Tax Demagoguery

November 25, 2011 Dennis Junk

Robert Frank, in The Darwin Economy, begins with the premise that having a government is both desirable and unavoidable, and that to have a government we must raise revenue somehow. He then goes on to argue that since taxes act as disincentives to whatever behavior is being taxed we should tax behaviors that harm citizens. The U.S. government currently taxes behaviors we as citizens ought to encourage, like hiring workers and making lots of money through productive employment. Frank’s central proposal is to impose a progressive consumption tax. He believes this is the best way to discourage “positional arms races,” those situations in which trying to keep up with the Joneses leads to harmful waste with no net benefit as everyone's efforts cancel each other out. One of his examples is house size:

The explosive growth of CEO pay in recent decades, for example, has led many executives to build larger and larger mansions. But those mansions have long since passed the point at which greater absolute size yields additional utility. Most executives need or want larger mansions simply because the standards that define large have changed (61).

The crucial point here is that this type of wasteful spending doesn’t just harm the CEOs. Runaway spending at the top of the income ladder affects those on the lower rungs through a phenomenon Frank calls “expenditure cascades”:

Top earners build bigger mansions simply because they have more money. The middle class shows little evidence of being offended by that. On the contrary, many seem drawn to photo essays and TV programs about the lifestyles of the rich and famous. But the larger mansions of the rich shift the frame of reference that defines acceptable housing for the near-rich, who travel in many of the same social circles… So the near-rich build bigger, too, and that shifts the relevant framework for others just below them, and so on, all the way down the income scale. By 2007, the median new single-family house built in the United States had an area of more than 2,300 square feet, some 50 percent more than its counterpart from 1970 (61-2).

This growth in house size has occurred despite the stagnation of incomes for median earners. In the wake of the collapse of the housing market, it’s easy to see how serious this type of damage can be to society.

Frank closes a chapter titled “Taxing Harmful Activities” with a section whose heading poses the question, “A Slippery Slope?” You can imagine a tax system that socially engineers your choices down to the sugar content of your beverages. “It’s a legitimate concern,” he acknowledges (193). But taxing harmful activities is still a better idea than taxing saving and job creation. Like any new approach, it risks going off track or going too far, but for each proposed tax a cost-benefit analysis can be done. As I’ve tried over the past few days to arrive at a list of harmful activities that are in immediate need of having a tax imposed on them, one occurred to me that I haven’t seen mentioned anywhere else before: demagoguery.

Even bringing up the topic makes me uncomfortable. Free speech is one of the central pillars of our democracy. So the task becomes defining demagoguery in a way that doesn’t stifle the ready exchange of ideas. But first let me answer the question of why this particular behavior made my shortlist. A quick internet search will make it glaringly apparent that large numbers of Tea Party supporters believe things that are simply not true. And, having attended my local Occupy Wall Street protest, I can attest there were some whacky ideas being broadcast there as well. The current state of political discourse in America is chaotic at best and tribal at worst. Policies are being enacted every day based on ideas with no validity whatsoever. The promulgation of such ideas is doing serious harm to our society—and, worse, it’s making rational, substantive debate and collectively beneficial problem-solving impossible.

So, assuming we can kill a couple of birds with a tax stone, how would we go about actually implementing the program? I propose forming a group of researchers and journalists whose task is to investigate complaints by citizens. Organizations like Factcheck.org and Politifact.com have already gone a long way toward establishing the feasibility of such a group. Membership will be determined by nominations from recognized research institutions like the American Academy for the Advancement of Science and the Pew Research Center, to whom appeals can be made in the event of intensely contended rulings by the group itself. Anyone who's accepted payment for any type of political activism will be ineligible for membership. The money to pay for the group and provide it with the necessary resources can come from the tax itself (though that might cause a perverse incentive if members' pay isn't independent of their findings) or revenues raised by taxes on other harmful activities.

The first step will be the complaint, which can be made by any citizen. If the number of complaints reaches some critical mass or if the complaints are brought by recognized experts in the relevant field, then the research group will investigate. Once the group has established with a sufficient degree of certainty that a claim is false, anyone who broadcasts the claim will be taxed an amount determined by the size of the audience. The complaints, reports of the investigations, and the findings can all be handled through a website. We may even want to give the individual who made the claim a chance to correct her- or himself before leveling the tax. Legitimate news organizations already do this, so they’d have nothing to worry about.

Talk show hosts who repeatedly make false claims will be classified as demagogues and have to pay a fixed rate to obviate any need for the research group to watch every show and investigate every claim. But anyone who is designated a demagogue must advertise the designation on the screen or at regular intervals on the air—along with a link or address to the research groups’ site, where the audience can view a list of the false claims that earned him or her the designation.

Individuals speaking to each other won’t be affected. And bloggers with small audiences, if they are taxed at all, won’t be taxed much—or they can simply correct their mistakes. Demagogues like Rush Limbaugh and Michael Moore will still be free to spew nonsense; but they’ll have to consider the costs—because the harm they cause by being sloppy or mendacious doesn’t seem to bother them.

Now, a demagogue isn't defined as someone who makes false claims; it's someone who uses personal charisma and tactics for whipping people into emotional frenzies to win support for a cause. I believe the chief strategy of demagogues is to incite tribalism, a sense of us-vs-them. But making demagogues pay for their false claims would, I believe, go a long way toward undermining their corrosive influence on public discourse.