Tax and Interdepend

It's tax day, and the mind drifts to interdependent utility functions.

Back in grad school at Columbia, we slogged through microeconomics, learning how individuals sought to “maximize utility,” which roughly translates into becoming as fulfilled as possible, given various constraints. The optimal economy, we learned, was one in which economic agents, or “people,” sought to promote their own well-being. We didn't just take this at face value, though; we constructed pristine mathematical models that proved it.

Government, in these models, was generally something of a villain. Taxes inevitably created distortions in behavior that stayed the invisible hand. They created “deadweight losses” and led people to work less, or work more, or some combination thereof. Later, our textbook allowed that some amount of taxation was justified in the sense that there are a few “public goods” that we desire but that the market can't or won't provide. But I think it's fair to say that their training leads many economists to view taxes as a necessary evil at best.

Long ago, I stumbled upon a paper by economist Lester Thurow that sparked my impressionable mind. He raised the question (at least this is how I remember it many years later): What if our economic happiness is based not solely on our own well-being but on that of others? What if “utility” is interdependent -- if my happiness depends on yours?

Of course we feel that way about our families and friends, but Thurow carried it further, writing about income distribution itself as a public good. Maybe it was because I was a bedraggled, undernourished grad student, but I remember feeling a powerful sense of excitement, as this theory connected me to my fellow travelers in a way that traditional economics seemed to shun.

Suffice it to say that this is not the sentiment of the land as we pay taxes (or file for extensions) today.

Instead, we have a president who ran for his first term in office on the campaign slogan that the budget surplus was “your money,” and if he were elected he'd give it back to you. And he did, especially if you were already pretty well-heeled.

Now, we're faced with annual budget deficits upward of $400 billion, due in large part to the Bush administration's aggressive and ongoing tax-cutting mania. We're told we've got to slash programs that the least advantaged among us depend upon, like Medicaid, adult education, and food stamps. And the administration makes these arguments while calling for further regressive tax cuts, costing as much as $2 trillion over the next 10 years.

Thanks to Senate Democrats and a blessed few Republican stalwarts (Senators Olympia Snowe, Mike DeWine, George Voinovich, and Lincoln Chafee), the proposed budget cuts are being debated in that chamber, but the House has already voted to make the estate-tax cut permanent. Let's not gloss over this: Tom DeLay and Co. want to demonstrate their fiscal rectitude by cutting food stamps while refusing to accept a compromise on the estate tax that would ultimately exempt all but the richest 0.3 percent of estates.

Maybe the argument just comes down to whose well-being you care about; that is, with whose utility function do you “interdepend”? One could make utilitarian arguments that food-stamp recipients are more plentiful that multimillionaires, or economic arguments that they need the money -- or at least the food -- more.

But I'd like to suggest a broader perspective. We can change one word -- simply delete one letter -- in the Bush 2000 slogan and forge a message for tax day that might recreate that same sense of connectedness to the rest of America that I felt that day in the Columbia library. Not “it's your money,” but “it's our money.”

I'm not suggesting that we should jump for joy on April 15 because we have the opportunity to invest in our interdependence. But I am saying that we might want to think of our tax system as a conduit through which we strengthen our connections to one another, our communities, and lift the prospects and opportunities of the least fortunate among us.

Obviously a lot has to change before we can count on our resources being used in this way. And conservative policy-makers, with their focus on individualism and privatization, have been pushing back hard against these very types of connections.

But, as I sign our check to the IRS, I can't help but think that the spirit of interdependence is hovering over these selfish times, patiently waiting to be tapped.

Jared Bernstein is the senior economist and Josh Bivens is an economist with the Economic Policy Institute, a nonprofit, nonpartisan think tank in Washington, D.C.

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