The voices of Tax Policy Center's researchers and staff
Yesterday my twitter feed exploded with cranky tweets about White House Press Secretary Sarah Sanders’s press briefing, which started with an anecdote about bar tabs and tax fairness. I thought she did a good job illustrating why some analysts think the percentage change in tax liability is the right measure of progressivity for a tax change. Her anecdote also makes quite clear why that measure is inappropriate for assessing deficit-financed tax cuts.
If you have five minutes to kill, you can watch Sanders’s ode to beer fairness here. If not, here it is in a nutshell: Ten people walk into a bar. Each orders a $10 beer and the group divvies up the $100 tab the way we divide up federal individual income tax liability. The poorest four pay nothing and the richest guy pays $59. Then the bartender says he will give them 20 percent off the total bill.
How should they divide the windfall? Sanders says it doesn’t make sense to give any of it to the people who aren’t paying anything to begin with. Rather, she’d give most of the 20 bucks to the one guy who’s carrying most of the load. She claims that tax fairness is just like that.
Actually, it’s not. For one thing, government isn’t beer. At its best, government provides public goods and services that are essential to the functioning of society. Beer isn’t essential.
Second, maybe that $20 discount just comes out of the bar’s profits. But if the bar were really like government, the $20 would have to come out of bar amenities or higher prices charged to future patrons. That is, the cost of providing net tax cuts today eventually must be offset by spending reductions, tax increases, or both.
So, suppose the bar cut its costs by reducing expenditures on sanitation and some patrons got sick. Faced with the full costs of the discount the bar patrons might say no thanks.
Another problem with Sanders’s metaphor is that just about everyone contributes to the total cost of government. Even those who don’t owe individual income tax in a particular year bear the burden of payroll taxes, excise taxes, state income and sales taxes, and various government fees.
TPC’s distributional analysis focuses on the percentage change in after-tax income. Under certain circumstances, after-tax income—the amount you have available to spend out of current income—is a reasonable proxy for well-being. It’s not perfect and at least one of my TPC colleagues has reservations about any distributional analysis based on annual income. But in the case of deficit-financed tax cuts, where deficits entail costs, it is a much more meaningful metric than the percentage change in tax liability (or beer tab).
If the government opens up a bar, I will lead the charge to stop it. Until then, trivializing distributional issues is not helpful.
Posts and Comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
Carrie Antlfinger/AP Photo