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National Debt and Longtermism

photograph of father and son silhouette working tiller

On September 23rd, the U.K. Chancellor Kwasi Kwarteng outlined an array of tax cuts and other economic measures to jumpstart the economy and tackle the growing cost of living. His hope was that an increase in economic growth would result in a less turbulent recession and, ultimately, an easing of the pressure on household and business finances. However, the markets met the measures with less than favorable responses. Immediately after the announcement, the value of the pound dropped to a near 40-year low, and U.S. Treasury Secretary Larry Summers remarked that “[t]he UK is behaving a bit like an emerging market turning itself into a submerging market” and that “Britain will be remembered for having pursued the worst macroeconomic policies of any major country in a long time.” Unfortunately, the bad news kept coming as, early on September 26th, the pound plummeted to a record low against the dollar.

Despite the inherent complexities in national and global finances, one of the most significant criticisms against this dramatic shift in financial policy has been a relatively simple question – who will pay for all this? After all, if you want to cut taxes but still provide public services, the money must come from somewhere. For Kwarteng and the U.K. government, the answer is to borrow. But we’re not talking about a small loan. The U.K. government will borrow £72 billion over the next six months alone. This is in addition to the borrowing it had already planned to do.

Of course, if you want to avoid going bankrupt and defaulting on your loans, borrowed money needs to be repaid at some point, alongside interest. This fact is something which the Chancellor has been hesitant to acknowledge, sidestepping the question when he’s asked. Nevertheless, the matter remains – who will have to pay back this money? The answer is future generations.

Money borrowed today will be paid back, in the form of taxes, by those yet to be born. In other words, the U.K. government is trying to solve today’s financial problems by pushing them onto tomorrow’s generation.

To some, this seems exceedingly unfair. After all, those future generations, who are yet to be born, weren’t the ones who borrowed that money. So, why should they be the ones to pay it back? Indeed, those making decisions about national borrowing – the ones in government positions – face no personal repercussions for their borrowing decisions beyond those shared with everyone else. And while they borrow on their nation’s behalf rather than their own, there’s seemingly a disconnect between financial decision-making and the consequences.

So, ultimately, the benefits of borrowing – increased economic activity, better public services, more generous subsidies – are enjoyed by those alive today, while future generations will be stuck with the bill. And, of course, the prospect of borrowing money to make our lives easier and not having to pay back that debt, as it will be someone else’s problem, makes for a mighty tempting offer. James Buchanan, Professor of Economics at Harris University, summarizes this nicely:

the institution of public debt introduces a unique problem that is usually absent with private debt; persons who are decision makers in one period are allowed to impose possible financial losses on persons in future generations. It follows that the institution is liable to abuse this and overextend its borrowing practices.

So far, I’ve painted a picture in which the arguably reckless borrowing exhibited by the U.K.’s newest government does, at minimum, a disservice and, at most, an injustice to future generations. While an intuitively appealing stance, it rests upon a proposition that might be less than well-founded. Do we, or can we, actually owe anything to future generations? If a government or I take action that, theoretically, harms the interests of someone who doesn’t exist yet, have I done something wrong?

According to Oxford Philosopher William MacAskill, the answer is not only that we can owe things to future generations but that our inclination to think in the short-term is one of our most significant moral failings. As he argues in What We Owe the Future, if we’re to draw ethics down to a simple utilitarian numbers game, where the most ethical actions are those bringing about the greatest good for the greatest number, then not only should we take into account the interest of future generations, but those generations outweigh the interests of those alive today. This is because the number of potential persons yet to be born far outweighs the number of people currently alive.

As such, if we’re committed to a utilitarian ethical framework, then it follows that we should sacrifice our well-being and hamper our interests if doing so could bring about a better life for the multitude of future potential people – you are singular, but your descendants are possibly innumerable.

When made explicit, this idea of acting in the best interest of the yet-to-exist at our expense can sound counterintuitive. But, we’re typically intuitively inclined toward such thinking. As MacAskill writes:

Concern for future generations is common sense across diverse intellectual traditions […] When we dispose of radioactive waste, we don’t say, “Who cares if this poisons people centuries from now?”

