Q&A with Kenneth Scheve and David Stasavage on Taxing the Rich

Taxing the RichWho to tax, how much to tax, and what the taxes should pay for are questions sure to elicit an array of responses in today’s politically charged climate. Kenneth Scheve and David Stasavage combine forces on this comprehensive history and reflection on how the rich have (or haven’t) been taxed. Taxing the Rich: A History of Fiscal Fairness in the United State and Europe tackles what is sure to be a hot election topic using an approach that manages to showcase both sides of the often contentious issue. Recently the authors took the time to answer some questions on their book.

Why did you write this book?

KS & DS: Taxing the rich is a subject of considerable political conflict today. There has been a great deal of debate about what government should do in this area, but we know far less about the reasons why some governments actually do tax the rich and others do not. We think answering this question requires a long run historical perspective, and one that doesn’t just look at developments in the United States. Our book considers income, inheritance, and other taxes from 1800 to the present in a set of twenty countries.

What’s your main argument?

KS & DS: Countries tax the rich when the public thinks the state has failed to treat citizens as equals and in so doing has privileged the rich. [a more colloquial version: Countries tax the rich when people think the deck is stacked in favor of the wealthy and the government has done the stacking.]

Debates about taxation revolve around self-interest (no one likes paying taxes), economic efficiency, and fairness. We argue that fairness considerations center on what it means for the state to treat citizens as equals in income tax policy. Historically, there are three main fairness arguments that have been used for or against taxing the rich. Equal Treatment arguments claim that everyone should be taxed at the same rate just like everyone has one vote. Ability to Pay arguments contend that states should tax the rich at higher rates because they can better afford to pay when compared with everyone else. Compensatory Arguments suggest that it is fair to tax the rich at higher rates when it compensates for unequal treatment by the state in some other policy area. We argue that over the last two centuries compensatory arguments have been the most powerful arguments in favor of taxing the rich.

What are examples of compensatory arguments in history?

KS & DS: Compensatory arguments were important in the early development of income tax systems in the 19th century when it was argued that income taxes on the rich were necessary to compensate for heavy indirect taxes that fell disproportionately on the poor and middle class. But the most significant compensatory arguments over the last two centuries have been arguments to raise taxes on the rich to preserve equal sacrifice in wars of mass mobilization. These conflicts, particularly World War I and World War II, led states to raise large armies, often through conscription, and citizens and politicians alike adopted compensatory fairness arguments to justify higher taxes on income and wealth. Mass war mobilization led governments of both left and right to tax the rich.

When have countries taxed the rich?

KS & DS: Well, one thing our book shows is that governments haven’t taxed the rich just because inequality is high, nor have they done this simply because the poor and middle class outnumber the rich when it comes to voting. The main occasion when governments have moved to tax the rich is during times of mass mobilization for war, especially in democracies in which the norm of treating citizens as equals is held more strongly. The real watershed for taxing the rich for many countries came in 1914. The era of the two world wars and their aftermath was one in which governments taxed the rich at rates that would have previously seemed unimaginable.

How do we know that the effect of wars was due to changes in fairness considerations?

KS & DS: We show in the book that when countries shift from peace to war, or the reverse, there has also been a big shift in the type of fairness arguments made in favor of taxing the rich. During times of peace debates about whether it is fair to tax the rich center on competing equal treatment and ability to pay arguments. During times of war supporters of taxing the rich have also been able to make Compensatory arguments. If the poor and middle class are doing the fighting, then the rich should be asked to pay more for the war effort. If some with wealth benefit from war profits, then this creates another compensatory argument for taxing the rich. These compensatory arguments had the biggest impact in democracies that are founded on the idea that citizens should be treated as equals. The fact that war had a much bigger impact on taxes on the rich in democracies than in autocracies also suggests that the rich weren’t being taxed out of simple necessity. It was because war determined what types of fairness arguments could be made.

What are the implications for future tax policies in the United States?

KS & DS: Don’t expect high and rising inequality to necessarily lead to a return to the high top tax rates of the post-war era. What really matters is what people believe about how inequality is generated in the first place. If it is clear that inequality has risen because the government failed to treat citizens as equals in the first place, then there is room for convincing compensatory arguments. Today, in an era where military technology favors more limited forms of warfare — drones rather than boots on the ground — the wartime compensatory arguments of old are no longer available. Absent new compensatory arguments, we expect some to argue for taxing the rich based on ability to pay, but this probably won’t suffice to produce radically higher tax rates. More politically plausible reforms include those that involve increasing taxes on the rich by appealing to the logic of equal treatment to remove deductions, exemptions, and cases of special treatment.

Kenneth Scheve is professor of political science and senior fellow at the Freeman Spogli Institute for International Studies at Stanford University. He is the coauthor of Globalization and the Perceptions of American Workers. David Stasavage is Julius Silver Professor in the Wilf Family Department of Politics at New York University. He is the author of States of Credit: Size, Power, and the Development of European Polities (Princeton). Together they wrote Taxing the Rich: A History of Fiscal Fairness in the United States and Europe.

