A story of taxes, wealth and an Easter egg hunt
2 July 2020
Opinion: Michael SW Lee writes about wealth distribution, fairness and reflexive responses commonly heard about taxation in a story about children on an Easter egg hunt.
Ten kids are at an Easter egg hunt searching for 100 eggs.
Donald was fortunate, he inherited an Easter egg detector. He spends four hours looking and collects 40 eggs.
Steve is a hard worker; he spends eight hours looking without any inherited advantages and ends up with 40 eggs as well.
Sam is also a hard worker. He spends eight hours looking, but in the wrong place, ending up with five eggs.
Molly is short sighted; she can’t afford glasses. She spends 12 hours looking and finds 5 eggs.
Frankie is wronged. She spends eight hours looking for eggs but leaves them lying around. When she comes back from the toilet, a portion of her eggs are missing, leaving her with only five eggs.
Max is talented. He spends six hours looking for eggs, finds five, then gets bored and helps the parents prepare the snacks for the benefit of everyone.
Sally is unlucky, she twists her ankle and can’t look for eggs.
Judy and Florence are compassionate, they decide to spend the whole day caring for Sally, rather than looking for eggs.
John is disengaged. He doesn’t feel like doing anything so doesn’t find any eggs.
At the end of the day the parents realise Donald and Steve have 80 percent of the eggs.
They ask the two boys if they would be willing to share their eggs so that everyone has 10 eggs each.
I think most people would agree that aside from John (a minority of the population), everyone else deserves a fairer share of the eggs. Personally, I’m interested to know why John is disengaged, rather than just assuming he is ‘Lazy’. But for now, the question is how many eggs do you think Steve and Donald should keep for themselves? All 40? 30? 20? 15?
What if research indicates that kids need eight Easter eggs to be happy? This requires Steve and Donald to share more than half their Easter eggs with the group. But they would still have 18 eggs left each. More than double what they need. But more importantly, everybody gets enough eggs.
What if research also suggests that with less than seven eggs, kids would be traumatised for life? In this scenario, Steve and Donald would share less than half their loot, enabling them to keep 22 eggs each. Nearly triple what they need, but the majority would be worse off.
Imagine, if one boy said they would be happy to share most of his eggs while the other said, “No it’s not fair, they’re my eggs!” Which boy would we think was more admirable? Which kid would we be proud to call our own?
Now, imagine if Donald and Steve were made to share half their eggs. This means they keep 20 for themselves, but at the next egg hunt they could each start the hunt with their 20 eggs already in the ‘bag’. Would that be fair? If they found another 40 and ended up with 60 eggs each how many eggs should they be ‘made’ to share then?
Translating eggs to wealth
While adult life is more complicated, and it’s impossible to know the individual circumstances of everyone in a population of millions/billions, this scenario is still remarkably similar to the reality we live in. Less than 20 percent of the population own most of the eggs. So we should probably reconsider how wealth is distributed. Yet there are a few ‘reflexive responses’ that seem to spring out of people when it comes to discussing the government version of sharing, namely taxes.
“Shut up you commie / Marxist/ Socialist!”
This is a goodie. Some people automatically assume progressive capitalism, which strives for more equitable distribution of resources, is identical to saying that everyone should get the same amount of resources. No, no, no. Steve and Donald are ‘taxed’ some of their eggs, but they can also keep more eggs than the rest. Depending on exactly how much more, that might mean most of the population would get by, or it may also mean a percentage fall below the Easter egg poverty line, through no fault of their own and surely not because of a lack of effort. A lot of people ‘work hard’, but for various reasons ranging from luck, or ability, to simply working in underappreciated yet vital jobs (nurses, teachers, law enforcement, sanitation, home carers, etc.), people do not always receive an equitable share of resources.
Steve and Donald only need eight eggs each. They do not need 22 eggs; they don’t even need 18. But when the parents ask them to share slightly more, it means that kids like Molly, Judy, Sally, Florence, Sam and Max can have a better time. Yes, even John gets the same basic number of eggs but someone needs to have a chat with him later. In any case, when Steve and Donald are asked to share more than half their eggs, everyone will be better off. Especially those who deserve a break. Believe it or not, currently in our country, kids like Sam, Molly, Frankie and Max are still asked to share a portion of the few eggs they have.
“Stop punishing the rich/successful.”
This response occurs when people obsess over how much they stand to lose rather than what everyone stands to gain. We all know that the honest, hardworking, non-tax evasive wealthy do contribute a greater absolute number of eggs to the common pot. However, if we look at the percentage of disposable income, the lower and middle class (80% of the population) contribute much more of their disposable income. This means we ask more of the poor and middle class, in terms of lowering their standard of living, than what we ask of the wealthy. If Donald and Steve are made to share 20 or 22 of their 40 eggs at the party to be fair/kind, most parents would think that was the reasonable thing to do.
But what would parents (and kids) think if we also asked Molly, or Max, or Sam (who only had five eggs each) to put some of their eggs back into the communal bag as well? To be fair, that might be necessary, but to be really fair they should get back from the communal bag enough to feel satisfied with the party. Remember, it isn’t their fault nor a lack of effort that they were unable to contribute a larger number of eggs. If they end up at a future party finding 40 eggs or more, then we would expect the same generosity in return.
