Thought experiment of the day - Rights/Welfare Tradeoff

I know I don't do these every day or even every month, but perhaps if I say so it will make me do it - it could be a cool feature perhaps.

Say everyone earns the same wage, $100. The Government taxes income (and income only) at 20%, and has a choice of two policies - A and B.
Policy A lowers the income tax to zero with no other effects (I suppose the Government isn't doing much to start with). So people now earn $100 after tax (up from $80).
Policy B raises the national income level by 25%, meaning an after-tax wage of $100, however it violates people's rights slightly by doing so, perhaps by forcing them to work as slaves for 10 minutes every day.

Which policy would you prefer? In this case it's easy, as they both give the same income level but one has us working as slaves. So you would choose policy A.

But what if I change the numbers? What if policy B doubles the national income, at the cost of 20 minutes a day of slave labour?

The reason I ask this is that I think the majority of deontological theories of political justice (like that of Rawls) take into account consequences at some level (Nozick and Kant being the two obvious exceptions, and even Nozick allowed some ad hoc consequentialism). What is often less clear is how they determine the tradeoff - at what point do we bite the Kantian bullet and just say that rights are too important? At 3 hours of slavery per day? At 8? Or vice versa, at what point does welfare override basic freedoms? What if you could abolish scarcity by putting cameras in everyone's house (don't ask me how) without telling them?

This seems like an obvious question but it is one I think that is rarely spoken to. In particular, most people tend to believe in the fortunate coincidence that their favoured policy is both welfare-maximising and non-rights violating, at least to a certain degree. But if that is not the case, how much welfare is worth one rights-violation?

Notice that I am defining considerations of redistributive justice out of my thought experiment, I think that would overly complicate things.

Update: BK Drinkwater shares his thoughts. He promises he will talk less in the abstract in the future - I make no such promise.

If You Support Tax Cuts, You Should Not Support Tax Cuts

This graph I appropriated from Greg Mankiw a while ago. It shows Government revenue as a percentage of GDP. It also shows that every time Government revenue noticeably decreased in the last 100 years, it increased by more in the next five years or so.

I think this is a good illustration of why in the short run, people that want tax cuts should not advocate for them alone, because under the status quo they are not and will not be enacted efficiently, and will just lead to greater tax increases in the future.

The reason is simple - Government services will never be proportionally cut with tax. Tax cuts to modern Governments don't represent any commitment to a smaller Government in the long run, they just represent political bribes and deferred greater tax rises. This is because is very often (this graph would suggest almost all the time) the Government can have their cake and eat it too - they can pander to some groups through tax cuts and others through Government transfers.

Yes, people are often aware of this, but a) the marginal benefit to any given individual of making a big enough deal about this in order to earn his/her own share of tax back is probably negative, and b) cutting services is often seen as mean or an attack on the wellbeing of specific individuals, again because the cost to each individual of providing Government services is percieved to be low. Paying for one person to dig holes and refill them might cost the Government $40,000 - this is less than 1c per person in New Zealand. Most people would be quite happy to pay this to support someone - so it seems harsh to cut the job for being wasteful. Obviously there are far greater costs from having a general policy of arbitrary make-work - our economic situation up until the 1980's being the primary piece of evidence. But I think the costs are subtly aggregated across the entire economy and thus to an extent out of sight, and out of mind.

So I think that arguing for Government to cut services is at the moment more or less a lost cause. If we support tax cuts we should not advocate tax cuts in and of themselves -they will not be sustained by corresponding service cuts. The best route to take in New Zealand would, I believe, argue for privatisation of SOE's - and use that money to firstly pay off Government debt, and secondly to provide tax cuts. In this sense the tax cuts will be seen as a windfall from a sale, rather than taking bread out of the mouths of soon-to-be-destitute state employees. Privatisation is also frequently a hard sell, partly because in New Zealand it has often taken the form of hocking off monopolies then shamefacedly buying them back. But it doesn't share those factors I outlined above which make cutting other Government services so difficult - so I think it should be a preferred route. Once this goal is achieved perhaps others ought to be considered. But until then I think arguing for tax cuts will be counter-productive.

It is true that National have promised not to sell off SOE's in their first term. So I suppose we just have to twiddle our thumbs until then.

Interesting Fact

According to that always accurate source of info Wikipedia, New Zealand has one of the lowest tax rates in the world. We're right up there with that exemplar of the market in action, Korea.

I think this is a little misleading though. It doesn't count GST, for a start. Secondly, our income tax is pretty highly progressive, meaning that while many members of society are paying 12.5% or not much more, a smaller number are paying almost 3 times that. So the average is low, but it is probably not what you would call highly free market.

Parabolic Tax

From the looks of it, a flat income tax in the USA would actually increase the tax on the top earners.

That's a bit messed up. I wonder if there's anywhere else in the world like that?