Want that warm inner glow? Pay tax

The following is a report from the Courier Mail.

“WHO would have thought that paying your taxes can switch on the reward centers of your brain like a party drug? That is the finding of a study that recorded how the brains of a group of women lit up with pleasure as money was mandatorily transferredfrom their bank, accounts to a charity.

The results were similar to, although not as pronounced, as when the subjects donated money voluntarily.

Scientists from the University of Oregon, reporting in the journal, Science, say the research sheds light on that very human quality of altruism, or self-sacrifice, and shows that “paying taxes can make people feel good.

The study confirms the economic theory of “warm glow” giving, says Paul Fritiers, a happiness eco-nometrician at the Queensland University of Technology.

“Economists tend to think of things in terms of utility but in the simplest form (warm glow giving) is just saying,’I become happier if I see that you’re happier’,” Professor Fritiers says. “It means 1 care about how other people feel; if they feel better, 1 feel better. It means youre no longer a purely selfish agent but that you’re willing to pay money to make other people feet happy.”

The study represents the new field of neuroeconomics, a meeting of economics and psychology”.

How we get from donating money to charity to paying taxes is uncertain in the report, however if it is the case that all of you people out there swoon with ecstasy at the thought of your next tax bill it is no wonder taxes are so high. If this is the case, shouldn’t governments be altruistic by getting us to pay more and higher taxes to make us even happier.

I suppose that the results were from women in the study, so enjoying paying taxes might be a girl thing.

51 thoughts on “Want that warm inner glow? Pay tax

  1. I don’t see how you can arrange a study that mandatorily transfers money out of peoples bank account. If I could think of a way to mandatorily transfer money on a regular basis from the bank accounts of a large sample of people then I think I’d be doing something a little less mundane than research. 😉

    I wonder if they went on to study the effects of mandatory sex, mandatory confinement, mandatory kneeling and mandatory obedience.

  2. Some people think paying tax is a social responsibility and are happy to pay tax, because they think the money they put in actually achieves something… well it does, but probably at double the cost of the private sector.

    Which is why tax evaders and minimisers (but particularly the former) encapsulate the libertarian spirit of dissent against authority. If everyone willingly and happily handed over their money, without putting up any fight at all, the government is likely to feel further increases in tax are politically feasible. But tax evaders are a check on the government because they remind the Treasurer that taking money from individuals in the name of the greater good isn’t really such a universally accepted concept. And I think (perhaps unfortunately for the theory in Jim’s post) that the higher the tax rates, the more evaders there are – its only rational, once you’ve weighed up the risks of being caught.

  3. It’s funny, but also sad that this research is taken seriously.

    If giving makes you happy then you are always free to give. Tax is by definition forcing people to give against their will, using the threat of violence. If you have to threaten violence to force an action, it is very unlikely that the action will make the person happy.

  4. Rich people are often treated as though they had a double dose of original sin. If that rubbed off on the rich, that would explain the guilt they feel at having money, and their urge to give it away, or have it taken from them by ‘society’.

  5. Mark Hill asked “Has any individual ever claimed they were taxed too lightly?

    The answer is “yes”. I, for one, think that I am taxed too lightly, and studies a few years back indicated that many people thought that taxes were too low.

    Rich.

    PS. Before you fire off the predictable but simplistic stock Libertarian response to this, you might want to consider the implications for horizontal equity and the free rider problem.

  6. I regard the government sector as generally producing more free rider problems than the rest of society. In particular the welfare state is ladened with free rider problems.

  7. This research actually shows why you shouldn’t feel good for paying tax. Because your tax is funding pointless research studies like this.
    While some students work on life saving medical research for their PhDs, some chump probably earned himself a PhD for this useless activity.

    I would like to know the details of this study. But I doubt the Courier Mail is concerned about them.
    You need volunteers for studies so how can they really claim the bank account deductions were mandatory? I’m sure the university research team didn’t engage in illegally deducting money from people’s bank accounts without permission.

