Not Every Damn Thing is a Morality Play

In his new gig at Slate’s Moneybox, Matthew Yglesias asks an interesting question.  The Obama administration has suggested that next year’s payroll tax extension be paid for by imposing a 3.25% surtax on all income over $1 million.  Predictably, the Republicans’ opposition to this measure rests in part upon the argument that imposing this surtax will “hurt small businesses.”

Yglesias asks

[W]hat difference does it make?  My assumption is that the guy who owns the liquor store across the street from my apartment is earning a pretty modest living with his modest small business.  But what if he’s actually earning $5 million a year?  Why would [the fact that he is a small business owner] matter for tax policy?

I think the question Matt asks is interesting because it highlights the truly dysfunctional manner in which we discuss things like tax policy in this country.  Specifically, while the rest of us are debating practical solutions to value-neutral problems, Conservatives seem incapable of debating anything but who are the sinners and who are the saved in some vast morality play that only they can see unfolding.  Consequently, large swathes of the American population – who think they are all talking about the same thing – are really talking past each other.

My sense is that most ‘reality-based’ economists (the mainstream press calls such people “liberals”) look at tax policy, monetary policy, and fiscal policy simply as the source of potential solutions to whatever particular economic problems – high unemployment, a sluggish economy, deflation, inflation, tight credit, etc. – we happen to be facing at the moment.  Such people suggest enacting policies that are designed to resolve technical problems with the economy, not to resolve moral imbalances in the economy.

Conversely, the more ideologically driven ‘conservative’ economists (and the politicians who channel such people) look at tax policy, monetary policy, and fiscal policy only through the lens of morality.  Taxes are punishment – not merely a way to raise revenue – and therefore should never be raised on the wealthy, because it is unjust to punish people for their success.  Monetary policy should be devoted only to stamping out inflation because inflation devalues the money owed by debtors, thereby allowing them to “evade” their obligations to their bettors.  And fiscal policy must never be used to assist the less fortunate, because the market in its infinite wisdom rewards the deserving and punishes the undeserving, and if some people suffer hardship then that hardship is undoubtedly the wages of their sloth and incompetence.

When Obama proposes a surtax on millionaires’ income, Republicans reflexively recoil from what they perceive to be a punishment of the Chosen Elect.  But they still haven’t been able to convince the rest of the country that to be Rich is automatically to be Good, and so they cannot oppose Obama’s proposal on those grounds.  Instead, they substitute “small business” for “millionaire” and then make the same argument.

It works like this:  (i) small businesses are “good,” and (ii) taxes are punishment, now therefore (iii) raising any tax that might impact small businesses would be wrong.  There are a lot of holes in this argument, but by far the most egregious one is (ii):  “taxes are punishment.”   Unfortunately, this is precisely how a great deal of the country views taxes.

Of course, if someone is earning more than $1 million operating as a small business, that person is still earning $1 million.  Yglesias is correct when he points out that whether we tax millionaire CEOs or millionaire liquor store owners (if such things do, in fact, exist) makes no difference at all.  The point is that we will be levying taxes on income so high that the small surtax paid will have no contractionary effect on the economy. 

But Conservatives have, unfortunately, persuaded a lot of us that taxes are somehow “punishment” and not “the revenue we need to keep the system going.”  I understand the very human impulse to explain things to ourselves via a narrative that has good guys and bad guys, right and wrong, but neither tax policy nor fiscal policy nor monetary policy decisions should be driven by such narratives.

We’d probably find it easier to act rationally if we didn’t always import into our decision-making the assumption that every decision must involve identifying and punishing some wrongdoer.