With the debt ceiling theatre nearly reaching its climax, remarks about spending cuts, tax increases, ending tax loopholes, and other sorts of deficit reduction approaches are being tossed out daily by politicians and political commentators. In addition to being a bit abstract, the debates surrounding these topics often devolve into a muddled mess. One of the primary reasons for the muddling is the confused ways that people try to understand government policy that affects economic distribution.
The chief confusion is centered around what we consider the baseline to be when making comparisons of different government distribution policies. With America’s strong laissez-faire tradition, it is common for individuals to take a roughly laissez-faire policy to be the baseline against which comparisons are made. Using a laissez-faire baseline, increasing taxes to fund programs for the poor is a form of redistrbution. Under the same baseline, decreasing taxes and cutting programs for the poor is not a form of redistribution; rather, it is a rectification of previous redistribution.
This logic also holds for tax loopholes and tax deductions. For better clarity, consider the mortgage interest deduction. Under this program, home owners are able to deduct from their income taxes the amount they pay in interest on their mortgage. If we consider the amount of income taxes paid at the established marginal rates to be the baseline, then the mortgage interest deduction is a form of targeted government spending. It is functionally indistinguishable from sending a check to homeowners for the amount of their mortgage interest. In the context of a marginal-rates baseline, targeted deductions are a way the government spends through the tax code.
Under a laissez-faire baseline, tax loopholes and tax deductions are not considered targeted government spending; instead, they are considered ways of rolling back — in a very narrow way — previous deviations from the laissez-faire norm. This is how conservative commentators are able to suggest that closing tax loopholes which permit corporations to pay far fewer taxes than the established marginal rates allow is a tax increase. Against a laissez-faire baseline, it is a tax increase because anything above no taxes is a tax increase. Against the aforementioned marginal-rates baseline, closing a tax loophole is not a tax increase; it is the elimination of a targeted government spending program.
It is clear then how confused this discussion can get. Depending upon your baseline, the very way that you understand and describe what a particular government action is changes dramatically. Although I mentioned two possible baselines above — the marginal-rates baseline and the laissez-faire baseline — there are dozens of other possible baselines as well. In an egalitarian framework, equal distribution of economic products would be considered the baseline, and anything which causes deviations from that would be considered a form of redistribution. Under a Rawlsian framework, a distribution of economic products which maximizes the minimum available to everyone would be the baseline, deviations from which would be redistribution.
None of these baselines can reasonably be considered a neutral default. The only group who might try to argue that their baseline is a neutral default would be the proponents of laissez-faire distribution policies. Within the political culture of the United States, that might be a safe bet rhetorically, but it is not a sound position. Laissez-faire distribution policies are just that: distribution policies. Proponents of a laissez-faire baseline like to think of their baseline as being what occurs without government intervention. But in fact, laissez-faire distributions are just as much a consequence of intentional public policy as any other distribution.
There are a whole set of government policies that are put in place to generate what we call laissez-faire economies. Municipalities create land title systems which establish a singular authority on who owns what land. They create property laws which permit individuals to exclusively control and own a piece of nature, while forbidding others from making any claim on that piece of nature. They build police forces to ensure compliance with those property laws. They create courts to enforce contract compliance. The list can go on and on. All of these actions are intentional policies set up to promote a particular lassiez-faire distribution.
Now laissez-faire proponents certainly have arguments they can make in favor of these policies. They might argue that they reflect certain narrow conceptions of property rights which they favor as the correct ones. They might also argue that laissez-faire distributions reflect merit. But in making those points, they are still arguing for the government to adopt and implement intentional public policies to generate an economic distribution that they favor. It is not a default, non-interventionist distribution; it is dependent on government policies just like any other approach.
No baseline should reasonably be considered a neutral default. They all require intentional public policy to realize. So it is not possible to suggest that tax deductions and tax loopholes are really government spending or that they are really lower taxes. From some baselines it is the former; from others, it is the latter. Although it might seem that we need a baseline to describe government actions, that’s not true. In fact, using baselines is precisely what causes the confusion inherent in divergent descriptions of the exact same government action.
The logical reality is that every set of government distribution policies is redistributive and unjust from the perspective of every other set of government distribution policies. Talking about one set while adopting the framework assumptions of another is always going to yield the conclusion that the set being discussed is wrong. Using baselines based on assumptions of certain frameworks is ideologically loaded from the very start which is precisely why those baselines yield such diverging understandings of identical government policies.
The real point of contention then should not be on what we name a particular government action since the names we use are already dependent upon ideas about what distribution policies the government ought to be pursuing. Instead, in a more honest debate, the discussion should simply be about what kinds of distribution policies the government should pursue and why it should do so. In that kind of debate — unchained from framework-specific naming disputes — there are many ways to think about government distribution policy.
Individuals can argue for a laissez-faire distribution policy if they are swayed by arguments for a certain narrow conception of property rights and merit. Individuals can argue for a distribution policy based on John Rawls’ Difference Principle if they think impartiality is central to economic justice issues. They can even argue for distribution policies which maximize a certain set of human capabilities in the population if they are impressed by the capability approach to economic justice championed by Amartya Sen and Martha Nussbaum. The list of course goes on.
What is important though is to understand that these are all different ways to begin thinking about government distribution policy, not ways to deviate from the default baseline (which does not exist). So long as political commentators continue to rely on unstated baselines in their analyses, they will never be able to avoid the pitfalls of that approach. This more expanded way to think about government distribution policy offers a way to turn the debate back into the substantive realm and to avoid the frustrations inherent in the existing approaches.