According to Albert Einstein, the hardest thing in the world to understand is the income tax. Perhaps only the United States Congress could concoct a paper quagmire of tax breaks and loopholes thick enough to stump a man whose name is synonymous with genius. But as difficult as the U.S. Tax Code is to understand, reforming it is even more difficult. Tax reform is like getting 300 million people to agree on how to arrange their furniture; decades of lobbying and bickering have given us the tax equivalent of a sofa on the pool table.
Congress's most recent endeavor--imperfect as it might be--looks like a step in the right direction. For most Americans, filing taxes will become simpler (though they won't be filing their returns on postcards anytime soon). Most Americans will also see their taxes go down. Perhaps most importantly, the tax reform will spur economic growth that will translate to higher household incomes (though the tax cuts certainly won't pay for themselves).
But the rules of party politics are such that it has fallen on Democrats to form a resistance against a reform that will bring broad and tangible benefits to the majority of the electorate voters. Their task has been daunting, but not impossible. They could emphasize the fact that the tax cut will cost future generations trillions of dollars and the swelling public debt will probably push up interest rates as consumers and businesses compete for loans against a debt-crazy Uncle Sam.
But debt conservativism has never been a theme of the Democratic platform, so it should be no surprise that the main thrust of the resistance's argument is a familiar one: that tax cuts benefit the wealthy at the expense of the poor.
That would be a tough argument even if it were true; the wealthier 51% of Americans-- those who actually pay income taxes--might reply that it is about time for the other 49% to make a token contribution. But the real problem with the democrats' argument is that it isn't true at all. Under the Republican tax reform, the vast majority of taxpayers at every income level will get a tax cut. Earners in the top 0.1% are actually the most likely to see a tax increase. And yet Democrats have raised another banner in their crusade against the wealthy few on behalf of the exploited masses.
Democrats aren't stupid, and their opposition to the tax reform isn't doomed to fail. After all, they have a curious human tendency on their side.
Monkeys may shed light on why many Americans who stand to gain from the Republican tax cuts nevertheless oppose them. In 2003, two scientists tested how female monkeys react to unequal treatment by simultaneously rewarding one monkey with a cucumber--something that monkeys like--and another with grapes--something that monkeys like even more.
The results were enlightening. The monkeys consistently reacted negatively when they got a mere cucumber for returning a token when they saw another monkey getting a grape for doing the same thing. It isn't surprising that monkeys, like humans, have a sense of fairness. But the monkeys didn't just chafe at getting the short end of a bad deal, they reacted to being shorted in a way that was contrary to their self-interest. Once they saw another monkey getting grapes, the monkeys spurned a reward that they ordinarilly would enjoy, refusing to return their tokens or throwing their cucumbers out of the test area.
Scientists have observed this same phenomena in humans and given it a fancy name: inequity aversion. Its understanding has added nuance to economics, a field of study that traditionally assumed that people will act rationally for their own gain. Inequity aversion could help explain why people don't respond to incentives as one would expect. The recent fixation on the disparity between "the 99%" and the wealthy could be the missing key to explaining why Americans are staying out of the labor force even as jobs become more readily available.
Social inequity aversion also explains why tax reform is so politically perilous: even reforms that will improve the efficiency of the tax code and benefit the vast majority of taxpayers may nevertheless prove deeply unpopular if it is perceived as giving grapes to some and cucumbers to others. Democrats may have success appealing to the less rational angels of our nature if they can convince enough Americans that their somewhat lower taxes and modest pay increases are insults relative to the billions of dollars that corporations will save. But if they succeed in undoing tax reform, their constituents will suffer economically with no consolation other than the deeper economic suffering of the wealthy.
Of course, tax debates would be more fruitful if politicians could agree that a good tax code is one that taxes undesireable activity--overconsumption, pollution, etc.--and encourages desireable activity such as production and child-rearing. Then they could stop wasting time arguing about what segment of the population needs to pay its "fair share" (whatever that means).
For now, we'll have to be content with fewer chairs on the pool table.
