Should effective altruists work on taxation of the very rich?

Robert_Wiblin15 Feb 2016 12:42 UTC
20 points
18 comments6 min readEA link

Fancy

A criticism effective altruism has faced is that, by encouraging individual donations, we weaken support for obligatory taxation on the rich to fund alleviation of poverty, public goods, and other valuable projects.

I think the criticism is misguided. While we encourage individual donations, the vast majority of us would also favour taxation to fund the same goals, inasmuch as we can hope the government would spend the money effectively. Indeed, if you become convinced that you have a duty to give your money to help others, wherever those others may be, and whether or not your peers are doing the same, you are surely more likely to think compulsory taxation would be justified to fund the same. It’s not for nothing that ’myths about aid″ was one of the first and most visited pages on Giving What We Can’s site.

The main exception here would be strict deontological libertarians—a small minority anywhere except libertarian conferences.

But it is the case that taxation of the wealthy has not been a major focus of our attention. Given the large amounts owned by the top 1% - in the US they receive 20% of all income and own about 35% of all wealth, an amount equivalent to 2 years of national output—perhaps this is an oversight.

What arguments could be made in favour of largely ignoring this issue—perhaps the most topical of all political questions over the last few years?

  1. Because the issue is so topical, it is not neglected—by the general public, politicians, or researchers. Effective altruists weighing in on the issue can therefore have little impact on the outcome.

  2. Governments spend much of their money on things that we regard as ineffective, or at least much less effective than the most valuable projects. This is because voters in the richest countries tend to vote for things that will benefit them (at best), and they are not the most needy groups. In some cases they even fund things we would regard as harmful, such as reckless military adventurism, excessive surveillance, or police brutality. Levying taxes on the rich may indeed raise a great deal of money, but if it is spent poorly, it will not do a commensurate amount of good.

  3. The very rich by nature have ample resources to fight against higher taxes, making the issue less tractable.

  4. The lack of international coordination which would facilitate higher taxes on the very rich, is very difficult to fix, because any one country can make money by defecting and becoming a tax haven. In the absence of coordination, raising tax rates on the very rich would raise much less, and instead simply distort where the very rich choose to live and invest, and what they consume.

  5. Because of the above, we are better off trying to persuade the very rich that they ought to give up their wealth to help others voluntarily—whether because they believe doing so is moral, exciting, entertaining or merely fashionable. This approach seems to have born some fruit already judging by the large levels of philanthropy among ‘tech billionaires’.

I think the above makes for a somewhat persuasive case. On the other hand, what arguments might be fielded in favour of working on taxation of people with very high incomes?

  1. If you want to steal money, you rob banks, because that is where the money is. If you want to raise money to fund valuable services, it is natural to think about how to tax the very rich, because they hold a large and growing share of all income and wealth. The top 0.1% own some 20% of all the wealth owned by Americans—literally tens of trillions of dollars. This amounts to 1-2 trillion dollars in annual returns on capital each year. While it is hard to know the appropriate comparison, this is obviously orders of magnitude larger even than all donations expected from Bill Gates, Mark Zuckerberg, Dustin Moskiwitz, and others. Annual inheritance flows amount to 10-15% of GDP and rising in France, where record-keeping is best, with well over half of all wealth having been inherited rather than earned through work.

  2. There is a precedent for improvements in public financing to transform society. The rise of fiat money, government bonds and the progressive income tax each allowed for a dramatic change in the scale and activities engaged in by governments. Though these dramatic shifts cannot be repeated for rich countries, where government spending already accounts for 30-50% of all spending, better taxation on the rich could still raise significant sums—vastly more than we are likely to move to charities. In the coming 60 years many rich countries will face major fiscal strains as they try to balance high pension and healthcare liabilities with slowly growing populations and productivity; better taxation of the rich could lower the risk of serious social unrest.