    From what I can tell, this is a nasty piece of propaganda. Perhaps this study is in reality showing how susceptible peole are to being fooled into irresponsible obedience even when their own prosperity is reduced.

  8. Tax is by definition forcing people to give against their will, using the threat of violence. If you have to threaten violence to force an action, it is very unlikely that the action will make the person happy.

    But Ross Gittens says it does.

  9. RS says he is taxed too lightly.

    Proposition 1: Why don’t you just give more to the Government then?

    There might be a problem though: How much of your tax is spent on Governemnt activity with a rate of return that outweighs the deadweight cost of it’s imposition?

    So we come to a second set of propositions 2: If a proportion of it is wasted, why not tax us less and ask for a lower pay rate? Why should we be punished if you had a large inheritance for example? Why not work less?

    How does any of that contradict any principles arising from horizontal equity (let’s just have a consumption tax if that is a policy priority – since it taxes according to disposable income). Taxing according to capital destroys economic ability to increase wages of the least well off workers. So dynamically it is more equitable.

  10. Studies have shown that some women orgasm while being raped.

    Does that justify rape?

  11. Even the Gittins argument isn’t as stupid as the one cited above. Gittens is talking about how tax can be good in the long run if it encourages a shift in work-life balance. In contrast, the above argument is actually saying that we enjoy the paying of tax while we pay it. Sounds a bit like S&M to me. 🙂

  12. RS:

    How many people who volunteer more taxes are actually volunteering a net wealth transfer to themselves by direct and indirect subsidies they hope to receive?

  13. Sweet Jesus I can’t believe I missed this:

    “WHO would have thought that paying your taxes can switch on the reward centers of your brain like a party drug?”

    Yeah right, the ATO takes out rival gangs to corner the rave and party drug market. Dour men dressed in grey become the new harbingers of addiction and clubbing subculture. Accountants and tax policy advisers replace the meth lab operators. Taxpayers break out glow sticks as they sit in a trance before eTax 2007, wasting their lives with little regards for their health, jobs or family…

    Won’t somebody please think of the children!

  14. It’s fine if RS chooses to pay more tax. That just makes it easier for me follow the Kerry Packer principle:

    Of course I am minimising my tax. And if anybody in this country doesn’t minimise their tax, they want their heads read, because as a government, I can tell you you’re not spending it that well that we should be donating extra!

  15. I not only choose to pay more tax, DL, I choose at the ballotbox for you to pay more tax too. In fact, my preference to pay more tax is conditional on others on the same income as me paying more tax too – so that horizontal equity is maintained. Now, I know that having preferences on others actions does not fit easily within a Libertarian framework, but the truth is that your free riding imposes costs on me, and others, so your “do what you like yourself so long as you do no harm to others” defence holds no water in this debate.

    Richard

  16. If I don’t want horizontal equity how am I being a free rider if you decide to pay for it and I don’t? By forcing me to pay for something that you want and I don’t want you are in fact getting a free ride at my expense. So your position does not hold water.

  17. Dear RS,
    Please change your initials to BS.
    The only acceptable tax rate is zero. Besides, the article was about the joys of giving, not the joys of compelling others to give. If you wish to give more of your money away, feel free! I will help you feel better by taking it off you.
    Love and XXX

  18. Perhaps for a start a word from some one who knows the area this comes from;

    Patrick Joubert Conlon said…
    Well, it’s Oregon and Oregonians are very socialist. It’s the most annoying thing about living in this state.

  19. RS,

    If you do have a real preference for higher taxes and seemingly Governments have reduced taxes on disposable income and salaries since 1983, then have you contributed more?

    No he says. The bastards will free ride on my preference to give more he says!

    Clearly this is a thinly veiled attempt at arbitrary wealth transfer, “nation building” and unjustifiable and unwanted Government spending.