Jason Brennan: Our relationship to democracy is nonconsensual

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Democracy Doesn’t Rest on the Consent of the Governed

By Jason Brennan

There’s a popular idea—an idea you might get from middle school civics classes—that democracy is based on the consent of the governed. Now, democracy is more responsive to what people want than other forms of government, and it gives the governed a large say in what happens. However, it’s a mistake to say that the relationship individual citizens have to their government in a democracy is consensual. Let’s think about why.

Recently, I purchased a Marshall JVM amplifier from a dealer. It was an archetypical consensual transaction. It had each of the following features:

A.       I performed an act that signified my consent. In this case, I ordered the amplifier. The outcome—that I lost money but gained a JVM—would not have occurred but for my performing the act that signified consent.

B.       I was not forced to perform that act—I had a reasonable way to avoid doing it.

C.       Had I explicitly said, “I refuse to buy a Marshall JVM at that price!” the exchange never would have taken place.

D.       The dealer was not entitled to take my money unless it sent me the amplifier—it had to hold up its end of the bargain.

Now, imagine that any one of these conditions didn’t happen. Suppose, instead of A, that the dealer just extracted money from my bank account and sent me the amp, even though I’d never placed an order. In that case, that would be strange kind of theft. The dealer would have taken my money without my consent. Suppose, instead of B, the dealer (or someone else) had said, “Buy this amp or I’ll murder you.” In that case, we still wouldn’t call it consensual—it would be a weird form of theft. Suppose, instead of C, I tell the dealer, “I absolutely refuse to buy a JVM!,” but the dealer just sent it to me anyways. In that case, it would have been like it had given me a gift without my consent. If they then sent me a bill, I wouldn’t have any duty to pay it, since I’d told them I didn’t want to buy the amp. Suppose, instead of D, the dealer takes my money but never sends the amp. In that case, it would be fraud. In each of these cases, the transaction would not be consensual.

In general, our relationship as individuals to our government doesn’t look much like a consensual relationship.

If you don’t vote or participate, your government will just impose rules, regulations, restrictions, benefits, and taxes upon you. Except in exceptional circumstances, the same outcome will occur regardless of how you vote or what policies you support. So, for instance, I voted for a particular candidate in 2012. But had I abstained or voted for a different candidate, the same candidate would have won anyways. This is not like a consensual transaction, in which I order a JVM and the dealer sends me the amp I ordered. Rather, this is more a like a nonconsensual transaction in which the dealer decides to make me buy an amp no matter whether I place an order or not, and no matter what I order.

If you actively dissent, the government makes you obey its rules anyways. For instance, you can’t get out of marijuana criminalization laws by saying, “Just to be clear, I don’t consent to those laws, or to your rule”. This is unlike my relationship with my music gear dealer, where “no” means “no”. For government, your “no” means “yes”.

You have no reasonable way of opting out of government rule. Governments control all the habitable land, and most of us don’t have the resources or even the legal permission to move elsewhere. Governments won’t even let you move to Antarctica if you want to. At most, a privileged few of us can choose which government we live under, but the vast majority of us are stuck with whatever government we’re born with. This is unlike buying an amp from Sweetwater.com, which, by the way, I highly recommend as a dealer.

Finally, governments require you to obey their rules, pay taxes, and the like, even when they don’t do their part. The U.S. Supreme Court has repeatedly ruled that the government has no duty to protect individual citizens. Suppose you call the police to alert them that an intruder is in your house, but the police never bother dispatch someone to help you, and as a result the intruder shoots you. The government still requires you to pay taxes for the protection services it chose not to deploy on your behalf.

So, in summary, it looks like in general our relationship to our governments lacks any of the features that signify a consensual transaction.

None of this is to say that governments are unjust or illegitimate, or that we ought to be anarchists. There are other reasons to have governments. Nor is it to say that democracies are not in some way special. Democracies in fact do a much better job than alternative forms of government of responding to their concerns and interests of most of their members. But it’s a stretch to say that democracy rests on the consent of the governed, or, more precisely, it’s a stretch to say that you consent to democratic rule.

Check out Jason Brennan’s recent post on Why Smart Politicians Say Dumb Things.

Jason Brennan is Flanagan Family Associate Professor of Strategy, Economics, Ethics, and Public Policy at the McDonough School of Business at Georgetown University. He is the author of Markets without Limits, with Peter Jaworski (2015), Why Not Capitalism? (2014), Compulsory Voting, with Lisa Hill (2014), Libertarianism (2012), The Ethics of Voting (2011), and A Brief History of Liberty, with David Schmidtz (2010). He is currently writing Against Democracy, under contract with Princeton University Press, and Global Justice as Global Freedom, with Bas von der Vossen.

