturalists, nomadic herders, and small-scale sedentary farmers — in Africa, Latin America, and Asia.” Playing a host of economic games, Gintis found that societies exposed to voluntary exchange through markets were more highly motivated by non-financial fairness considerations than those which were not. “The notion that the market economy makes people greedy, selfish, and amoral is simply fallacious,” Gintis concluded. …Gintis again summarises, “movements for religious and lifestyle tolerance, gender equality, and democracy have flourished and triumphed in societies governed by market exchange, and nowhere else.”
Whereas greater government control and intervention produce a zero-sum mentality and cheating.
…we might expect greed, cheating and intolerance to be more prevalent in societies where individuals can only fulfil selfish desires by taking from, overpowering or using dominant political or hierarchical positions to rule over and extort from others. Markets actually encourage collaboration and exchange between parties that might otherwise not interact. This interdependency discourages violence and builds trust and tolerance. …In a 2014 paper, economists tested Berlin residents’ willingness to cheat in a simple game involving rolling die, whereby self-reported scores could lead to small monetary pay-offs. Participants presented passports and ID cards to the researchers, which allowed them to assess their backgrounds. The results were clear: participants from an East German family background were far more likely to cheat than those from the West. What is more, the “longer individuals were exposed to socialism, the more likely they were to cheat.”
All of which brings me back to where I started.
How do you persuade people to favor liberty if they are somehow wired to have a zero-sum view of the world and they think that goal of public policy is to tear down the rich, even if that hurts the poor?
Though the internal inconsistency of the previous sentence maybe points to the problem. If the poor and the rich are both hurt by a policy (or if both benefit from a policy), then the world clearly isn’t zero-sum. And we now from voluminous evidence, of course, that the world isn’t that way.
But how to convince people, other than making the same arguments over and over again?
P.S. Jonah Goldberg and Dennis Prager both have videos with some insight on this issue.
People are very much subject to propaganda. GOVERNMENT schools teach these attitudes, which are then reinforced daily through the media.
Mr. Mitchell, it may be inefficient for government to redistribute your family wealth (or income) and give it to the larger number of poorer families across the tracks. It may be unfair to take wealth that is assumed to be taxed and tax it again.
Nevertheless, we have a dilemma with 76% of wealth that has never been fairly taxed and which is concentrated in the top 10% of the population. Consider Warren Buffett who is worth about $75 trillion, earns about $3 trillion a year in economic income but reports only about $30 million a year in taxable income. If Mr. Buffett put all of his taxable income in a savings account for his whole life, he might have One billion dollars in the account. How did he get the other $74 billion? Should it be taxed and how?
It is obvious that an unfair tax code has redistributed family wealth to Mr. Buffett. His investing prowess and ability to take advantage of tax expenditures does not mean that he earned the untaxed $74 billion, at least not according to any reasonable valuation of human labor or rational tax policy.
We have a tax code that has enabled the wealthy to keep more of their own money and most pretend that it is not redistribution. Perhaps we should have a tax code that enables workers to keep more of their own money and you would not consider it to be redistribution. It is possible to tax wealth and income inversely giving each taxpayer a modest ability to save up to $500,000 tax free (for retirement, education or health care). Imagine mid-range individual tax rates of 1% on net worth and 18% on income (with no 15.3% payroll taxes). Any taxpayer could elect to reduce one tax rate by raising the other – (inverse taxation). For example, the wealth tax could be reduced to zero by increasing the income tax rate to 28%. In the other direction, the income tax rate could be reduced to 8% by increasing the wealth tax to 2%. A $500,000 individual wealth tax exemption for retirement, health care and education savings would encourage most to elect the 2% wealth tax and 8% income tax rate. Billionaires might elect no wealth taxes but for an additional rule that permits wealth taxes paid over a lifetime to be a credit against the Estate Tax. Profitable business owners (Good Stewards) would be the winners and the idle rich, not so much.
Would people who are happy with their own situation still wish to punish others via the tax code? Is wishing for confiscatory tax rates on high producers just another manifestation of “misery loves company”? Maybe in a time of serious economic growth (it’s been almost 10 years since USA has had a good economy) people’s attitudes would change.
Coincidentally, today Cato sent me a replica of the first American coin, which said MIND YOUR BUSINESS. … If only …
EPD,
What do you mean when you say that wealth has not been fairly taxed?
I assume you must mean that tax rates on investment income are too low. That is a misconception. There are excellent reasons to tax investment income at low rates, or not at all. Which is exactly why the US taxes investment income at lower rates, and some countries not at all.
Here are reasons why low tax rates on investment income make sense:
FAIRNESS: 1) Capital gains taxes treat inflationary gains as if they are real, which over-taxes investment income. 2) Investment income is already taxed once as business profits. Taxing the individual investor as well amounts to double taxation. Isn’t it fair to double-tax at a lower tax rate?
PROSPERITY: Business investment is essential for the future prosperity of society. Low tax rates on investment income encourage investment.
There are other good reasons for low tax rates on investment income, but enough. Low taxes on investment income are fair and good for prosperity, and that is reason enough.
