The Egalitarian Earnings Subsidy Scheme

Abstract

How should society structure income redistribution so as to correct for ineliminable inequalities in marketable talent? This article explores the strengths and weaknesses of an ‘egalitarian earnings subsidy scheme’ (ESS) in which individuals receive (or pay) a subsidy (or tax) for each pound earned based on the difference between their earnings potential and their society’s average earnings potential. ESS corrects for brute luck inequality in earnings potentials in a well-targeted fashion; implements an attractive conception of reciprocity; and, in contrast to an alternative lump-sum tax proposal, does not entail the ‘slavery of the talented’. However, any practicable version of ESS may undermine at least one other egalitarian objective – that of maintaining equality of status amongst unequally talented citizens. As a status-friendly alternative, we might try to approximate ESS through a more conventional redistribution scheme using taxes and subsidies that implicitly ‘tag’ low- and high-ability individuals. While it is difficult to draw any firm policy conclusions, it seems clear that the idea of talent-based taxes and subsidies on the model of ESS should occupy a more prominent place in our thinking about tax–benefits policy to tackle earnings inequality.