Tax the rich to provide public goods!

In one of those odd happenstances we agree with The Guardian here:

G20 countries will discuss proposals to make the world’s wealthiest individuals pay more towards funding public goods. The debate is overdue.

Well, there’s certainly a reasonable point there. We institute government in order to gain the public goods we cannot gain in any other way. That doesn’t necessarily mean that government must provide the public goods, only that government must do something to make sure the public goods are provided. The US insists children must be vaccinated to be able to attend school. The NHS provides childhood vaccinations directly. There could indeed be differences, at the margin, between those two methods but both do provide that public good desired, herd immunity (no, vaccinations are not a public good, herd immunity is).

We have from Adam Smith that taxation “more than in proportion” to income is not so very great an imposition. We even have an interesting example of a public good given by Smith. Living in basically literate and numerate society probably is such a public good and therefore tax subsidy - at the least - to primary schooling could well be justified. As and when we return to having primary schools that produce literacy and numeracy we should definitely think about it.

But it’s also possible to differ. For this is then used to argue for a wealth tax - a terribly bad idea. But also, The Guardian links through to a piece giving us a definition of the public goods they mean:

Higher tax rates for the wealthy kept inequality in check and helped fund the creation of social safety nets like Medicare, Medicaid and food stamps.

The definition of a public good is something non-rivalrous and non-excludable. This is why there must be - or it can be justified at least - government action in the provision. Because without rivalry and excludability it’s very difficult indeed to make a profit and therefore there’s a good chance that the item will be underprovided by a capitalist and or free market system. Note the “good chance” there, it’s not an absolute proof.

OK - but Medicare, Medicaid, food stamps, are not public goods. People are denied access to them each and every day - excludability. They’re also rivalrous as well, my hip replacement is not your one. We’re decidedly unconvinced that greater equality is even good let alone a public one.

Sure, all of these things can be argued for. As good for the public, goods for the public even, but that’s not the same as a public good. Therefore the argument The Guardian is reaching for - government is for producing public goods, the rich should pay more than in proportion - doesn’t work because they want to spend the looted cash on things that aren’t public goods.

As well as wealth taxation being a seriously bad idea anyway for the usual deadweight costs reasons.