累进税与幸福感

READING COLLOQUIUM ON TAX POLICY AND PUBLIC FINANCE SPRING 2005 PROFESSOR THOMAS D. GRIFFITH University of Southern California Law School PROGRESSIVE TAXATION AND HAPPINESS April 14, 2005 UCLA School of Law Room 2448 Time: 3 to 5 p.m. 1 PROGRESSIVE TAXATION AND HAPPINESS Thomas D. Griffith* Abstract: This Article explores the optimal level of income redistribution by examining the potential welfare gains from redistributive tax and spending policies. Drawing on recent research on human happiness, this Article argues that while wealthy nations are generally happier than their poorer counterparts, neither national nor individual economic growth appear to have an appreciable impact on the subjective well-being of the citizens of relatively wealthy nations. Significant causes of this finding include the problem of rivalry—that increases in the income of some depress the happiness of others—and the fact that individuals overestimate the degree to which additional consumption will improve their happiness. Studies show the level of inequality in a society also may affect levels of happiness. Ultimately, happiness research is consistent with the strongest justification for adopting a progressive tax structure— income has declining marginal utility thus redistribution can increase total welfare in a society. Introduction Why adopt a progressive tax rate structure? In our 1987 article Social Welfare and the Rate Structure, Joseph Bankman and I argued that the strongest argument for progressivity is that transferring income from richer to poorer individuals through a combination of taxation and government spending increases total welfare or utility in the soci- ety.1 The reason such transfers increase welfare is simple: additional money produces more utility for a poor person than a rich person.2 Progressive taxation, however, may be costly. The higher marginal rates required to fund redistribution may reduce work effort3 and en- * John B. Milliken Professor of Taxation, University of Southern California Law School. A.B., Brown University; M.A.T., Harvard Graduate School of Education; J.D., Har- vard Law School. An earlier version of this Article was presented at “The State of the Fed- eral Income Taxation Symposium: Rates, Progressivity, and Budget Processes” at Boston College Law School. I would like to thank the participants at this conference for their comments. In addition, I would like to thank Linda Beres for her significant comments and editorial assistance. 1 See generally Joseph Bankman & Thomas Griffith, Social Welfare and the Rate Structure: A New Look at Progressive Taxation, 75 Cal. L. Rev. 1905 (1987). 2 Id. at 1947. 3 Id. at 1919–21. 2 Boston College Law Review [Vol. 45:1 courage individuals to engage in costly and nonproductive activities to shelter their income from taxation.4 The gains in social welfare from redistributing income to the poor, then, must be weighed against the losses in social welfare from reduced work effort. The size of the efficiency costs associated with progressive taxa- tion is a matter of debate. Professor Bankman and I argued that some of the efficiency costs of progressivity, including increased complexity and reduced taxpayer compliance, were smaller than had been sug- gested previously.5 More importantly, we argued that under any plau- sible assumptions regarding the costs and benefits, some level of re- distribution is optimal.6 The question, therefore, is not whether redistribution is optimal, but how much redistribution is optimal.7 Determining the ideal level of redistribution requires estimating both the efficiency costs of higher tax rates and the welfare gains from redistribution. Neither is easy to do. A survey of the literature on the impact of the rate structure on work effort alone would require a lengthy article.8 And one still would need to examine its impact on a variety of other issues, such as the complexity of the tax code, savings rates, and tax compliance. I do not revisit here the debate over the efficiency costs of redistri- bution. Instead, I look at recent research on the causes and correlates of human happiness, which may shed light on the potential gains from redistribution. The questions are important. How much, if at all, does redistributing income from the rich to the poor increase total happi- ness in a society? Is the answer in wealthy societies different from the answer in poor societies? If redistributive taxation and spending poli- cies slow economic growth, does such a slowdown significantly reduce total happiness in a society? More broadly, what is the relationship be- tween economic conditions in a society and the happiness of the mem- bers of that society? Until fairly recently there was little serious scholarship focusing on such questions. Over the past two decades, however, there has been an explosion of what might be called “happiness studies”—research on the determinants of human happiness. In this Article, I examine some of 4 Id. at 1937–41. 