Wednesday, April 16, 2008

The real tax policy significance of Paris Hilton

Having seen her on one of the big TV screens in the health club when I was working out this morning, I'm reminded of how I think her symbolic significance to tax policy debates is sometimes (to my taste at least) misstated.

Proponents of estate or inheritance taxation sometimes see her as the poster child for their position in the debate. The idea being that she is the canonical undeserving heir who is wealthy simply because, from the financial standpoint (whether or not more generally) she had good luck in the choice-of-parents lottery. Hence, the implicit argument goes, we should want to tax away her undeserved good fortune, whether just to finance lower taxes on those who are more productive and deserving, or also on the Andrew Carnegie surmise that receiving a huge inheritance is actually a curse not a benefit.

Not exactly to defend her, but whenever I hear this usage it occurs to me that she has actually generated huge earnings in recent years. So, from a conventional economic standpoint that relies on market measures of earnings, she actually is a large-scale producer rather than a member of the "idle rich."

But this in turn points out another symbolic use. Within a standard optimal income tax framework, even ignoring the inherited dollars that she got to spend, her earnings make her a canonical example of someone with high "ability." So the real reminder that we get from her example is what "ability" really means in this framework - that it is about something external, relating to one's potential interactions with the environment in which one finds oneself, rather than something purely internal such as (genetically or otherwise derived) intelligence, taste, acting and singing ability, or charm.

So we might call an income, consumption, or earnings tax a "Paris Hilton tax" and mean the same thing (but with a bit more topspin) as if we called it a "Bill Gates tax."

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