Incentives, Taxes, & Inequality
One stock argument against increasing taxes on the rich in order to address income inequality is a disincentive argument. The gist of the argument is that if taxes are raised on the rich, then they will lose the incentive to invest, innovate, create jobs and so on. Most importantly, in regards to addressing the income inequality problem, the consequences of this disincentive will have the greatest impact on those who are not rich. For example, it has been claimed that the job creators will create less jobs and pay lower wages if they are taxed more to address income inequality. As such, the tax increase will be both harmful and self-defeating: the less rich will be no better off than they were before (and perhaps even worse off). As such, there would seem to be good utilitarian moral grounds for not increasing taxes on the rich.
Naturally, there is the question of whether or not this disincentive effect would be warranted or not. If the rich simply retaliated from spite, then the moral argument would fall apart—while there would be negative consequences for such a tax increase, these consequences would be harms intentionally inflicted. As such, not increasing taxes because of fear of retaliation would be morally equivalent to paying protection money so that criminals elect to not break things in one’s business or home.
If, however, the rich act because the tax increase is not fair, then the ethics of the situation would be different. To use an obvious analogy, if wealthy customers at a restaurant were forced to pay some of the bills for the less wealthy customers by the management, it would be hard to fault them for leaving smaller tips on the table. While the matter of what counts as a fair tax is rather controversial, it is certainly easy enough to accept an unfair increase would be unfair by definition. One approach would be to define unfairness in terms of the taxes cutting too much into what the person is entitled to in dint of her efforts, ability and productivity relative to what she owes to the country. This seems reasonable in that it provides considerable room for argumentation and does not beg and obvious questions (after all, the amount one owes one’s country could be as low as nothing).
Interestingly, the fairness argument would also apply to workers in regards to their salary. When a worker produces value, the employer pays the worker some of that value and keeps some of it. What the employer keeps can be seen as analogous to the tax imposed by the state on the rich person. As with the taxes on the rich person, there is the general question of what is fair to take from workers. Bringing in the disincentive argument, if it works to justify imposing only a fair tax on the rich, it should also do the same for the less rich. That is, those who argue against raising taxes on the rich to address income inequality by using the disincentive argument should also accept that the less rich should be paid in accord with the same principles used to judge how much income should be taken from the rich.
The obvious counter to this approach is to endeavor to break the analogy between the two situations: this would involve showing that the rich differ from the less rich in relevant ways or that taking income by taxes is relevantly different from taking money from employees. The challenge is, of course, to show that the differences really are relevant.