5 Id. at 1929–45. 6 Bankman & Griffith, supra note 1, at 1945–67. 7 Id. at 1966–67. 8 See id. at 1910–15 (discussing briefly the literature on the impact of tax rates on the labor supply as of 1987). 2004] Progressive Taxation and Happiness 3 the central findings of this literature and consider the implications of those findings for redistributive tax and spending policies. Part I considers the ways in which researchers measure the happi- ness or subjective well-being of individuals.9 Part II examines studies of subjective well-being among nations.10 When nations are compared at a given point in time, the results are consistent with the standard intui- tion of declining marginal utility of income. Cross-national studies sug- gest that the citizens of richer nations tend to be happier than the citi- zens of their poorer counterparts, but additional income has a much greater impact on poor nations. The findings are quite different, how- ever, for longitudinal studies on national well-being. Surprisingly, eco- nomic growth appears to have little measurable impact on the subjec- tive well-being of the citizens of relatively wealthy nations. This raises important questions about the centrality of such growth as a matter of public policy. Part III explores the impact of income on citizens within a na- tion.11 The results are surprising: increases in income over time gen- erally produce little or no improvement in the subjective well-being of individuals. A significant problem is rivalry—increases in the income of one individual depress the happiness of others. Part IV considers the harm that individuals inflict upon themselves by overestimating the degree to which additional consumption will im- prove their happiness.12 I discuss two key reasons for this overestima- tion. Adaptation theory suggests that luxury items lose much of their enjoyment once the recipient becomes used to having them. Aspiration theory posits that the satisfaction of individuals with their standard of living depends upon whether they have achieved their aspirations. Ad- ditional income provides little satisfaction because aspirations rise with income. Part V discusses whether inequality itself reduces individual utility even after controlling for individual income.13 Part VI suggests some of the implications of happiness research for tax policy.14 Before continuing, however, I should add a note on the norma- tive basis of my analysis. My analysis in this Article is explicitly utilitar- ian or, more broadly, “welfarist.” I assume that the government’s goal in structuring a tax system—and other programs—is increasing the 9 See infra notes 20–44 and accompanying text. 10 See infra notes 45–82 and accompanying text. 11 See infra notes 83–118 and accompanying text. 12 See infra notes 119–151 and accompanying text. 13 See infra notes 152–176 and accompanying text. 14 See infra notes 177–185 and accompanying text. 4 Boston College Law Review [Vol. 45:1 utility or happiness of its citizens.15 With respect to progressive taxa- tion, such a welfarist approach contrasts with various traditional justi- fications for progressivity, such as taxation according to benefits re- ceived and taxation based on equal or proportionate sacrifice. Those theories have been soundly criticized elsewhere.16 A variety of theories of distributive justice support and oppose redistribution of income.17 I do not enter this debate here.18 Rather, I simply assume that improving aggregate social welfare, as measured by the individual utility levels or happiness of the population, remains one important goal of tax policy.19 I. Measuring Happiness A. The Traditional Debate Estimating the gains from redistributing income is a thorny task. Indeed, some early critics of progressive taxation argued that it was im- possible to determine that an additional dollar was worth more to a 15 The government also might (and should) have an interest in improving the well- being of noncitizens, but I do not address that complexity here. 16 The classic critique of benefits received and sacrifice theories in the legal literature is in Walter J. Blum & Harry Kalven, Jr., The Uneasy Case for Progressive Taxation, 19 U. Chi. L. Rev. 417 (1952). This essay was reprinted one year later as a book with an updated fore- word. See generally Walter J. Blum & Harry Kalven, Jr., The Uneasy