The only reason to be against low or zero tax rates on investment income is if you are overly concerned with Fairness. But the benefits to overall society far outweigh any fairness concerns about a relative handful of rich people.
https://caseforcapitalism.wordpress.com/
In my view it is a fundamental conflict between the truly zero sum game we evolved in for the last several hundred thousand years and today’s unprecedented and irreversible comparatively breakneck human growth. Our evolution in a static zero sum world is the fundamental reason we see inequalities as unfair products of serendipity and chance. Seeing inequalities as inherently unfair coincidences is baked in our genes. Genes steeped through hundreds of thousands of years of evolution — during an the almost eternal once static zero sum environment.
Human growth, the environment where humans are born in one world and die in a very different one, experiencing change throughout their lifetimes, is a very recent phenomenon in human history, four centuries at most. Significant paradigm changes being experienced in a person’s lifetime are perhaps only one hundred and fifty years or so old.
Most of our evolution happened in a static zero sum world. 99.98% of all humans who ever walked on this planet were born in one environment and died in the same. The basic human condition did not change in their lifetimes. Even more recent periods, like Ancient Greece or the Roman Empire, which we perceive as periods of more rapid growth on a historical time scale, were periods where average annual growth did not exceed 0.1%. But even at that rate, growth compounds to significant levels over centuries and millennia. Immagine what will happen at the current three to four percent rate of human growth. When you begin to realize this compounding, you realize the shock and awe that awaits humans in just this century. You and your immediate descendants will be the first humans to experience truly shocking and life transforming changes (literally in many ways, as humanity is about to e.g. first crack and then take control not only of its biological fate, but also it’s genetic destiny!).
But in the static world we evolved in, large disparities are not natural. Being harder working, a better hunter, a more skilled gatherer only gets you so far. Disparities are limited. Large disparities in that static world are justifiably attributed primarily to luck.
All this changes when the tremendous leverage of modern Homo Sapiens intelligence comes in. Consider the overall productivity and impact multiplier potential of the following individuals: A manual digger with a shovel, a bulldozer operator, a bulldozer production supervisor, a bulldozer innovator and entrepreneur. Think of their potential in moving dirt. The impact of the last one on humanity is at least four to five orders of magnitude greater than the first. Yet, their compensation carries only a two order of magnitude difference, at best. So there is already redistribution. Even in unaffected markets.
The argument is ultimately utilitarian: Those societies that leave inequalities of outcome unaffected, will see themselves and their descendants take off in an incredible wealth and technology compounding journey in just the next several decades. The redistributive societies that succumb to the natural primal instincts of a zero sum primal world will fall behind, in a ruthless compounding where citizens are unable to participate in the fabulous human future ahead of us.
Amen John Michael Wagner,,,,
And just why do you want to tax my wealth, a small rental empire of 11 single family residences,,,,, I sacrificed a lot and worked way beyond 40hrs a week to build wealth that generates a nice retirement…
Folks act like I’m lucky or something…. and not only do they like taxing my earnings they want go tax my wealth,,,,
These folks suffer from not only envy but they Covet,,, one of 10 enumerated sins,,,
JMW
Thank you for the thoughtful and intelligent response. I respectfully add:
Most capital gains are never taxed even when they have little to do with inflation. That is how Mr. Buffett makes his billions. There are many ways to realize gains without creating a taxable event for the IRS.
Fairness
You express a fairness concern when you note, “Investment income is already taxed once as business profits.” Investors can choose to maximize income or minimize income seeking greater appreciation in value. Investors also choose between high tax and low tax businesses, and most businesses can avoid C corporation tax entirely by electing to be taxed on the individual returns of the owners. The range of investment options and risks effectively eliminates fairness as a legitimate complaint for individuals. The real unfairness comes from crony capitalism and tax expenditures for some but not for others. This is also why a VAT is a much fairer way to tax different types of businesses across different taxing jurisdictions. For what it’s worth I support a 4% VAT and 8% C corporation rate with no business tax expenditures.
Prosperity
You are correct that “low tax rates on investment income encourage investment” in the sense of leaving more money for investors to invest. Another way to encourage investment is to encourage the little guys to pool their funds to form competitive investment pools. Even better is to tax wealth and income inversely to create the carrot and stick approach that separates the Good Stewards from the idle rich. Imagine all taxpayers subject to both an income tax and a tax on net wealth with mid-range rates of 1% for wealth tax and 18% for income. Any taxpayer could reduce their wealth tax to zero by electing to pay a 28% income tax rate. In the other direction, most workers would elect to pay a 2% wealth tax and an 8% income tax rate (and no 15.3% FICA payroll taxes). To sweeten the pie for rich and poor, each taxpayer could save up to $500,000 wealth tax free for retirement, health care or education and all wealth taxes paid over a lifetime would offset Estate Taxes. Let workers keep more of their earnings and successful business people keep more of their profits. Encourage all families to save (and invest) a million dollars over their lifetime.