    Note that RS never says what he wants the Government to spend more on, he just extolls the virtues of paying more tax. Like the virtue of burning dumping your possessions at the bottom of the sea.

  20. Mark — perhaps you have forgotten “clever dick”, aka “richard smart”, aka “RS”. If you remember him you might remember that he does advocate income tax because it encourages a shift in work-life balance.

    His argument is that higher work incomes don’t bring happiness through higher consumption because our expectations adjust. Unfortunately, we keep working for the status involved in “keeping up with the Joneses”. In his world, the virtue of an income tax is to discourage everybody from working so that the status game remains unchanged but we all have more leisure time.

    This topic is RS101 and he enjoys bringing up the issue as often as possible. Everybody has fallen for the bait.

  21. “I not only choose to pay more tax, DL, I choose at the ballotbox for you to pay more tax too.”

    If it is not a rude question RS, would you please tell me which party you will be voting for to have our taxes increased. I only ask because no party has at this stage advertised its intention of increasing taxes, which is a little remiss of them. I am sure that this is merely an oversight on their part.

    You won’t like this, but last fortnight I missed half of the working days through an injury, (not work related) with the result that my take home went down by a third while Costello’s went down by two thirds.

    I have been expecting him to ring me in the mornings yelling, “Get to work you bastard”, but he hasn’t yet.

    It gives you an idea though of just how ridiculous your beloved tax system is.

  22. but the truth is that your free riding imposes costs on me, and others, so your “do what you like yourself so long as you do no harm to others” defence holds no water in this debate.

    Your psychology is fascinating, Richard. Maybe your mindset is the true definition of ‘control freak’.

  23. OPTIMAL FREEDOM TO CHOOSE

    No Michael, my argument for higher taxes does not derive from a want to control you – at least not in a ‘command and control’ sense. In particular, I do not want to substitute my preferences for yours; or direct you to consume this rather than that. Rather, I simply want you to pay for the psychic as well as material costs of the externalities you impose on others, and to take into account the internalities you overlook in your decision-making. Beyond those economically-justifiable interventions, you would be totally free to choose.

    Richard Smart

  24. This is an example of why I think most externality arguments are junk-economics. I first encountered this argument when my parents insisted that there was a significant negative externality from me using drugs becaue it would make them sad. In contrast, my drug use gave a positive externality to my fellow drug fiends.

    Such psychic externalities can be used to justify anything. The psychic costs (negative externality) from other people being more beautiful than you justifies taxing beauty. Then again, the psychic benefits (positive externality) from being able to look at beautiful people justifies a beauty subsidy. All activity has a range of positive & negative externalities that are mostly impossible to measure.

    Then of course there is the issue of whether the government is capable of fixing the supposed externality imbalance. I find it hard to believe that income tax is going to stop humans from playing the status game. Indeed — I think the status game has already shifted away from income in 1st world countries. But an income tax will decrease production & growth rates, and therefore long-term health & minimum welfare outcomes (which matter even if expectations adjust because they impact on life-expenctancy). Questionable benefits. Certain costs.

  25. Positional externalities is not principally an issue of status (though it can be that too). Rather, at issue is the subconscious determinants of people’s wellbeing, and in particular the effects on one’s expectations of increasing material consumption generally. People will always play status gains, as you point out, but the non-status related aspects of positional externalities provide their own incentives, over and above those provided by status, for people to consume. Thus, the ability to seek other forms of status does not negate the case for measures to reduce the overall rate of increase in material consumption on account of positional externalities. As for your point about a particular tax* reducing growth rates, it should be noted that while a tax – and let’s say an income tax for now – will indeed reduce growth in activities from which monetary income is derived, it will not necessarily reduce economic growth.

    Rich.

    * I have not specified the apropriate nature of said tax – ie, whether it would be an income, consumption or other tax or a mix.