Why Government Fails So Often: Or, the Skeptics Are Winning

7-17 SchuckAccording to The New York Times‘s David Leonhardt, the United States federal government gets an honorable mention when it comes to reform, innovation, and protection – but it’s not quite enough. In a recent op-ed for “The Upshot,” the paper’s politics and policy blog, Leonhardt pays due diligence to the large-scale achievements of the United States: dismantling totalitarian governments, putting men on the moon, and the invention of the Internet among them. And yet, despite our big picture success stories, we continue to stumble in the day-to-day.

Leonhardt references Yale Law professor and Princeton University Press author Peter Schuck’s latest book, Why Government Fails So Often: And How It Can Do Better in evaluating the current role of the federal government and the extent to which its activity is productive and beneficial, particularly when it comes to the siphoning of federal funds.


“When the federal government is good, it’s very, very good. When it’s bad (or at least deeply inefficient), it’s the norm.”


Soon, however, we might start to see some returns on our investments. The growing popularity of programs that are funded based on their initial success suggests a growing demand for tangible results, to see where our money is going and to ensure that we’re not wasting it.  These programs “span child care, job training and juvenile recidivism,” and are sometimes known as “pay for success,” wherein controlled trials are set up to determine the effect of such projects. And really, that’s the only way to know if something works. Professor Schuck is right to re-evaluate the cost-effectiveness of these initiatives, and with any luck, the government will start to fail just a little less.

___________________________________________________________________________________________________________________________________________________________________________

Peter H. Schuck is the author of:

7-17 Government Why Government Fails So Often: And How It Can Do Better by Peter H. Schuck
Hardcover | 2014 | $27.95 / £19.95 | ISBN: 9780691161624
488 pp. | 6 x 9 | eBook | ISBN: 9781400850044 | Reviews  Table of Contents   Chapter 1[PDF]

Heather Gerken to Speak on Moyers & Company

The Democracy IndexAs the government shutdown takes off its shoes and makes itself at home, media outlets have been going wild to get the scoop. Heather Gerken, Professor of Law at Yale Law School and author of The Democracy Index: Why Our Election System Is Failing and How to Fix It, is set to appear on Moyers & Company to speak about the shutdown and how the government will be affected by it.

A preview of the show can be found here, and the official description for the show can be found below.

This week, as the government shutdown continues, the Supreme Court began its new term and justices heard arguments in McCutcheon v. Federal Election Commission. The case has been billed as the successor to the court’s Citizens United decision in 2010 that gave corporations, unions, and the wealthy the opportunity to pour vast and often anonymous amounts of cash into political campaigns. The new case challenges caps on how much individual donors can give to candidates and political parties and could raise the amount to more than $3.25 million.

This week on Moyers & Company (check local listings), Bill Moyers talks with Yale Law School election and constitutional law professor Heather Gerken who warns that McCutcheon has the potential to be even worse than Citizens United. Political parties pay attention to the people with money, and as the non-partisan Sunlight Foundation reports, most of the funding for congressional and presidential campaigns comes from the top one percent of the one percent of the rich – “the elite class that serves as gatekeepers of public office in the United States.”

Moyers & Company airs weekly on public television. Viewers can find local tune-in information on our site. http://billmoyers.com/schedule/

An Ai Weiwei book giveaway on Twitter, of course!

This week we have a special book giveaway on Twitter for Ai Weiwei’s new book, Weiwei-isms. We are giving away one book along with a signed bookplate from Ai Weiwei. Yes, he really did sign it!

Follow us on Twitter and re-tweet any @PrincetonUPress tweet by noon on Friday and you will be automatically entered into our random drawing. We’ll pick the winner on Friday at noon EST.

WEIWEI-ISM #166 “Before blogging, I was living in the Middle Ages. Now my feelings for time and space are entirely different.”

Find us on Twitter at:
http://twitter.com/princetonUpress

Good luck!

Weiwei-isms
Ai Weiwei
Edited by Larry Warsh

This collection of quotes demonstrates the elegant simplicity of Ai Weiwei’s thoughts on key aspects of his art, politics, and life. A master at communicating powerful ideas in astonishingly few words, Ai Weiwei is known for his innovative use of social media to disseminate his views. The short quotations presented here have been carefully selected from articles, tweets, and interviews given by this acclaimed Chinese artist and activist. The book is organized into six categories: freedom of expression; art and activism; government, power, and moral choices; the digital world; history, the historical moment, and the future; and personal reflections.

Together, these quotes span some of the most revealing moments of Ai Weiwei’s eventful career–from his risky investigation into student deaths in the 2008 Sichuan earthquake to his arbitrary arrest in 2011–providing a window into the mind of one of the world’s most electrifying and courageous contemporary artists.

We invite you to read the introduction online:
http://press.princeton.edu/titles/9924.html