Philosophy professor Kwame Appiah has an interesting piece in today’s Washington Post about the psychology and economics of fairness. Also, he cites Thomas Schelling, which I am always a big fan of. Here’s the first part of the essay:
Is the U.S. tax code fair? That question is always in the air at this time of year, as Americans grumblingly prepare their tax returns and politicians promise them gentler, or at least more equitable, tax policies in the future. But how do we decide what’s “fair”?
It’s a trickier question than it appears at first. Over the past few decades, behavioral economists and social psychologists have shown that our sense of fairness is both powerful and easily manipulated.
In the 1970s, the Nobel Prize-winning economist Thomas Schelling used to put some questions to his students at Harvard when he wanted to show how people’s ethical preferences on public policy can be turned around. Suppose, he said, that you were designing a tax code and wanted to provide a credit — a rebate, in effect — for couples with children. (I’m simplifying a bit.) In a progressive tax system such as ours, we try to ease the burden on the less well off, so it might make sense to adjust the child credit accordingly. Would it be fair, do you think, to give poor parents a bigger credit than rich parents? Schelling’s students were inclined to think so. If the credit was going to vary with income, it seemed fair to award struggling families the bigger tax break. It would certainly be unfair, they agreed, for richer families to get a bigger one.
Then Schelling asked his students to think about things in a different way. Instead of giving families with children a credit, you’d impose a surcharge on couples with no children. Now then: Would it be fair to make the childless rich pay a bigger surcharge than the childless poor? Schelling’s students thought so. But — hang on a sec — a bonus for those who have a child amounts to a penalty for those who don’t have one. (Saying that those with children should be taxed less than the childless is another way of saying that the childless should be taxed more than those with children.) So when poor parents receive a smaller credit than rich ones, that is, in effect, the same as the childless poor paying a smaller surcharge than the childless rich. To many, the first deal sounds unfair and the second sounds fair — but they’re the very same tax scheme.
The article goes on to argue that the Republicans manage to win the repeal of the estate tax not because of a clever renaming (“death tax”) but rather based on arguments that the income had already been taxed once. It was unfair, they argued, to tax it a second time. It’s strange to think that a cut that gave money back to only the top 2% was won on the grounds of fairness, but there it is. Maybe one lesson we can draw from this is that, in some sense, fairness is in the framing, not the substance. That reasoning places a high explanatory weight on rhetoric, but what else can we do when, as Schelling artfully demonstrates, the exact same policy position can sometimes be made to sound incredibly fair and progressive, or incredibly unfair and regressive.
Or perhaps there are some differences we can think through – the estate tax repeal created a specific redistribution effect (towards the super rich from everybody else). So somehow there was a notion of procedural fairness in the estate tax debate (not taxing income twice, combined with money transfers within a family not being some form of payment) that did battle with a notion of distributive or substantive fairness. In this case, process won out, but it’s harder to say then that it was simply fairness vs. unfairness. I would like to see some evidence that defenders of the estate tax really used the language of self-interest to argue against the repeal. Even so, these arguments are always so messy. Attributing causation to rhetoric or ideas seems to be really tricky. What a shocking conclusion…