  26. Just wondering the other day where you had got to Richard… It seems like it’s been a while. Did you miss us? Probably more then we missed you. Still able to get everyone riled up I see. FWIW I’m with John, your argument only shows the ridiculous nature of psychic externalities generally.

    Don’t go pretending to be someone else to annoy us, now. You are annoying enough in your actual personality.

  27. I don’t see why you yourself just work less and free ride on everyone else’s hard work Richard. Why don’t you downshift?

    “I can’t there’s no horizontal equity! No one else will”

    ???

    Are you trying to tell us you know everyone else is better off working less?

    What if the positional externality beomes who is the most leisurely and our living standards drop too far in comparison to an improved work life balance?*

    *You too have assumed that the existence of an externality means its removal has a net benefit. Please don’t point out my implicit assumption.

  28. If people’s expectations are affected by the material living standards of those around them, Mark, then downshifters will still incur psychic costs from the effects of having their material expectations raised by others. Thus, you supposedly clever challenge isn’t.

    Regarding leisure, I agree with your point – and, in a less imperfect world, incentives would be organised such that there would be a less uneven distribution of both work and leisure in order to, among other things, ameliorate the effects of such positional externalities.

  29. 1. So you want to tax us because we have raised your material expectations? What guarantee is there this tax will lower your expectations? Isn’t this naive given tax sheltering, inheritances and accumulation of investments?

    2. Then your expectations will fall and downshifting will be more beneficial?

    3. In 1. you haven’t shown that this psychic cost you will incur has been inflicted by anyone else onto yourself. Unless you are saying that society can think for you in raising your expectations. It seems more like you’ve inflicted the positional “externality” on yourself.

    4. Unless contradicting 3. you are saying that you not only can think for yourself, but we shouldn’t do anything which might upset you.

    5. Don’t you have something approaching rational or adjustive expectations? Given your knowledge, won’t taxing people just inflict more psychic costs on yourself as you lose your ability to free ride from a more well off social endowment in terms of productive capacity?

    6. What about the veil of ignorance? Do you think you might want to work hard for a better lifestyle if you were less well off? Do you think as someone else, you may want to stop working after your material expectations have been achieved (years of very hard work). What if you don’t value positional goods or you actually get to the top in another life? What about the psychic costs you want to linflict on everyone else via Government action?

  30. HEY, BS!!!
    The original comment was about the effects of voluntary giving. Your vote at the ballot box has nothing to do with choice! Your own statements talk about making others do what you want. Now it may be true that smart people will think about the consequences of their actions, but your use of the argument to justify intervention is a weak one, especially as regards psychic externalities. ‘Giving’ is not the same as ‘Taxing’, or ‘Being taxed’!

  31. Responses to Mark.
    1. None – but the case for government actions does not require perfect certainty.
    2. Yes, though downshifting need not be the outcome: a reduction in the rate of upshifting would be more likely.
    3. Yes, human’s are pre-wired and/or socialised in to responding to various stimuli in particular ways. Consider the pain reaction you get when someone smashes your face in. Would you argue that it was not their actions that caused the pain, but rather your mind. Clearly not. Now, consider the sexual excitement you feel when you see a scantily clad beauty with a come hither look. Whether you act on those feelings are in a sense up to you, but the feelings themselves are not something you can prevent.*
    4. In point (4), you suggest that my position is that people should do anything to upset others. However, the point about using a tax – rather than a ban – is that you indeed allow others to undertake the behaviour that causes the externality, if they wish, provided they are willing to pay for the costs their actions impose.
    5. No.
    6. (a) Unclear point to question. (b) Yes – but the question is about more than individual wants; its also about externalities and aggregate wellbeing. (c) See b. (d) See a. (e) Like all proper economists, I’m comfortable for government action to generate psychic costs in the process of generating net benefits.
    Richard

  32. So RS you know for sure that:

    1. There will not be a net decrease in output due to lower incentives to work and less capital investment.

    2. Alternatively, such a decrease will be balanced by an optimising reduction in work (even though you say the Govenrment doesn’t need accurate figures, nor is there a gauarntee that any of this will work).