Similarly, few of us who care about climate change or pollution do so solely for the sake of people alive today. We build museums and parks and bridges that we hope will last for generations; we invest in schools and longterm scientific projects; we preserve paintings, traditions, languages; we protect beautiful places.

As such, it seems, much like with the motivation to curb climate change or refrain from radioactive waste dumping, that making things harder for ourselves today can be justified, even ethically required, if doing so has significant and material benefits for future generations.

The question, then, is whether the extreme measures Kwarteng’s taken will eventually make things better for the U.K. economy, ideally, benefit not only those alive today but the country’s future overall. According to his supporters, the answer is a resounding yes. Unfortunately, it’s coming from too few voices. Ultimately, only time will tell whether the Chancellor’s gamble will pay off. But if it doesn’t, any short-term gains he may have just secured would almost certainly pale compared to the long-term harms he’s potentially unleashed.

Fairness in Taxation

photograph of pencil lying on 1040 tax form

For many, the 2020 election was primarily tied to the presidential race. However, many important ballot questions appeared in states across the country. In Illinois, a ballot initiative, dubbed by supporters as the “Fair Tax” amendment, sought to amend the Illinois state constitution to abolish the flat income tax and replace it with a graduated income tax. Though it might sound simple, campaigns concerning the ballot question saw over $100 million of investment. In the end, the tax amendment was rejected by a 10% margin at the polls.

Is a flat tax system ethical? What are the values and detriments of taxing income at the same rate?

Only 9 states in the U.S. enforce a flat tax rate. These states are spread across the U.S. and across the political spectrum, from Massachusetts and Colorado to Utah and Kentucky. In terms of flat income tax states, Illinois is on the higher end of the tax rate, charging 4.95% of its residents’ income levels.

One moral argument for the flat tax rate is that on its face, it appears extremely fair. Everyone, regardless of income level, is expected to contribute an equal share of their earnings to the local government. A flat tax is also considered to prevent deadweight loss, and the unintended consequences that follow from it. Those who believe that our economy is meritocratic — where labor leads proportionally to profit — might favor a flat tax because it does not constrain those who choose to labor more and therefore profit more.

Another value of the flat tax is that it is easy to understand and implement. Individuals do not have to worry about whether or not their next bonus at work will push them over the edge into the next tax bracket. The flat tax rate has also been considered good for both the middle class and the upper class, or the “job creators.” Those who subscribe to free market ideology believe that a flat tax is the most acceptable form of income tax in that it does the least to inhibit the efficient allocation of resources which already occurs naturally through free-market processes. Flat tax rates have also been found to stimulate the economy through an increase in investment and consumption.

The relative value of eliminating line-drawing is also a benefit claimed by flat tax advocates. If everyone is taxed the same as principle, we can avoid the difficult, and at times arbitrary, process of determining which income levels warrant which levels of income tax. Supporters of flat tax rates might even point to examples of inequity caused by lobbying in graduated tax systems, such as the recent exemption in the 2018 tax plan, which rather unreasonably favored the food company Newman’s Own.

However, many argue that though flat tax rates appear on their face to be equitable, they actually contribute to inequality overall. For a person near or below the poverty line, 4-5% less income can make a substantial difference in lifestyle compared to the wealthiest members of society. For this reason, flat taxes are often considered as favoring the wealthy, as their lifestyle is affected far less than those at the bottom of the income bracket. When combining a flat tax rate with charitable exemptions, the wealthiest members of society might end up paying very little, which can put the burden of taxation on the middle and lower classes or lead to an overall shortage of tax funds with which to address social issues.

Those in Illinois who supported abolishing the flat tax believed it was the fairest policy for the most amount of people. In fact, 97% of all Illinois residents stood to have their tax rate stay the same or decrease as a result of the amendment. Only those individuals making more than $250,000 per year would see an increase in their income tax rate. However, the fair tax amendment did not pass, by roughly a 10% margin.

