Wait … Was the Sheriff of Nottingham Somehow the Good Guy?

Posted in: Tax and Economics

For now, the debate over taxes has subsided in this country. Congressional Republicans pushed through a hugely regressive tax bill in December—after holding no hearings and without even allowing members to understand what they were voting on—and Donald Trump happily signed the bill as the only notable legislative win of his presidency.

Republicans were wrong to predict that people would gratefully notice the tax reductions on their pay stubs—because, among other things, health care cost increases are larger than the small tax cuts that most Americans are receiving—making a political mockery of all of the Republicans’ efforts to impress people with a few extra dollars of pocket change while massively distributing money upward. (Maybe they should have fixed the health care system rather than constantly trying to undermine it? But I digress.)

Despite this failure, as I discussed in a recent column, some Republicans are already gearing up for another round of tax cutting. Why would they do that when it turns out that their most recent tax cut is widely unpopular (except among their small core of voters, who would never abandon them in any case)? Why do conservatives, both on Capitol Hill and across the country, never tire of pushing their regressive tax-cutting agenda?

The Big Debate Is About “Your Money”

There are plenty of reasons Republicans are so fixated on tax cuts, most of which are deeply cynical and are driven by the way that Republicans have so completely turned themselves into the handmaidens of the superrich. Here, however, I want to focus on the core disagreement between conservatives and everyone else about the ethics of taxation.

It seems that every Republican politician tries to get people on his side by saying that “the government should let you keep your money,” or any of a number of variations on that theme. Why is that such a key rhetorical move, and why is it so fundamentally misguided?

The key liberal/conservative split in the area of economics—not only taxes, but spending and regulation as well—boils down to concerns about economic distribution. Liberals decry the persistence of poverty and extreme divergences in wealth. Conservatives try to fend off efforts to change those fundamental realities.

When I write about conservatives’ tax proposals, I frequently invoke the image of Republicans as “reverse Robin Hoods.” Their policy druthers, captured perfectly in the most recent tax bill, always involve cutting taxes on rich people and the businesses that they control and manage. Republicans are eager to take from the poor and give to the rich.

These regressive tax cuts are often justified by sprinkling on some trickle-down fairy dust, but in the end, the conservative argument is not about efficiency but morality. It is, again, about the government taking things from people. Do you want to keep “your money”? So do rich people!

But that moral stance can only be justified if one believes that rich people’s wealth was deserved in the first place. And that, it turns out, cannot be proved as an objective matter. In the end, the Republicans’ argument boils down to the tautology that rich people deserve what they have because they have it.

The Baseline Problem: Is This the Best of All Possible Worlds?

One of the most important books written in the area of tax policy in recent years is The Myth of Ownership, published in 2002 by Liam Murphy and Thomas Nagel. Even though Murphy and Nagel are legal philosophers and not tax scholars, their book became an instant phenomenon among those of us who study taxes.

Their core idea—which they are the first to say is not “new” in any sense, because these debates have been running along similar lines literally for centuries—is that no one “owns” their before-tax income. The government does not own it, society does not own it, and most importantly, the people who see a number next to “gross income” on their pay stub do not own it.

Is that some kind of radical collectivism? Not at all. Murphy and Nagel are merely pointing out a fact, not expressing an opinion, and the fact is that before-tax income cannot be owned by anyone because it is entirely hypothetical. That is, if there were no taxes, people would not continue to receive the same gross pay, because no taxes would mean that there was no government, which would mean that there was no economy (because contracts could not be enforced, property would not be protected, and so on). Your income—everyone’s income—depends on the existence of the rule of law, enforced by a government.

How much a government collects in taxes, and from whom, will change people’s apparent pre-tax incomes, not merely their take-home pay. For example, as Republicans discovered to their dismay, their poorly drafted 2017 tax law nearly drove certain farm-dependent businesses into bankruptcy, because that law (which Republicans later scrambled to fix) favored farm cooperatives over competing businesses.