Case for Progres- sive Taxation (1953). References in this Article are for the latter. A more recent critique of arguments for progressive taxation can be found in Jeffrey A. Schoenblum, Tax Fairness or Unfairness? A Consideration of the Philosophical Bases for Unequal Taxation of Individuals, 12 Am. J. Tax Pol’y 221 (1995). Strangely, Professor Schoenblum classifies equal and propor- tionate sacrifice theories as utilitarian, even though neither seeks to maximize utility. See id. at 237–41. For an interesting analysis of some of the philosophical arguments for progres- sivity and their relationship to public opinion, see generally Marjorie E. Kornhauser, Equal- ity, Liberty and a Fair Income Tax, 23 Fordham Urb. L.J. 607 (1996). 17 See generally Robert Nozick, Anarchy, State, and Utopia (1974) (opposing redis- tribution); John Rawls, A Theory of Justice (1971) (supporting redistribution). 18 For a brief discussion of alternative measures of social welfare, see Bankman & Grif- fith, supra note 1, at 1948–50. 19 For classic utilitarian principles, see Jeremy Bentham, Introduction to the Prin- ciples of Morals and Legislation ( J.H. Burns & H.L.A. Hart eds., Clarenden Press 1996) (1789) and John Stuart Mill, Utilitarianism (Roger Crisp ed., Oxford Univ. Press 1988) (1861). For a more recent utilitarian argument, see R.M. Hare, Moral Think- ing: Its Levels, Method, and Point (1981). For a powerful axiomatic argument for utili- tarianism, see John C. Harsanyi, Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparisons of Utility, 63 J. Pol. Econ. 309 (1955). Essays debating utilitarianism are con- tained in J.J.C. Smart & Bernard Williams, Utilitarianism: For and Against (1973) and Utilitarianism and Beyond (Amartya Sen & Bernard Williams eds., 1982). 2004] Progressive Taxation and Happiness 5 poor person that to a rich person.20 The argument constituted a small part of a broader attack on the ability to make interpersonal compari- sons generally. This “ordinal revolution” dominated economic thought for decades and remains highly influential today. Such extreme skepticism about the ability of individuals to make interpersonal utility comparisons is misplaced. Individuals make judg- ments about the mental states of others every day. People describe their friends and acquaintances as cheerful, sad, or in pain and be- have as though these descriptors correspond to actual mental states. Indeed, no society could survive that did not make and act on judg- ments about the mental states of others. To be sure, individuals cannot directly observe the subjective feel- ings of others. And some judgments seem more reliable than others. For example, it seems certain that Alice, who suffers severe burns in a fire, endures far greater pain than Bob, who nicks himself while shaving. Judging the marginal utility of money is more difficult. An addi- tional $1000 obviously means more to a family in poverty than to a mul- timillionaire.21 Greater uncertainty exists, however, over whether an extra $1000 will produce more happiness for Carol, who earns $50,000 per year than for Doug, who earns twice that amount. Perhaps Doug takes great pleasure from an expensive hobby that the additional $1000 will help him pursue, while Carol enjoys nothing more than reading classic novels which she borrows from her local library. Despite these complexities, however, it seems reasonable to believe that additional income usually offers greater utility to the poor than to the rich. The task of estimating the rate at which the marginal utility of income declines is even thornier. One popular conjecture is that the utility from income is proportional to the logarithm of the income.22 Under this approach, the welfare gain from increasing Emily’s annual income from $50,000 to $100,000 per year equals the welfare gain from increasing Fred’s income from $100,000 to $200,000 per year. The popularity of the logarithmic utility function surely rests, in part, 20 Blum & Kalven, supra note 16, at 57–63; Lionel Robbins, The Nature and Significance of Economic Science, in The Philosophy of Economics: An Anthology 113, 129–32 (Daniel M. Hausman ed., 1984). 21 Joshua Greene & Jonathan Baron, Intuitions About Declining Marginal Utility, 14 J. Behav. Decision Making 243, 244–45 (2001). 22 The formula is Uy = k (log Y). See Bankman & Griffith, supra note 1, at 1952. See gener- ally J.A. Mirrlees, An Exploration in the Theory of Optimum Income Taxation, 38 Rev. Econ. Stud. 175 (1971). 