WRT “declining marginal utility of money”, I think this is over hyped. Rich people don’t consume dramatically more than those in the middle class. To the extent that they spend their “excess” income on charity or investment, the marginal utility of those dollars is possibly higher than giving the same money to a already well-off middle class family.
First, there are more than two levels here. UBI would alleviate a lot of suffering for the poor and working class, but realistically the middle class (definitions vary, but Pew defines it as 2/3x to 2x the local median income, so I’ll go with that) will have to see no change or a decrease, since creating a UBI doesn’t create net income in the economy (and that range includes mean as well as median income, and a UBI would bring those two numbers closer together).
And if you truly believe that wealthy people’s charity and investment dollars have, on net, higher marginal utility than the same dollars in someone else’s hands, doesn’t that make it much harder to argue for a UBI? Whether tax rates are flat (or VAT) or progressive, the level needed to support a UBI will reduce wealthy people’s income relative to the poor and working class, but a progressive rate leaves the middle class better off. That means potentially less charity (but also less need for certain forms of charity), and less investment (but more people with the means and resources to become entrepreneurs at less personal risk, less resistance to automation, and greater ability for people to move and change jobs and improve their own lives). After so many points arguing (correctly, I think) about the equivalence of taxation and subsidy, I found it jarring to see support for a UBI but opposition to progressive taxation.
That said, I do think progressive taxes can cause lots of unwanted side effects in our current system, where lots of government support programs phase out right around the same income levels, creating ridiculously high effective tax rates that make it uneconomical for some poor people to accept raises or better jobs.
Mostly, though, I worry about flat tax systems because when the wealthy save and invest more, wealth inequality goes up, and when they use that wealth to buy political influence, soon whatever UBI you set up suddenly won’t get increased to keep pace with overall economic growth. It’s more unstable in the presence of self-interested actors. That’s basically been a central story in (US and many other countries’) politics for the past 40 years or so, and for most of the thousands of years leading up to the early 20th century.
Or similarly: if you want to argue for what tax policy is less distortionary, it would help me (maybe it’s obvious to others, but not to me) if you could better define the reference non-distorted state? It almost sounds like you’re saying the reference state is zero taxation (which I know you know doesn’t make any sense, but that seems like the reference state from which a flat tax is a minimal distortion). But of course no such economy, at least no industrial economy, of that type has ever existed, and if it did it would quickly collapse (at least without a huge number of ancillary changes that would make it, perhaps not unrecognizable, but extremely different from today). And afterwards, whatever wealth and income distribution you’d be applying the flat tax to, would be a very different distribution from what exists today.
There’s a lot to get into here, maybe I will start a separate post about “ideal tax policy”.
I think the “ideal” reference case for non-distortionary tax policy is one with zero taxes in which all public services are provided for by a magic genie somehow.
First, there are more than two levels here. UBI would alleviate a lot of suffering for the poor and working class, but realistically the middle class (definitions vary, but Pew defines it as 2/3x to 2x the local median income, so I’ll go with that) will have to see no change or a decrease, since creating a UBI doesn’t create net income in the economy (and that range includes mean as well as median income, and a UBI would bring those two numbers closer together).
And if you truly believe that wealthy people’s charity and investment dollars have, on net, higher marginal utility than the same dollars in someone else’s hands, doesn’t that make it much harder to argue for a UBI? Whether tax rates are flat (or VAT) or progressive, the level needed to support a UBI will reduce wealthy people’s income relative to the poor and working class, but a progressive rate leaves the middle class better off. That means potentially less charity (but also less need for certain forms of charity), and less investment (but more people with the means and resources to become entrepreneurs at less personal risk, less resistance to automation, and greater ability for people to move and change jobs and improve their own lives). After so many points arguing (correctly, I think) about the equivalence of taxation and subsidy, I found it jarring to see support for a UBI but opposition to progressive taxation.
That said, I do think progressive taxes can cause lots of unwanted side effects in our current system, where lots of government support programs phase out right around the same income levels, creating ridiculously high effective tax rates that make it uneconomical for some poor people to accept raises or better jobs.
Mostly, though, I worry about flat tax systems because when the wealthy save and invest more, wealth inequality goes up, and when they use that wealth to buy political influence, soon whatever UBI you set up suddenly won’t get increased to keep pace with overall economic growth. It’s more unstable in the presence of self-interested actors. That’s basically been a central story in (US and many other countries’) politics for the past 40 years or so, and for most of the thousands of years leading up to the early 20th century.
Or similarly: if you want to argue for what tax policy is less distortionary, it would help me (maybe it’s obvious to others, but not to me) if you could better define the reference non-distorted state? It almost sounds like you’re saying the reference state is zero taxation (which I know you know doesn’t make any sense, but that seems like the reference state from which a flat tax is a minimal distortion). But of course no such economy, at least no industrial economy, of that type has ever existed, and if it did it would quickly collapse (at least without a huge number of ancillary changes that would make it, perhaps not unrecognizable, but extremely different from today). And afterwards, whatever wealth and income distribution you’d be applying the flat tax to, would be a very different distribution from what exists today.
There’s a lot to get into here, maybe I will start a separate post about “ideal tax policy”.
I think the “ideal” reference case for non-distortionary tax policy is one with zero taxes in which all public services are provided for by a magic genie somehow.