Perhaps the parents should have been paying more attention during the egg hunt and realised as soon as Donald and Steve got 20 eggs that that was enough. Most parents aim to balance their kids, so they don’t get too obsessed with doing one thing. In the case of the egg hunt most parents would have intervened and told Donald and Steve it was time for them to do something else and leave some eggs for the others. Governments might consider a similar approach.
Currently, there is no incentive to ‘stop and smell the roses’ or do something else for the benefit or well-being of others. Instead, if people are in the pattern of earning and hoarding wealth, it is actually much easier for them to continue earning and hoarding more. A higher tax rate for those fortunate enough to be in the top 10% would be the equivalent of the parents saying “Ok you’ve done so well, why don’t you give something else a go, just for fun?” or “I think you’ve found enough eggs now Steve, good job, do you mind helping with the snacks?” We don’t mind it when parents play an active and altruistic role in balancing out kids and asking more of them. Why do some adults get so offended when governments ask the same of them?
“I’m not a child, so don’t treat me like one, with your nanny state!”
Indeed, hardworking adults are not children, but some seem to have forgotten how fairness and sharing works. Maybe we do need to implement stricter rules that do treat some of the greedier adults like kids who don’t share. Unless people are made to share their wealth very few would willing do so. Philanthropy, as nice as it is, is not nearly as common as media headlines would suggest. Furthermore, the amount of wealth shared though donations and charities are not as stable nor as high as it needs to be, in order to effectively fund many of the functions that charities attempt to serve.
“Easter eggs and money are different, grow up!”
Some people have a problem understanding metaphors and analogies. Those same people may argue that Easter eggs to kids don’t matter as much as money does to adults. I’m not so sure. Imagine being a kid experiencing what it feels like to leave a party with 5 eggs, or no eggs, while other kids like Steve and Donald leave with 20 or more. Easter eggs do matter the same or even more. Many adults feel the same way. They would acknowledge that Donald or Steve have done well, they would not expect them to give everything away, but they would appreciate it if Donald and Steve were gracious enough to share a portion of their loot with the others. On the flip side, I think Donald and Steve may even feel guilty if they left the party with 40 eggs each. In that sense, society might be a nicer and fairer place if it were indeed run by kids.
“Poor people should have paid more attention at school, or chosen work that gets them more eggs!”
That may or may not be true, but regardless of their circumstances, the reality is that there is plenty of important work that contributes to society, which is chronically underfunded. These are jobs that need doing, so somebody must do them. Even a CEO will need roads to drive on, clean toilets, law and order, a functioning health system, and someone to help shower him when he grows old. I’m not saying people working in those areas should get the same as the CEO, but most people would agree that they probably deserve more than the fraction they are currently receiving.
Steve and Donald can keep 18 rather than 22 eggs, but their additional generosity would allow Judy the nurse (who may eventually take care of Steve’s mother) or Sally the teacher (who might be teaching Donald’s kids) to have 3 more eggs each. This makes a huge difference to their standard of living and keeps them from feeling the need to ‘Get a job that pays more’. We need to keep people in those vital jobs and provide (at least) a living wage to attract new, talented people into those roles.
“I don’t get a lot of value from my tax, let’s go user pays”
There are two reasons why some people believe they don’t get a lot of value from their tax contribution. The first is because we take things for granted, especially if we don’t explicitly pay for those things. The hedonic treadmill is a concept that suggests that people get used to something quickly and then essentially take it for granted. If 95 percent of our roads are working fine (thanks to tax dollars) we take that for granted. But we will focus on the five percent of road works or potholes that are new and annoying to us.
The second reason why people think they are not getting great value from tax is because, ironically, there isn’t enough tax being collected to provide a greater level of value. The fact that we have a free and accessible educational system (once again paid for by tax) is taken for granted. Then people focus on the problems with the educational system, such as the new ‘modern learning environments’ or overcrowded classrooms, which inherently makes it more difficult for teachers to deliver value to students and their parents. Those who can, then pay privately for education. And the same applies to private hospitals and private health insurance.
Some of these fortunate people then believe that tax is a double cost to them since they are not using the systems funded for by tax. However, that is not quite true. Even private schools and hospitals are staffed by people who receive their training through some level of government subsidy. Those private institutions also use techniques developed at research centres such as universities and research institutes, funded predominately by governments through taxes. In any case, most of the issues with public services (such as roads, hospitals, law enforcement, and schools) can only be solved with higher rather than lower taxes. You would not even need to raise taxes of everyone, only the top 10%.
Progressive capitalism seeks to tax enough eggs to ensure everyone gets a fair share, without robbing Steve and Donald of ‘all their hard work’. Currently, the Steve’s and Donald’s of New Zealand are keeping about 27 eggs each. That’s before their clever accountants find ways of convincing the parents that they had less than 40 eggs to begin with. If they were American citizens, they would keep 25 eggs (but could keep much more if they hide behind corporations).