An Illinois local news agency, Forest Park Review, published interviews with Illinois residents debating the fair tax amendment. Those in Illinois who were against abolishing the amendment argued that once the precedent of graduated income tax was set, the Illinois state government could set new tax rates at any time. One such detractor, Dan Watts, also pointed to the fact that the state of Illinois has notoriously misspent and mismanaged the state budget and finances for years, and that the responsibility of this mismanagement should not fall back onto individuals in an attempt to “paint the water-stained walls.” Another detractor of the amendment, Dan Bjornson, expressed a similar distrust of government, justifying his opposition to the amendment by pointing out that “they’ve made a mess of the state’s finances and I would not want to give them additional power.” However, others argue that it is the very tax system itself that has created such budgetary crises at the state level. Fair tax supporter Quentin Fulks, the chair of the Vote Yes for Fairness campaign, purported that “Illinois is in a massive budget crisis due to years of a tax system that has protected millionaires and billionaires at the expense of our working families.”

Perhaps the greatest irony of Illinois’ ballot amendment is the fact that those heading both the pro- and anti-flat tax campaigns were themselves billionaires. Governor Pritzker invested $56 million to the “Vote Yes for Fairness” campaign. His campaign donation was nearly evenly matched by billionaire Ken Griffin, who poured $54 million into the “Stop the Proposed Tax Hike Amendment” campaign. It seems that the upper echelon of society is controlling the narrative when it comes to a policy that affects every individual. Perhaps it is time to examine a political system in which one’s income heavily dictates the power one wields in the democratic debate over regulating such income.

Blame and Forgiveness in Student Loan Debt

photograph of campus quad with students

US Senator and presidential hopeful Elizabeth Warren has recently proposed a pair of debt relief efforts that aim to address the growing problem of student loan debt in America. The first proposal would cancel “$50,000 in student loan debt for every person with household income under $100,000” (with lesser reductions for those with higher household incomes), while the second aims to help prevent student loan debts from becoming a problem again in the future by eliminating “the cost of tuition and fees at every public two-year and four-year college in America.” Here I want to focus on the ideas behind Warren’s first proposal. Should student debts be forgiven?

Regardless of where one falls on the political spectrum, it is undeniable that mounting student debt is an enormous problem in America. Recent studies have shown that approximately 40 million Americans have student loan debt, and that student debt has become the second-highest category of debt, second only to mortgage debt. Although younger people have the bulk of student debt, individuals from all age ranges have felt the effects, such that “the number of Americans over the age of 60 with student loan debt has more than doubled in the last decade.” There are, of course, consequences to so many people having so much debt: if you are spending a significant amount of your income on repaying student loans then you are going to find it difficult, for example, to buy a house, or car, or save, or invest for your future. It’s also unclear what will happen if a significant portion of those with debt default on their loans, with some economists comparing the student debt situation to the mortgage crisis a decade ago. With student debt being an urgent problem, the idea of addressing it by implementing a debt forgiveness plan might then seem like a good first step.

There are many practical questions to be asked about the implementation of a debt-forgiveness plan like the one Warren proposes (she has, of course, thought about the details). There have been concerns with Warren’s plan, however, that aren’t so much about the dollars and cents as they are about blame and accountability. In answering the question of whether debt should be forgiven we need to first think about who is to blame for it.

A natural place to locate blame is with the students themselves. Here is an example of an argument that one might make for this view:

Those signing up for college know full well what they’re getting themselves into: they know how much college costs, how much they will have to borrow, and generally what that entails for repaying those debts in the future. No one is forcing them to do this: they want to go to college, most likely for the reason that they want a higher paying job that requires a college degree. It may very well be the case that it is difficult to be ridden with debt, but it is debt for which they are themselves accountable. Instead of this debt being forgiven they ought to just work until it’s paid off.

Arguments of this sort have been presented in numerous recent op-eds. Consider, for example the following by Robert Verbruggen at the National Review:

“Where to start with [Warren’s proposal]? With the fact that student loans are the result of the borrowers’ own decisions – often good decisions that increased their earning power? With the fact that people who’ve been to college are generally more fortunate than those who have not? With the fact that this discriminates against people who paid off their loans early, as well as older borrowers who have been making payments for longer?”

In another article, Katherine Timpf similarly claims that student debt should not be forgiven, and that student debt became such a problem only because students were “encouraged to take out loans that they could not afford in the first place.” Curiously, she goes on to claim that while Warren’s debt-forgiveness plan is “a terrible, financially infeasible idea,” it is nevertheless the case that it is a culture that encouraged over-borrowing that is ultimately to blame. It is difficult to make coherent sense of this position: if it is indeed a culture that encourages excessive borrowing that is to blame, then it is hard to see why all the blame should fall to the students.

