Using tax law to slice the pie more equitably
Professor Anne L. Alstott, a tax and social welfare policy expert, joined the faculty in 2008 as the Manley O. Hudson Professor of Law and director of the Fund for Tax and Fiscal Policy Research. She previously taught at Columbia and then Yale Law School, and earlier worked as an attorney-adviser in the Treasury Department’s Office of the Tax Legislative Counsel. Co-author with Bruce Ackerman ’70 of the 1999 book “The Stakeholder Society,” she is also the author of “No Exit: What Parents Owe Their Children and What Society Owes Parents,” which was published in 2004. She also wrote “Equal Opportunity and Inheritance Taxation,” 121 Harvard Law Review 469 (2007).
In “The Stakeholder Society,” you propose providing every American who graduates from high school a one-time grant of $80,000 upon reaching adulthood to be financed by a 2 percent wealth tax. Has the current economic collapse brought new attention to the problems you were trying to highlight in that book?
In the present economic climate, people are looking for new solutions and bigger solutions. For the first time since we wrote “The Stakeholder Society” a decade ago, people in this country are looking for new ways to address the maldistribution of wealth and opportunity that our current institutions have produced. A decade ago there was a certain amount of skepticism that the United States could stomach a new initiative of $250 billion. Now, every day’s newspaper talks about corporate and financial bailouts that are two or three times that size. It’s worth saying that other countries have been more open to stakeholding. The United Kingdom, for example, now has a program called the Child Trust Fund which creates a stake for every baby born in Britain: The government puts in a certain amount of money for each child, with larger amounts going to poorer children. The money compounds in an investment account until the child reaches age 18, when she’s permitted to withdraw the funds and use them as she likes.
How much difference was there in the way liberals and conservatives talked in Congress about tax cuts during the debate over a stimulus bill this year?
What’s interesting is that both sides in the stimulus debate favor tax cuts. They’re just debating what form they should take. This really reflects a kind of American exceptionalism. The tax code in the U.S.—far more so than in other countries—is the locus of enormous concentrations of public policy—including health care, pensions, income support and jobs creation. The competing stimulus plans and President Obama’s campaign promises reflect that reality. So, for example, the Obama proposals emphasize flat tax cuts for low- and middle-income workers, while Republicans have sought cuts in the top marginal tax rate. Both sides want tax cuts—they just want them to go to different people for different purposes.
Is the current recession a new opportunity to use the tax system to reduce inequality?
Taking a historical perspective, deep recessions probably create two countervailing forces in tax policy. On the one hand, populism tends to become politically ascendant, and politicians can gain support for more radical redistribution than is possible during boom times. On the other hand, recessions tend to produce tax shortfalls, because as incomes and wages drop, so does tax revenue. So politicians find themselves in need of new revenue to fund the programs they want to enact, and sometimes—as in the Great Depression—the result is that very progressive rhetoric can be accompanied by relatively regressive tax policy overall. Of course, it’s important to keep in mind that taxation is only half the game when it comes to the progressivity of government. Even a regressive tax, like the value-added tax, or VAT, that is common in European countries, can contribute to progressive redistribution if it’s used to fund highly progressive spending programs—for instance, unemployment benefits for low-income workers, food stamps, disability, an expansion of health insurance for the uninsured, and so on.
You wrote about your personal experience dealing with your son’s health in “No Exit.” Did that experience affect how you think about public policy problems and solutions?
My son was hospitalized seven weeks in seven months as a 3-year-old, and that experience really immersed me in the world of people who have children with serious illnesses and disabilities. I went without sleep many nights, and when I did sleep, I had a suitcase under my bed, because on any given night if his breathing crisis got bad enough, I knew we would head to the hospital for an indefinite stay. My employer was incredibly gracious and generous about giving me leave time, and colleagues helped by taking on some teaching. But in the middle of those hospital nights, I used to think about what would happen to me and my children if I were someone earning $7 an hour without health insurance and with the kind of job that if I didn’t show up to work, they’d fire me. A family in that circumstance can find themselves evicted, homeless, bankrupt. A chapter of “No Exit” came out of this experience; it proposes special assistance to parents of children with severe chronic illnesses and disabilities. My son is fine now, but at a very human level, I continue to have perhaps a higher degree of empathy, in addition to my academic sympathy, for families with children with very high-care needs.
You’re currently working on an article about improving social insurance for low-income workers. What would be required?
My article responds to the common claim in the political realm that the Earned Income Tax Credit “makes work pay.” The EITC, as you recall, was supposed to be the humane side of the 1996 welfare reforms; it was supposed to ensure that working families would not be poor. But a closer look suggests that as a nation we haven’t delivered on that promise. My work suggests that public policy should not only subsidize wages while people are in work—as the EITC does—but should also consider the risks of life that everyone faces and that middle-class people tend to cover through savings. In 2004, 17 percent of Americans had zero or negative wealth. That means that a period of unemployment or underemployment, which is very common among low-income workers, can be catastrophic. And that’s just one example. My article will sketch a holistic approach to improving social insurance for low-income workers across the board—in realms including health insurance, disability and family care, as well as unemployment.