    3. Your three is composed of two arguments of varying strength. My creation of positional goods is not the same as randomly assaulting people. The woman isn’t doing anything wrong by looking or acting like that unless you assume I can regulate the actions of other because not of what I will feel, but what I might feel. You agree so far as in your 4. Costs are not contingent, hence what I might feel does not satisfy a positive or negative externality. Moreso, what do you do if everyone’s preferences to ban are incompatible?

    4. It is strange that you hold vertical equity so imperative but don’t give a fig about the veil of ignorance as a tool of analysis.

    5. In your 5., you say as much as you can be fooled all of the time.

    6. As for “net benefits” you can measure and compare people’s psychic costs as a smaller part of their overall utility measurements?

    Haven’t you argued earlier that happiness is a better terminal scale for analysis of well being? Can’t we incur psychic costs and positional externalities and be happy given most of the happiness literature shows a fairly constant level of happiness, save for influential variables like health and sex?

  33. PS RS.,

    Please tell us how you would tax us, what your level of tax/GDP ratio would be and what you would spend extra revenue on (or do you wish to stifle us with a myriad of inefficient taxes)?

    For contrast, I propose that we set a rough target of 10% tax/GDP ratio and set a rule that Govenrment spending needs to generate a net benefit over the cost of collection of taxes. We should have a 5% VAT nationally and a 1% Gerogist tax to fund the states. Policing and the military should be the main focus of Govenrment action. welfare would be overhauled and simplified with a basic income.

    My illustration is very rough, just tell us your general idea. You have never revealed how much revenue you want to raise or where this should go.

  34. Not for the first time Mark, your responses misrepresent my position and entail supposed ‘challenges’ to conclusions that arise for your imagination rather than anything I have said or implied.

    For instance, your first response is the challenge that I “know for sure” that , when in fact I pointed out that I am not prepared to give any guarantee of a particular outcome, but that certainty is not required to justify government actions.

    Similarly, you assert that I “don’t give a fig about the veil of ignorance as a tool of analysis”. In fact I do, and I think using it bolsters my case. However, all I said was that the point of your question – namely “What about the veil of ignorance?” – was unclear. It is a ridiculous interpretation of that – which reveals either substantial cognitive limitations on your part or a malicious intent to miss the point – to say that I don’t give a fig about the veil of ignorance as an analytical tool.

    ________

    PS: My earlier response of “No” to your original question five was to the second sentence in that question; not the first. Thus, I was not admitting to lacking rationality and adaptive expectations. The confusion caused was my fault. Apologies.

    Ricahrd, over and out.

  35. Whether you act on those feelings are in a sense up to you, but the feelings themselves are not something you can prevent.*

    Yes they are. This really comes down to the problem with your position. Yes, there will be a hormonal reaction to a sexual invitation (evolution has made it this way for obvious reasons) but as beings of reason we don’t live like animals. Or at least we can choose not to. The ‘feelings’ that the hormonal reaction causes is dependant on the values we create within ourselves. If you don’t have the will to develop these values you are condemned to live as an animal, or at best a tribal being (or pack animal).

    Your argument could be used to justify Sheik ‘fuckwit’ Hillaly’s position for women wearing the hijab. Their existence creates an ‘externality’ which stirs up your hormones and makes you feel uncomfortable, so they have an obligation not to be seen. Then again, you probably agree with this.

  36. The conclusion to be drawn from your uncertainty is that you cannot measure these externalities. But correct me if I am wrong, you also talk of optimisation (as though the current or any more laissez faire a position is sub optimal and being taxed into leisure is optimising).

    Question 1. How can we optimise without any input data?

    Question 2. Do you think people on lower incomes with different preferences are really better off being taxed into leisure if you cannot measure the extent of these externalities?