The disfavored businesses, then, learned that their pre-tax income could have been reduced to zero by this new law, even though they were the beneficiaries of other regressive changes in the law. What they thought was “their income,” it turns out, was not only in danger of being subject to taxation. It was, in fact, quite possible that their income would disappear entirely—not because the government confiscated it, but because the government changed the rules of the game in a way that made their businesses unviable.

This is the “baseline problem” in miniature. People take for granted the idea that the rules of the game were somehow created outside of the political process, even though every aspect of what we do in fact depends on rules that were forged in a political crucible.

And it is not only the tax laws that are at stake, although Murphy and Nagel understandably chose to focus only on the tax system. (They already had a book’s worth of analysis on their hands!) Every law that currently exists could be changed in ways that would affect what people think of as theirs.

This also applies to accumulated wealth, not just salaries and other income. The money that I have put into my 401(k) retirement accounts is “mine” in the current legal sense, but Congress could change the laws governing those accounts in myriad ways. Not only could those accounts be taxed at higher or lower rates, but financial behemoths could be allowed to plunder my accounts through changes in fees and hidden charges.

Skeptical? Just ask the people who did not open accounts at Wells Fargo but were charged fees on those phantom accounts. Or think about the people whose homes were repossessed by banks that lacked the legal right to do so, yet the legal system (that is, the government) did not stop those repossessions.

If the baseline of laws determines who owns what—and, for that matter, what counts as property in the first place—as well as people’s ability to earn incomes that might or might not be taxed, then how would we know what to defend as rightly ours? If one environmental rule would make wind farmers richer and oil drillers poorer, a different rule could make both richer, and a third rule could bankrupt all of them (but make, say, bicycle manufacturers richer), who can say what is the right set of rules so that we know who deserves what?

Back to Sherwood Forest

When I use the reverse-Robin Hood literary reference, I occasionally receive negative comments from a few readers along the lines of: “Tax cuts for rich people are not reverse-Robin Hood, because the government is just letting rich people keep their money.”

But this simply misunderstands the Robin Hood story. Robin “steals from the rich to give to the poor,” but it is “stealing” only because the evil usurper Prince John has set up the legal rules so that he and his elites can own everything. The whole point of the story is that “their money” is not rightly theirs, even though they have made it legally theirs.

It is thus truly extraordinary for anyone to say that a government that takes from the non-rich to give to the rich, as Republicans are now doing, is merely setting things right. The Sheriff of Nottingham could honestly say that he was “just doing my job,” but the reason that the Robin Hood legend continues to resonate is that people understand that the rules under which law enforcers do their jobs are contestable, not God-given.

This means that modern democracies, which often “redistribute” income and wealth—and I use scare quotes there because the initial distribution from which we are deviating is what cannot be taken as a given—are not stealing from the rich at all. They are deciding what rules should govern how people become rich and whether those rules benefit the many or the few.

An egalitarian democracy is not, however, merely one possible social arrangement that is neither more nor less morally defensible than the current rules that so overwhelmingly favor the rich. Robin Hood’s approach is morally superior because it refuses to justify continuing human misery as a (possibly regrettable, but nonetheless unchangeable) fact of life. Even more importantly, fairer economic distribution brings the benefits of capitalism to the masses. As one policy analyst recently wrote:

Democracy is fundamentally about protecting the middle and lower classes from [upward] redistribution by establishing the equality of basic rights that makes it possible for everyone to be a capitalist. Democracy doesn’t strangle the golden goose of free enterprise through redistributive taxation; it fattens the goose by releasing the talent, ingenuity and effort of otherwise abused and exploited people.

I never imagined when I was growing up that people would think that Robin Hood and his merry men were the bad guys. But the only way to argue that rich people must never be made less rich, as a matter of morality, is by saying that there is only one set of possible rules, and it is right and good (and irreversible) that the winners won.

Fortunately, most people know who the villain was in Sherwood Forest. And it most definitely was not the guy in green tights.

Comments are closed.