5 - Economists and Equity

Summary

The equity issue economists spend most of their time on is the current distribution of income and whether that distribution is becoming more unequal through time. Mainstream economists strongly disagree about these matters. Some want substantial increases in income tax for the highest earners; others think substantial increases would hurt economic growth in the medium to long term as lower after-tax income makes potential innovators more risk-averse while other high-paid workers decide to retire earlier. It is striking that almost no economists bring up a right to the fruits of one’s labor and fair compensation for one’s innovative ideas. Jefferson, on the left, Hamilton, on the right, and all the principal founders in between were strong believers in property rights. All the arguments about fairness, economic growth, and deserts are considered at length.

Economists agree about some equity matters. For example, they think the general public does not understand the actual incidence of taxes. Taxing unemployment insurance sounds regressive, but with our progressive income tax it actually hurts most those with above-average income. Raising business taxes sounds progressive, but labor and consumers pay a substantial part of this tax.