  3. Developing countries, which raise much less of their national income in taxation, could also benefit from better techniques for taxing their own wealthy (both now and in the future). Because of poor infrastructure for tax collection and weaker respect for the rule of law, large fractions of income in these countries received by the very wealthy is hidden in tax havens, ensuring the country sees none of the principal, nor any future returns on capital. These are the countries which can do the most good with further tax revenue, to fund health, education, cash transfers, and so on. The gains in some cases are also ill-gotten due to poor governance of income from natural resources, botched privatizations in the ex-USSR, etc. Some estimates of hidden wealth of this kind suggest it is a very large sum − 5-10% of global financial wealth.

  4. Various factors in the dynamics of capital accumulation, such as a growth in the global capital stock to income ratio over the last 70 years, the rise of very highly remunerated workers in business and entertainment, and the higher rates of return on capital received by the very wealthiest investors, suggest that a growing share of wealth and income will be held by the top 1%. The value of improving taxation of this group will therefore grow over time. Barring significantly higher taxes on them now, the political power of this group will also grow progressively over time, making it harder to make any changes that disadvantage them in the future.

  5. The very wealthy (those holding over $10 million) gain virtually nothing personally from owning more. If we could take that money away, it would do them almost no harm directly.

  6. A large number of people are in favour of changing taxation arrangements for the very wealthy because of the perceived unfairness of the current income and wealth distribution. Raising taxes on the very rich is perceived to benefit a majority of voters, an advantage for any proposal in a democratic country. Given that majority support is required for such policy changes, the exact time you want to get on board is when the issue has the most popular momentum.

  7. Even conceding that the majority of government spending is ineffective, some fraction of it is spend on valuable things (helping the homeless, foreign aid, important scientific research, preventing crime, and so forth). As a result, government spending may still be tolerably on the margin.

  8. Future changes in technology (e.g. atomically precise manufacturing or artificial intelligence) may leave most human labour with no market value at all. In the absence of an effective existing infrastructure for the taxation of capital incomes to fund e.g. a minimum income, almost all income may then be received by a tiny number of unimaginably rich people, while an outright majority face starvation (unless fortunate enough to receive private charity).

  9. Research into improving understanding of the impacts of different taxes on the rich, improving details of taxation law, strengthening international tax coordination, and so on play well to our technocratic skill set.

This makes for a moderately persuasive case in favour. On balance I don’t have a strong view about this cause area one way or the other. If you’re interested in working on this cause, the most promising topics to become an economic researcher or campaigner would be:

  • Tax avoidance in the developing world (including how this is facilitated by the developed world, which can profit from it).

  • How to better coordinate taxation between countries to avoid ‘tax competition’, or the very rich shielding their wealth from any taxation in offshore accounts.

  • How to levy better inheritance taxes, wealth taxes or progressive income/​consumption taxes, with a focus on the rates paid by the very wealthiest. What negative impacts do they have? Which approaches will minimise harms, while raising public enthusiasm?

  • How can income and (especially) wealth inequality be better measured? (There is very little data on this in most countries.)

A final list of questions someone considering working on this cause should properly investigate:

  • How much of their wealth do the very wealthy ever actually spend on their own consumption? If the wealth simply accumulates and is never spent (or better, is given the charity) who owns it is less important.

  • Are the distortions created by high tax rates on the very wealthy sufficient to make them overall negative, at least in some cases (e.g. because they reduce the pool of saving available to fund businesses; discourage the most talented people from working; encourage even more aggressive tax avoidance; deter entrepreneurs or investors from attempting to start highly risky but socially valuable businesses)?

  • In which countries is it most valuable to have higher tax revenues? These would those that spend their money well on people in need and engage in little harmful violence.

Please note that this was written very quickly just to get my thoughts about this issue on the page, so apologies for any errors. Figures were mostly cited from memory. A good place for further reading would naturally be Capital in the 21st Century, the many reactions and reviews to that book, and a textbook on public finance .

Robert_Wiblin15 Feb 2016 12:42 UTC
20 points
18 comments6 min readEA link