One of the nice things about transitioning out of academic life and into professional life (if only temporarily) is that I suddenly have a surfeit of leisure time, and among other things, I’m using that time to catch up on a pretty substantial backlog of reading. This is all by way of saying that I just finished economist Robert Frank’s 2007 book Falling Behind: How Income Equality Hurts the Middle Class. Frank’s main point is that relative deprivation leads to “positional arms races, where Person A attempts to improve their positional status through greater consumption, which in turn, leads Person B to do the same, resulting in an equilibrium where relative status remains stable, although absolute status might be higher.
What’s more, this is all exacerbated by the tremendous income inequality of the last twenty years; the consumption of the richest Americans sets the standard for the next level of income earners, and so on and so forth. But, because incomes have stagnated for the middle-class, this pattern leaves many middle-income families struggling to acquire positional goods (larger homes, for instance) at the cost of more valuable non-positional goods (in terms of psychological well-being), like leisure time or time spent with family.
Anyway, in the course of making this point, Frank makes a really insightful point about the bizarre way in which we talk about taxation:
Why doesn’t the average voter realize that if we elect a Congress that raises taxes to fund basic public services, the extra tax burden won’t be very painful? After all, a direct consequence of the tax increase will be an across-the-board reduction in consumption, one result of which should be, according to my argument, that the consumption context will shift, so families won’t feel that they need to spend as much as before.
This makes intuitive sense to me. If your taxes are raised to pay for better schools across-the-board, then there’s a good chance that you’ll feel less inclined to purchase an expensive house in a good neighborhood with good schools. After all, you’ll have access to a comparable school in a cheaper neighborhood. You can even extend this observation to things that don’t directly relate to positional goods: on average, poorly maintained roads add an additional $335 to the annual cost of owning a car. In all likelihood, that is far more expensive than a small tax increase to pay for regular road maintenance.
Sure, Americans enjoy relatively lower “official” taxes, but those is more than offset by the exorbitant “hidden taxes” that are the result of underinvestment in public goods. The income that doesn’t go to Uncle Sam goes toward repairing a blown tire or, since we’re on the topic, paying absurdly high health insurance premiums. Yes, you could say that paying an auto mechanic or a health insurance company benefits the economy, and you’d be right. But my hunch is that the positive economic impact of lower health care costs facilitated by health care reform, or fewer lost wages resulting from regular road maintenance (among other things) is far greater than the alternative.
This is all to say that Democrats would have a hell of a lot more success in selling policies that require tax increases if they took the time to emphasize that most Americans are already paying more than they would pay under a new system. If voters understood that basic fact, then we might be able to lower – if even slightly – the huge barriers to raising adequate revenue.