Assorted on Height Tax;
The Optimal Taxation of Height
The problem addressed in this paper is a classic one: the optimal redistribution of income. A Utilitarian social planner would like to transfer resources from high-ability individuals to low-ability individuals, but he is constrained by the fact that he cannot directly observe ability. In conventional analysis, the planner observes only income, which depends on ability and effort, and is deterred from the fully egalitarian outcome because taxing income discourages effort. If the planner’s problem is made more realistic by allowing him to observe other variables correlated with ability, such as height, he should use those other variables in addition to income for setting optimal policy. Our calculations show that a Utilitarian social planner should levy a sizeable tax on height. A tall person making $50,000 should pay about $4,500 more in taxes than a short person making the same income.
Height is, of course, only one of many possible personal characteristics that are correlated with a person’s opportunities to produce income. In this paper, we have avoided these other variables, such as race and gender, because they are intertwined with a long history of discrimination. In light of this history, any discussion of using these variables in tax policy would raise various political and philosophical issues that go beyond the scope of this paper. But if a height tax is deemed acceptable, tax analysts should entertain the possibility of using other such “tags” as well.
Many readers, however, will not so quickly embrace the idea of levying higher taxes on tall taxpayers. Indeed, when first hearing the proposal, most people recoil from it or are amused by it. And that reaction is precisely what makes the policy so intriguing. A tax on height follows inexorably from a well-established empirical regularity and the standard approach to the optimal design of tax policy. If the conclusion is rejected, the assumptions must be reconsidered.
Our results, therefore, leave readers with a menu of conclusions. You must either advocate a tax on height, or you must reject, or at least significantly amend, the conventional Utilitarian approach to optimal taxation. The choice is yours, but the choice cannot be avoided.
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You know Rawls'd be all about taxin'im some height!
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1 comment:
This just goes to show that a brilliant economist can still use juvenile debate tactics. Mankiw repeatedly states that there are only two possible interpretations, which is the economics version of asking "have you stopped beating your wife?"
I can think of five other interpretations, and I am not even trying very hard.
1. The data confuses cause and effect. Rich people might be marrying tall, or company owners might be paying tall people more, (there is no way to tell from the data), and so the marginal utility of being tall is not quantified.
2. The data deals in averages, while the tax code should not. I pay a high tax rate on my investments, for example, but not because of the *average* returns. The productivity of my investments is based on individual returns, not averages.
3. Even though the tax code is poor tool for social policy, it tends to subsidize activities that are valued by society, such as raising children and donating to charity. Being short (or tall) is not a choice. Marginal utility theory is based on effort, not random chance.
4. Minorities and handicapped are discriminated against much more commonly than short people, yet the tax code has not been adjusted to reflect their hardships. To assume that utility theory is “commonly accepted” is silly.
5. Classic “utilitarian” tax policy charges a higher rate to high income taxpayers simply because they have a higher portion of unused income, and so more ability to absorb the cost. It is not based on their “potential” productivity as Mankiw asserts.
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