By John Pagani*
Why do so many people vote against their class interest when it comes to tax?
As the Economist wrote this week,
Economists have usually explained poor people’s counter-intuitive disdain for something that might make them better off by invoking income mobility. Joe the Plumber might not be making enough to be affected by proposed hikes in tax rates on those making more than $250,000 a year, they argue, but he hopes some day to be one of them. This theory explains some cross-country differences, but it would also predict increased support for redistribution as income inequality widens. Yet the opposite has happened in America, Britain and other rich countries where inequality has risen over the past 30 years.
The other explanation one comes across quite often in the lefty parties is that they vote on non-economic issues. Right wing parties are skilled at exploiting social wedge issues. So, for example, the strongest Republican vote in the US is down the banks of the Mississippi, the area of the greatest social deprivation, but also the area with the highest racial contrast in voting patterns.
Now the Economist has a new theory.
Instead of opposing redistribution because people expect to make it to the top of the economic ladder, the authors of the new paper argue that people don’t like to be at the bottom. One paradoxical consequence of this “last-place aversion” is that some poor people may be vociferously opposed to the kinds of policies that would actually raise their own income a bit but that might also push those who are poorer than them into comparable or higher positions. The authors ran a series of experiments where students were randomly allotted sums of money, separated by $1, and informed about the “income distribution” that resulted. They were then given another $2, which they could give either to the person directly above or below them in the distribution.
In keeping with the notion of “last-place aversion”, the people who were a spot away from the bottom were the most likely to give the money to the person above them: rewarding the “rich” but ensuring that someone remained poorer than themselves. Those not at risk of becoming the poorest did not seem to mind falling a notch in the distribution of income nearly as much. This idea is backed up by survey data from America collected by Pew, a polling company: those who earned just a bit more than the minimum wage were the most resistant to increasing it.
Poverty may be miserable. But being able to feel a bit better-off than someone else makes it a bit more bearable.
I am sure this is right. All the voter research I've ever done shows National voters are much more class conscious. To express it in an extreme form: National voters would rather be poor but better off than their neighbour, than rich but no richer than their neighbour. That's why New Zealand is a low income country with vast inequality. It's what we keep voting for.
Other points to record from that article:
America’s top federal income-tax rate of 35% is lower than in many other advanced economies (although most Americans also pay state taxes).
Ahem. They also have a capital gains tax.
[C]ountries that are more ethnically or racially homogeneous are more comfortable with the state seeking to mitigate inequality by transferring some resources from richer to poorer people through the fiscal system.
This is almost certainly important in explaining voting behaviour in New Zealand.
*John Pagani is an independent political consultant and writer who has worked as an adviser to Labour Leader Phil Goff. He writes his own blog at Posterous.