To Eugene Patrick Devany,
Your proposals are riddled with errors and inconsistencies. You state that Buffet earns $3 trillion per year, and in other places $3 billion per year. You dismiss out of hand that investment income is not taxed. You think that if company income is taxed directly on an individual’s return, that somehow this is a great deal, because C corporations are taxed twice. The subject is complicated, but your approach is not.
You blithely offer a deal, that people can pay a tax of a suppposedly measly 1% on their acquired wealth, being a 20% confiscation over twenty years, or pay 28% on their income. You seem unaware that high-income taxpayers now pay about 39% on their earned income. Actually, you offer a pretty good deal, but I don’t think you mean to.
The top 5% of taxpayers pay 40% of US tax revenue of about $3 trillion each year, and the government manages to borrow an additional $1 trillion each year and spends it. Wags point out that socialism has already won in the US. The entire taxed revenue of $3 T is spent on social programs and redistribution. The rest of the government (military, courts, foreign aid, government salaries) is paid by borrowing the cash.
Why should I care about your complicated proposals for restructuring society? What is your standing? If your ideas are more than your personal opinion, then cite your references. I suggest choosing one or two points and back them up with public statistics and research.
AMG
I thank you for your comments and invitation to respond.
I apologies for saying “Consider Warren Buffett who is worth about $75 trillion, earns about $3 trillion a year in economic income but reports only about $30 million a year in taxable income.” My “trillion” should have been “billion” but I invite you to consider that my tax reform suggestion may not be “riddled with errors” beyond the typo. It was also not my intention to get to good Mr. Buffett to excited. The Trump stock market has not been that good.
I appreciate that only some “investment income is not taxed” but you seem to “dismiss out of hand” the fact that most economic income (unrealized capital gains) of the wealthy will never be taxed (until it is devastated by a 45% Estate Tax). You note, with back of the envelope precision, that a 1% wealth tax for 20 years is similar to a 20% tax on wealth. [I propose a 28% wealth tax for all, and a full credit for wealth taxes paid over a lifetime.] Using simple numbers anyone who paid the equivalent of 20% of their lifetime wealth would actually be paying nothing since the entire amount paid in wealth taxes over 20 years would go to the heirs of the estate as a credit against Estate Taxes – and that is a tax free transfer.
Although I suggest an optional wealth tax of up to 2% you may be surprised to learn that wiser men have recommended a wealth tax in excess of 14% to pay off the national debt. He is now the President of the United States and his proposal is contained in his book titled “The America We Deserve”. His staff is considering income rates in the 40’s because that don’t understand the versatility of three tax bases for the lowest possible rates. Trump’s wealth tax came from his gut and his belief that the Estate Tax could never be fair. My ideas have evolved from law school research, masters studies in public administration, prayer, and dumb luck.
You write that “The top 5% of taxpayers pay 40% of US tax revenue” and I respond by saying they have more than 40% of the wealth and use most of the nation’s resources. The poorer half of the population now shares just 1% of family wealth – down from 2.6% 20 years ago. Young adults from this group can no longer afford to marry and raise children. Including payroll, what percentage of taxes should this half of the population pay?
It is confiscatory to have a 39 or 45% income tax rate but that number is inflated to pay for $1.3 trillion in tax expenditures and the refusal to consider revenue neutral taxes on consumption and wealth. Americans for Tax Reform have done great harm with their coercive tax reform ideology.
The U.S. was great because the wealthiest 10% had a small 68% of family wealth and the middle class (the next 40%) had almost 30%. In the rest of the world the wealthy have 83% of wealth and the middle class share on average just 12% (of a smaller pie). We Can Make America Great Again.
Didn’t someone once say that a government big enough to give you all you want is big enough to take everything you have?
EPD,
You are quite welcome, and here’s some more!
Capital gains ALWAYS involve inflation. Unless we have a period without any inflation, which has not really occurred in the US, anyway, for decades. If inflation is 2%, then my 8% return is really only 6% on a real basis. But I’m taxed on all 8%.
Now imagine that your investment has a total return of only 5%, and inflation was 3%. In this case, you pay more taxes on the inflationary gain than you do on the real gain!
Sorry, I don’t have any real opinion on your tax proposal. I would be OK with taxing consumption instead of income, but am uncomfortable having both VAT and income tax. The way I see it, the more levers you give politicians to pull, the more they will pull. And the more tax revenue they get, the more they will spend.
European VAT’s started out low, but now many are 20-25%. That is just how government typically works.
John
EPD,
In your other comments, you ask how much tax the bottom half should pay. I’m OK with lower-income people paying a lower rate, but object to it being zero (or negative). Right now, 45-50% of Americans pay no federal income tax. That seems potentially corrosive for a self-governed country.
Make everyone but the bottom 10%, maybe 15%, pay some taxes, even if low. Give more people a stake in their government.
John
[…] Since my job is to proselytize on behalf of economic liberty, I’m always trying to figure out what motivates people. To be blunt, I’ll hopefully be more effective if I understand how they decide what policies to support. That’s a challenge when dealing with my friends on the left since some of them seem to be motivated by envy. […]