On issues of inequality and tax progressivity, there is a contingent that believes that debates center on how to extract tax revenues where the deadweight losses are smallest to maximize well-being. This is bollocks.
There is a slightly less naive view, popular on this board, that thinks about tax policy as a class struggle between The Rich and The Poor, with the former favoring even taxation and the latter favoring higher progressivity. As I will show,** this is also bollocks.**
I have a simple model of how most people – but by no means all – process political issues. Oftentimes the real force behind a political ideology is the subconsciously held desire that a certain group of people should not be allowed to rise in relative status.
Take the so-called “right wing.” I believe that some people on the right do not want those that they perceive as “whiners” to rise in relative status. That means they must argue against the whining and also they must argue against the presuppositions behind the whining.
Leftists, contrariwise, feel it is unfair that money so determines access in capitalist society and they do not want the monied class to rise in relative status, certainly not above the status of the smart people. It is important to fight for the principle that the desires of this monied class have a relatively low priority in the social ranking. Egalitarianism is the rhetoric of the day, and readjusting the status of other Americans to the status of this monied class often receives more attention than elevating the very poorest in the world to a higher absolute level.
Now there are several data points in favor of this view and against the simplistic rich/poor divide. People in professions where prestige or security is more important than financial compensation (academia, arts, government service, law, journalism) tend to favor higher marginal tax rates because prestige and security aren’t taxed. Higher marginal tax rates would lower the relative status of high earners, while raising the relative status of academics, etc. Similarly, people who are not now rich but are on a path where earnings are the primary indication of status, will argue in favor of less progressive taxation, because a fall in status of their final state will reflect poorly on them. (You may complain that this effect is because ivory tower professors are commies to begin with, but I think that that reverses the order of causation; beliefs precede party identification.)
Also instructive is the idea of the height tax. For both men and women, an additional inch of height is associated with a one to two percent increase in earnings. Utilitarian and equity-based thought would say yes, since this is inherently unfair to short people and this bias means that the productivity of tall people is probably overstated. Yet support for this tax is low, both among the left and the right. Why? Nobody particularly wants to lower the social status of tall people, they’re interested in bashing the high earners or the welfare recipients instead. The same thing applies to the premium for good looks.
Finally, we tax things not just based on their externalities, as efficient economics would suggests, but based on how much we *dislike *them. Thus we tax alcohol and cigarettes, (and corporations, on the left) but are less enthusiastic about road pricing. Why? Well, unless you’re a biker or pedestrian (in which case you have your own self-interest anyway), driving does not strike us as an activity that should be lowered in status. The exceptions prove the rule - those who live in urban areas, including those who own cars are more likely to support taxes on cars, gasoline, and driving, because it would lower the social status of those who do not live in urban areas and raise their own by consequence. This, despite the fact that they would be footing the bill to a very similar extent, due to the cost of shipping things over ground.
So, I suggest that tax policy is not about revenue, it’s about status - namely who should be allowed to rise and fall in relative status. Given this difference in rhetoric, the right wing will be identified with the monied class, even when the left often has more money. And the left wing will be identified as the whiners, even though the right at times whines as much or more. Furthermore, you can predict a great deal about someone’s policy preferences if you know what groups they want to rise or fall in status.