6 Boston College Law Review [Vol. 45:1 on its significant computational advantages. It may also roughly re- flect some scholars’ intuitions. My own informal surveys of students in my introductory tax course suggest a slightly more rapid drop in the marginal utility of income than that suggested by the logarithmic approach. Each year, I ask my tax students to choose between two worlds. In World A, indi- viduals have an income of $100,000 per year for life. In World B, the students have an equal chance of a $50,000 income or a $200,000 in- come, for an expected value of $125,000. In each case, income would be adjusted for inflation annually, but could not be augmented in any other way. In more than a decade of these surveys, the majority of stu- dents always have preferred World A—the certain $100,000 income— over the lottery, despite the lottery’s higher expected dollar value.23 B. Happiness Surveys Recent research on happiness provides more persuasive evidence than intuition or informal student polls regarding the relationship between income and individual happiness. The most common method used to estimate the subjective welfare or happiness of indi- viduals involves simply asking them. Subjects might be asked, “Taken all together, how would you say things are these days[?] [W]ould you say that you are very happy, pretty happy, or not too happy?”24 Alter- natively, subjects might be asked to respond on a ten-point scale to a question, such as, “All things considered, how satisfied are you with your life as a whole these days?”25 1. Self-Reported Utility and Cognitive Errors Answers to survey questions likely act as imperfect measures of actual happiness. The meaning of terms such as “pretty happy” may vary over time, and cultural norms may vary regarding whether indi- viduals should profess to being extremely happy. Responses may de- 23 Typically, the median student in the class shows indifference in a choice between the lottery and a certain income of about $80,000. 24 This question was asked of U.S. citizens by the National Opinion Research Center. Nat’l. Opinion Res. Ctr., Univ. of Chi., General Social Survey: 1972–2000 Cumula- tive Codebook, Codebook Variable: Happy, at http://webapp.icpsr.umich.edu/GSS// rnd1998/merged/cdbk/happy.htm (last modified May 1, 2001). 25 The life satisfaction score in the World Values Survey II is based on this question. Ed Diener & Eunkook Mark Suh, National Differences in Subjective Well-Being, in Well-Being: The Foundations of Hedonic Psychology 434, 435 (Daniel Kahneman et al. eds., 1999) [hereinafter Well-Being]. 2004] Progressive Taxation and Happiness 7 pend on the precise wording of the questions or, in the case of a lar- ger survey, on the nature of the preceding questions.26 Individuals also may make cognitive errors in reporting their own well-being. Studies show systematic differences between contempora- neously reported pain levels and the later memory of that pain.27 An individual’s subsequent memory of a painful experience can be pre- dicted well by the peak pain level and the end pain level.28 The duration of the pain has little impact on the subsequent evaluation of its severity. Indeed, adding an additional period of pain at a lower intensity to a painful experience actually can improve the retro- active evaluation of a painful experience.29 In one experiment, subjects took part in two trials in which they placed one of their hands in cold water.30 In the short trial, participants kept a hand in water at fourteen degrees Celsius for one minute. In the long trial, the immersion lasted a total of a minute and a half. For the first sixty seconds, subjects again kept a hand in water at fourteen degrees Celsius, but the temperature of the water then gradually was increased to fifteen degrees Celsius over the final thirty seconds—a less painful, but still unpleasant tempera- ture. Approximately 65% of the subjects chose to repeat the long trial rather than the short trial.31 Thus, for most individuals, adding an extra thirty seconds of reduced pain to an already painful experience re- duced the remembered unpleasantness of the experience. Individuals may also misreport pleasant experiences and overem- phasize recent events.32 If yesterday was an enjoyable day, it may skew an individual’s assessment of the entire previous week.33 Reports of cur- rent life satisfaction also may depend on minor contemporaneous posi- tive or negative experiences. Subjects interviewed on a sunny day are 26 In one survey, for example, individuals were asked the following two questions: (1) “How happy are you?” and (2) “How many dates did you have in the last month?” Daniel Kahneman, Objective Happiness, in Well-Being, supra note 25, at 3, 22. If the happiness question was asked first, the correlation between the two answers was 0.12. If the dates question preceded the hap