Mark Thoma invites us to consider whether the it is right that wealth, as a result of genetic factors or luck should be taxed. There are two key issue in the Economist excerpt quoted. Firstly, that the creation of a talent based meritocracy is creating a divide between the talented elite and the rest, because of the huge financial rewards now dependent on talent. Secondly, Mark Thoma asks whether it is right, then for the fruits of such talent to be taxed (implying that talent, to an extent is a bad)?
One of the arguments for talent (and its rewards) being unjust is that it is genetic and thus the individual benefits not from something they did, but something their parents were; in abstract therefore, it is no different to a hereditary peerage say. Accepting such a view however requires being heroically cavalier with the facts about genes and their effects. In particular it requires accepting that old chestnut of the nature-nurture debate. The flipside of the ‘genes are a bad basis for distributing wealth’ argument is that society is a better basis. Polar opinions are usually wrong and this is no exception.
There is no nature-nurture dichotomy. A particular genetic endowment may or may not be realised into its full potential depending on a host of environmental factors and yes, luck. A short person may not stand a better chance than a tall person at being a wealthy basketball star, but a person shorter than a very tall person will stand a better chance if they practice, and are supported by good coaching and advice. ‘Good’ genes are thus no guarantor of success and ‘bad’ genes are no harbinger of doom. Clearly the environment has a role to play, so the casual apportionment of wealth creation into “government created - individual created” buckets is not possible.
A taxation policy to reduce inequality does not, should not and indeed could not, in my mind, rely on any empirical observations about the causes of wealth. It should reflect our beliefs and preferences about the kind of society we would like to live in. We do not get our morals from our ‘nature’ so the last thing we should do is base our taxation policies on it.
I think Krugman’s parable about the society of fishermen and gold prospectors has it about right. Even if the gold prospectors’ wealth is the result of some genetic ablity that allows better discrimination between dust and dirt, as well as great effort on their behalf, then the resulting outcome for society is no more ‘right’ or ‘wrong’ than any other alternative outcome. I happen to believe that where luck is involved, then it is OK to tax, if only because I do not want to live in a society where people suffer because of bad luck. Many young workers in London today cannot buy a house, yet I, through no effort on my part was able to buy in the early part of the boom purely because of the demographic I’m in.
What of any disincentive effects if we are seen to be taxing luck or talent? I think these would be minimal in a democractic society and as the Economist explains, these should be offset by greater incentives to get an education. Ultimately, policies designed to deal with any abuse or centralisation of talent need not in principle be any different to those designed to deal with natural resources. We should ensure fair and open access to those mechanisms: scholarships to the poorest students for the best universities; improvement in education all round; access to credit and markets so individuals can exploit their talents, however idiosyncratic, for their own ends.
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