Obama About to Ace the Impossible Choice Between Fairness and Growth

Fair is fair, right? Well, except when it’s unfair.

In fairness to the president, his State of the Union tax proposal is poised to be pretty smart.
In fairness to the president, his State of the Union tax proposal is poised to be pretty smart.
Appealing to people’s sense of fairness can be incredibly powerful in politics, but fairness is also one of the trickiest concepts in political psychology and cognitive linguistics to get right.

Many voters sense that they’re being unfairly left out of the nation’s economic recovery right now, and President Obama is planning some proposals to address that sense head-on in his State of the Union remarks tonight. But is his new tax plan the right approach? What are voters’ real priorities here?

Let’s start with a rather neck-snapping finding that leads the recent Beyond the Beltway poll:

In addition to viewing the economy as the leading issue facing the country, more voters are looking for the next president to improve the economy through economic growth (60%) compared to improving the economy through economic fairness (40%).

Gains from economic growth have lately been increasingly captured by those who already have the most.
Gains from economic growth have lately been increasingly captured by those who already have the most.
Wait, how do people not want more fairness? Isn’t the problem here that even though the economy has broadly recovered, the gains have gone almost entirely to the very wealthy and left everyone else behind? Wouldn’t increasing fairness be a good solution by definition?

The problem is that people know there are different definitions of fairness — specifically, one for the left and one the right, as explained by Moral Foundations Theory (PDF):

Everyone cares about fairness, but there are two major kinds. On the left, fairness often implies equality, but on the right it means proportionality — people should be rewarded in proportion to what they contribute, even if that guarantees unequal outcomes.

So by citing “economic fairness,” a number of people are going to assume you’re picking a definition they don’t like. What’s really happening in this poll, then, is people like “growth” because it means they get to avoid picking sides — thus growth sounds more “fair” to them than fairness itself.

Macroeconimically speaking, both sides are actually not that far off. Thomas Piketty’s blockbuster Capital showed last year that wealth equality increases to some extent with the economic growth rate. But Piketty’s equations don’t answer every challenge of distributing a country’s income and wealth, and the fact remains that the U.S. economy has grown tremendously in recent years while everyone but the super rich has basically continued to stagnate.

That’s why Piketty himself concluded that growth wouldn’t be enough, and instead we need a global wealth tax — a blunt instrument of economic fairness. Surely voters who prefer growth to fairness would hate that and prefer something that promotes growth, right?

Well, it turns out the thing they think will produce growth is basically…uh…wealth taxes, actually (emphasis added):

While backing lower taxes, 76% of voters also expressed support for raising taxes on the wealthy, a measure progressives say would make the tax system fairer. This measure was strongly supported by 49% of voters — the same level of strong support enjoyed by a middle class tax cut….One possible reason that voters can support both policies is that both are viewed by a significant number as measures that would be very helpful to the economy.

My understanding is this is not an economically sound growth agenda. Those middle-class tax cuts may increase growth a little, but I’ve seen plenty of credible analysis showing that tax cuts don’t create as much growth as conservatives say they do — or as much as increasing government spending. Although you theoretically need to collect taxes in order to spend, I’ve never seen anything suggesting higher taxes, on the wealthy or otherwise, increase growth by themselves.

What will definitely happen if you increase taxes on the wealthy and decrease them on the middle class, though, is you will distribute growth more equally to the non-wealthy than before — and more in proportion to their contributions to the economy, as data have shown the effective tax rate of the wealthiest just keeps plummeting. In other words, more fairly, by just about anybody’s definition.

Hmm, it’s starting to look like voters are a little turned around on this one. They think growth will get them to better outcomes than fairness, but they think fairness will generate that growth.

“Only which kind of fairness will lead to growth? You selected growth. That is incorrect. The correct answer is fairness!”

The good news is, the culmination of voters’ flawed logic seems to be converging with the conclusions dictated by sounder logic — right about at the point that President Obama’s tax plan will occupy.

So who cares if these tax policies generate growth? Growth is meaningless for anybody whose real income it isn’t touching, and lately that’s been basically everyone in the middle class.

Shifting the tax burden up the economic ladder, as President Obama will propose tonight, should allow our society’s growth to better reward those contributing to it lower down the ladder. And according to the polls, there’s actually a pretty good chance people will love it despite themselves.