Sam Harris' Comments on Inequality

In a blog post here Sam Harris argues that redistribution and taxation should not be ruled out on the basis that taxation is a form of theft.  His argument is that markets are not completely efficient.  Which of course is true but irrelevant.  Political institutions are not either.  Would any serious political philosopher suggest that because of this we should implement anarchy?

At another point in the essay, he points out that the rich need not spend all of their wealth immediately.

Granted, there will be some limit to how fully wealth can concentrate in any society, for the richest possible person must still spend money on something, thereby spreading wealth to others. But there is nothing to prevent the ultra rich from cooking all their meals at home, using vegetables grown in their own gardens, and investing the majority of their assets in China.  

Of course if rich people were to act this way they would provide tremendous material benefit to the people of China and not much to themselves.  This would have the effect of driving up wages in China.  Now in  a democracy it is impossible to prevent people from voting so as to enrich themselves at the expense of people in China.  However, we there is no reason for us to see this as an admirable trait.  Any ethicist who takes such a stand ought to be ashamed.

Now, of course it is the case that Warren Buffet has made comments on the same subject and taken much the same position.  Sam Harris rightly pointed out that Warren Buffet and Bill Gates have about $50 billion each.  Mr. Harris seems to be making a consequentialist case that they should pay more in taxes.  If so we would have to argue that the things that the government of the U.S. tends to spend money on do more to promote human well being than the things that Mr. Buffet and Mr. Gates spend money on.  I don't think that this is immediately obvious.

We would have to acknowledge that by taking the money from the rich we are hurting people in other countries.  More of this wealth would go to charity abroad than if the U.S. government took it and spent its paltry amount on foreign aid, much of which would support the military of foreign countries.  We also need to point out that intergovernmental transfers of this sort undermine democracy in the recipient countries.

The great bulk of money collected by the federal government goes to retirees and to the military, and thus does little to help people in other countries.  Even if the rich gave none of their money to overseas charities and kept it all, which is to say that they invested it all, some of the money would be invested in other countries.

On the point that the rich pay a disproportionately low proportion of taxes, this points out nothing about the inherent justice of taxation.  If it is unjust to tax, then workers shouldn't have to pay taxes any more than investors should.  Conservatives may well hold the opinion that taxation and redistribution are inherently unjust, but I don't see them implementing this as a policy program.  However, I suspect that there are several points that have been overlooked on this subject.

Investments that rich people make in corporations are subject to corporate as well as individual taxation.  In the U.S. corporate income taxes tend to be higher than in many other countries.  While it is true that capital gains are taxed at a lower rate most people fail to take into account that much of this income is an illusion created by inflation.  Capital gains is income that investors make as a result of an increase in the value of an asset.  The asset is sold at a higher price than it cost at the time of purchase.  However because of inflation it is not necessarily the case that there is an actual increase in wealth.  For the purposes of computing this income the purchase price is not adjusted for inflation.

Let's say that we have a rich man who earned all of his money by capital gains.  He made 10% in nominal terms but his real rate of return was 7.5%.  He was taxed at a 15% rate that was really a 20% rate.  In addition to this he indirectly pays corporate income tax at a 35% rate.  In contrast we have a worker in the 25% bracket who is unfortunate enough to have to pay payroll taxes at a rate of 7.5%, which is really a rate of 15%.  In all justice we should include the proportion of the tax on the employer as a tax on the employee since it will have the exact same effect.  Corporate income tax does not apply since wages are included as an expense, unlike dividends.

Now is it really correct to say that a rich man who pays a 20% tax rate on top of a 35% tax rate is paying taxes at a lower rate than someone who pays a 25% tax rate on top of a 15% one.  Poorer workers will be in the 10% or 15% brackets, and some may actually benefit from the earned income tax credit.  It is true that the payroll tax is regressive.  It starts taxing on the first dollar earned and has a cap at a certain amount.  However, the income tax allows everyone to earn a fixed amount before taxes kick in.  That fixed amount is a larger proportion of the income of the poor.

Warren Buffet presented a case where some rich people turn a fast profit on which they pay taxes at a 15% rate:

Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.

However, this is not the investment strategy that made Mr. Buffet rich.  He chose to invest for the long term.  It seems to have worked out very well for him.  The truth of the matter is that these strategies are unlikely to produce consistent results.  You are taking a gamble.  You might make money, but on the other hand you might lose money.  On the whole, the tax code does not reward risk.  Quite the contrary, risk is punished.  If you are lucky and win, the government takes a proportion.  When you lose, it is possible to have some of your losses count against gains that you make in other years, but there are limits to this.

If it were the case that our tax code were genuinely regressive, then this would be a serious moral issue.  Perhaps you could argue against regressive taxation on deontological principles.  Regressive taxation might be seen as inherently unjust regardless of the actual consequences.  However, that is not the situation we are facing.  Mr. Buffet's analysis is incomplete in that it ignores corporate income taxes and fails to take into account the illusory nature of some capital gains income.  A consequentialist analysis needs to take into consideration the effect that taking money from the rich would have on workers and potential recipients of charity abroad as well as in our own country, which Mr. Harris has failed to do.  Neither case has been adequately made.