Horizontal Equity and Pay It Forward

Horizontal equity is the idea that people with the same incomes should pay the same taxes. I’ve made some remarks here and there about horizontal equity when trying to explain my view on Pay It Forward. Pay It Forward is a way of funding free higher education by imposing a flat tax on college graduates.

So one of my points on Pay It Forward is that the issue with funding free college with a tax on everyone is not everyone goes to college. In fact, the people who go to college are from disproportionately affluent backgrounds and enjoy disproportionately affluent futures. Given that the way we distribute income is unfairly skewed to the rich as it is, picking a graduate tax over an everyone tax is preferable because it causes the end distribution to be more equal.

But this argument might seem to be contingent purely on unequal income distribution. Suppose we distributed everything equally, then would it make sense to do a graduate tax instead of an everyone tax? Doesn’t the distributive justice point fall out in that case.

I say no, and the reason I say no is because college itself is a form of income in that it dedicates social resources to you. So if you take two people with “equal” incomes, but give one of them college and the other nothing, they don’t actually have equal incomes. The one that went to college has more. Therefore to tax them exactly the same would be an injustice. I called this a horizontal equity issue before in a comment, and explained what I meant, but I think its probably not best called that.

The point is more that I am challenging the claim that if everyone made the same income, except some people had college and some didn’t, that that is actually “everyone made the same income.” It’s not. To make the incomes even, you have to reduce the college person’s non-college income by an amount equal to their college income (i.e. the resources they received in attending the college). This is what a graduate tax does, though for graduates as a class, not each particular graduate.

I think that covers it, but I am hoping the real story will come in the comments here.