    3. If you are rational and have a memory, how can you be taxed into having lower expectations?

  37. Rich — I think you make too many presumptions about what other people want in life. It’s a difficult question even for people as smart as you and I. As you know, I have downshifted over the past three years. Most people I meet seem to be more jealous of my lifestyle than I am of theirs.

    I also think you underestimate people’s ability to recognise the problems with the rat-race and make adjustments accordingly. And perhaps you underestimate the degree to which some people enjoy the rat-race, irrespective of the outcome. Like poker, sometimes you can win (utility) even if you lose (money). Psychic externalities from everyday behaviour are many and varied and the definition of a good life is nearly impossible to pin down, even for bureaucrats.

    Regarding the effects of tax on growth — I think trade (domestic & international) has the positive externality of enhancing the total knowledge stock in the economy (knowledge spillover) and I think knowledge growth is the primary driver of economic growth. Therefore, anything that inhibits voluntary trade will reduce economic growth. All tax inhibits voluntary trade. But that is perhaps a debate for a different day.

  38. Wikipedia: “free riders are actors who consume more than their fair share of a resource, or shoulder less than a fair share of the costs of its production”.

    It seems pretty obvious to me that free riding is a problem much more common in communist countries.

  39. RS: I not only choose to pay more tax, DL, I choose at the ballotbox for you to pay more tax too. In fact, my preference to pay more tax is conditional on others on the same income as me paying more tax too – so that horizontal equity is maintained. Now, I know that having preferences on others actions does not fit easily within a Libertarian framework, but the truth is that your free riding imposes costs on me, and others, so your ‘do what you like yourself so long as you do no harm to others’ defence holds no water in this debate.

    I not only choose to worship Allah, DL, I choose at the ballotbox for you to worship Allah too. In fact, my preference to pray in my mosque is conditional on others in my country praying in the mosque too – so that equity under Allah is maintained. Now, I know that having preferences on others actions does not fit easily within an infidel framework, but the truth is that your free riding imposes costs on me, and others, so your ‘do what you like yourself so long as you do no harm to others’ defence holds no water in this debate.

    You will submit to Allah’s will.

  40. Let’s just agree with this article and campaign for zero income tax on the basis that people will pay it anyway because it’s a pleasant experience, mmm?

  41. Zero income tax is in my view the optimal level and given the will it is quite achievable. During the last eleven Howard years they could have been very close now to zero income tax if only they had maintained a constant amount of real per capita spending. It is time that we grew out of income tax.

  42. Very much agreed, Howard/Costello have (a) found new, mostly useless, things to spend money on just because they have it and (b) hoarded the rest. Zero income tax with sales tax and voluntary taxes such as gambling to pay for police, courts, etc is where I’d like to see the government work towards. Unfortunately neither Rudd nor anyone else in the parliamentary ALP (that I know of) even come close to being a Keating or a Hawke either, so the Liberals are the lesser of two evils.

    Within the Young Liberals, however, I’ve seen a lot of guys with the potential to reverse this economic trend if they stick to their guns once elected and influence sitting members. Alex Hawke, who’s just been preselected, is one example. While I realise the media’s made a bit of a beat up over his social views, but for what it’s worth his political compass is (+9,+2) or somewhere in that range, and I’ve never heard anything particularly offensive in the 2 years I’ve known him (i.e. he’s conservative, but no moreso than the mainstream of Australian society).

    Of course you still have a few people whose primary concern is conservative social policy, but they’re still outnumbered by those who are genuine small government conservatives, and on top of that there’s a sizable number of libertarians as well.

    Perhaps it’s overly idealistic to hope that this will filter through the the parliamentary party, but I’d argue that (a) if the GOP can put Goldwater forward as a presidential candidate, there’s hope for every conservative party and (b) it’s probably no more unlikely than the LDP pulling a Stephen Fielding then doing something significant with it.

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