That student debt is primarily the result of broader societal factors, and not that of bad decision-making, laziness, or unwillingness to “stick it out”, is the driving thought behind many of those who are in favor of debt forgiveness. There are undoubtedly many such factors that have contributed to mounting student debt, but there are typically two that are appealed to most frequently: the skyrocketing cost of tuition and the stagnation of wages. While Warren herself notes that she was able to afford college by working a part-time job, doing so in the modern economy is often very close to impossible. Without independent support it seems that students have little choice but to take out increasingly large loans.

Here, then, is where the ideological heart of the debate lies: those who argue in favor of debt-forgiveness will generally see the blame for the student loan crisis as predominantly falling on societal factors (like increased tuition and stagnated wages), whereas those who argue against it generally see the blame as predominantly falling on the students themselves. Presumably we should assign responsibility where the blame lies, and so depending on who we think is most to blame will determine whether we should implement something like debt forgiveness.

However, we have seen that there is substantial data supporting the view that the student debt crisis is largely attributable to societal factors outside of the control of the students. Furthermore, the thoughts that students are simply “not working hard enough” or “just want a handout” tend to be based on little more than anecdotes and bias (stories of students working multiple jobs just to make ends meet are readily available). This is not to say that students should not be assigned any blame whatsoever for their decisions to go into debt for their educations. However, it does seem that significant contributors to those debts are ones that are outside of a student’s control. As a result, it does not seem that students should be fully blamed for their debts.

Even if this is so, should we think that the best way to take responsibility for those debts is to implement debt forgiveness? As we have seen, some have expressed concerns that forgiving debts would be, in some way, “unfair”. There are two kinds of unfairness that we might consider: first, it might seem to be unfair to those who have already paid off their student loans through years of hard work; second, it might seem to be unfair to those who have to pay for someone else’s debt – Warren’s proposal to finance her debt forgiveness plan, for example, is to generate funds from a tax increase on the extremely wealthy, and one might think it unfair that these individuals should have to cover the debts of someone else. Would a debt-forgiveness proposal be unfair in these ways, and if so, is that good enough reason to say that it shouldn’t be implemented?

While these concerns about fairness might seem like appealing reasons to reject debt forgiveness, upon closer inspection they do not stand up to scrutiny. Consider the first worry: if a debt forgiveness plan is implemented it will indeed be the case that there will be some people who have just finished paying off their debt prior to the policies taking effect and so will not be able to take advantage of their debt being forgiven. It would then seem unfair to privilege one group over another, where the only relevant difference is that the former took on their debt later than the latter. But it is hard to see why this should result in not having any debt forgiveness at all: the argument that “well if I don’t get it, they shouldn’t either!” does not solve any problems. This is not to say that such unfairness should not be addressed at all – perhaps there could be some kind of reimbursement of those who paid off debt before it was forgiven – but it does not seem like a good enough reason to not offer any debt forgiveness to anyone. The second worry similarly fails to hold much water: unless someone takes issue with the idea of taxation in general, then there does not seem to be anything particularly unfair about having the extremely wealthy pay more to aid others.

There are, of course, many factors to take into consideration when considering something like a debt-forgiveness plan, and Warren’s plan in particular. Regardless, it seems that given the severity of the student debt problem, and that the factors that contributed to the problem are largely out of the control of the students themselves, that the responsibility for student debt cannot fall solely on the students themselves.

The Fight to Raise Indiana’s Cigarette Tax

For the second year in a row, Indiana legislators have introduced and advanced a bill that aims to raise the consumer taxes on cigarettes. In the nation, Indiana ranks 37th for the price of a pack of cigarettes, with the tax on a pack of cigarettes at less than $1. Though during the 2016 General Assembly a bill that targeted cigarettes and gasoline did not pass, H.B. 1578 is on track to make it to the governor’s table. Not only does H.B. 1578 raise cigarette taxes by $1.50, but it also aims to raise the minimum smoking age from 18 to 21. Though nobody advocates for the harmful side effects that cigarettes cause to personal and community health, what are the ethics of increasing taxes on a consumer product that is used more heavily by the poor?

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