By comparison, their Scandinavian counterparts (Sven and Dòmhnall) only keep 17 eggs. And as we all know, the Easter egg hunts in Northern Europe come with a lot more bells and whistles for everyone.
“If you take too much from the successful, they’ll just move their wealth elsewhere.”
This only occurs because some parents have been letting their kids get way with hoarding Easter eggs. Here, we literally have the age-old argument of “It’s not fair! Donald’s parents let him keep all his eggs!” But the masses are catching on and, globally, the tolerance for elite tax evasion is wearing thin. If most parents and kids can generally agree that excessive greed is bad, then I am hopeful most governments will agree as well. People need somewhere to live, and companies need places to conduct business. So, there would be nowhere else to go, if everyone shares the same values of ‘greed is not acceptable’.
We know that parents who have taught their kids to be generous, tend to be more popular with other kids. The Easter egg hunts they organise are fairer to everyone, and generally kids enjoy themselves more. Countries that enforce the values of generosity and fairness attract more people. When you have a waitlist for your Easter egg hunt, you can decide which kids you want to let in.
“Life’s not fair”
This is a common response. But humans are the only creatures on earth that try to make things fairer than the ‘law of the jungle’. A related question is whether you think life is more competition, or more cooperation? The answer is both. Probability alone suggests that most of us would not be the ‘winners’ in a ‘winner take all’ world. This fact is even truer, if we consider that most of us will become unhealthy and frail over time.
No one is truly ‘self-made’. Ardent individualists may say, with something resembling pride, that ‘Life is lonely at the top’, but it can also be treacherous if you are up there in your tiny group of haves, while a seething mass of have-nots are desperately grabbing at your heels. There is a reason why empires and aristocracies of the past have always ended in violence. Wealth accumulates and concentrates in ways that become ever more inaccessible to the masses. Over time the masses get sick of the accumulation and, as history shows, eventually the majority will demand a ‘fair’ share.
The greater the inequality of distribution, the angrier and more desperate the majority get, until violent and forceful ‘redistribution’ of wealth is considered a legitimate response à la burglary, muggings, kidnappings (South Africa), revolutions (France and United States), land confiscations (Zimbabwe), genocide or war. It is actually in the interests of the wealthy minority to address inequality of resources before such extreme reactions are even considered necessary.
“I don’t want ‘bludgers’ benefitting off my hard work!”
Everyone agrees with that. Nobody likes a free loader. But what if the ‘bludger’ had dependents? It’s not the kid’s fault that the parents are ‘bludgers’. We can’t choose our parents. What we can choose, is the decision to make sure some kids don’t become like their parents. But this can’t be done without resources. Especially if they are disadvantaged from the beginning.
“It’s not my fault people have kids they can’t take care of!”
No, it’s not your fault, but it’s not the children’s fault either. I agree, it’s a problem when people have more children than they can support. Therefore, one solution may be to ensure that people have the potential and ability to pursue a wider range of life choices, rather than just ‘having more kids, which they can’t take care of’.
“I worked hard for my advantage. So it’s my right to pass this onto my children.”
That’s a legitimate argument, and as a parent, I can identify with that. But how many Easter eggs do you think your descendants need? When is enough, enough? This is fundamentally a question of how greedy you think you need to be. The answer invariably is, “As greedy as I think others would be!” This is where governments need to take the decision away from individuals and remind people of the value of sharing.
Left to our own devices most people (kids and adults) want to keep more of what they have. Parents tend to favour their own offspring, particularly in matters of finance, and voluntarily share far less than what is required to run a country. That is natural, but the fact is that the top 10% of the wealthiest do not need to favour their kids to the extent to which their biological drive is compelling them. Let them pass on some advantage, but within decent limits. If Don Jr starts life with 10 Easter eggs more than his peers, he will be fine. He doesn’t need to start with 40 eggs more.
The reality is that when one minority group holds most of the wealth and another minority group takes advantage of everyone’s ‘hard work’, only the former group has the resources that can be used to lift everyone’s standard of living. It does not seem fair, but that’s because we have such an aversion to unfairness that we can’t help but focus on the minority of ‘bludgers’.
Studies in psychology and behavioural economics have shown people have such a negative reaction to unfairness that some are willing to suffer themselves just to ensure perpetrators get punished for ‘unfair’ behaviour. We notice this when hardworking people would rather see health, education and law enforcement underfunded, than have a small portion of their eggs go to a free rider like John. Even though, in reality, a larger portion of their shared eggs goes to other more deserving people and critical infrastructure. Even more ironic are the instances when people are willing to go the extra step and pay an additional cost to punish free riders, rather than contribute that fee to the common pool!
We need to remember that the actual number of people gaming the system is less than 10 percent. Yes, it’s frustrating when a small group takes advantage of our ‘hard work’, but it’s even worse if we let them rob us of our innate sense of fairness and generosity.
Associate Professor Dr Michael SW Lee is from the Department of Marketing in the Business School.
This article reflects the opinion of the author and not necessarily the views of the University of Auckland.
Alison Sims | Research Communications Editor
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