The Appeal of Unequally Distributed Tax Cuts

Insights from experiments on wanting nothing, if others get more

Posted Dec 31, 2017

I wrote a blog earlier in the year about research testing if people would choose to get nothing, rather than something, if it meant another person unfairly got even more.

Essentially, this research involves a person coming into a lab space and being told that the person before them has been asked to allocate a certain amount of money, usually about $10. In truth, there is no other person and the experimenters decide how much money the person will get. So for example, they will rig the study so the actual participant gets $2, thinking the other person will get $8. The catch is that if they choose to not take the $2, they are told the original participant will not get to keep the $8 either. It is all or nothing. Either you accept the unequal deal or both of you get nothing. 

This work shows that 85% of people reject the unfair offer. That is, they forego the $2 so that the other person will not unfairly get $8.  If you change it to $4 and the other person gets $6 though, only 30% reject the offer. They are fine with getting $4 if the other person gets $6. These numbers are from a study in the U.S., but studies with Chinese participants have found similar (80% reject the 8-2 offer and 40% reject the 6-4 offer) suggesting this occurs in both collectivist and individualist cultures.

So here we have a large percentage of people choosing to get nothing over something, so long as the other person doesn't get more. I argued in the last blog post I wrote on this that this is sort of surprising to me, because the rational thing to do would be to take some money, as the alternative is to get nothing. But, a sense of injustice can lead people to want nothing at all.

The Rub

The Trump tax plan clearly benefits wealthy people more than it benefits the average person in raw amounts and in percents (even accounting for large one time tax charges for corporations; they will make way more than these amounts in the next few years in tax savings). It benefits Trump himself around $1 billion alone by cutting the estates tax.

The idea that a person in power can pass laws that benefit him to the tune of more than a billion dollars -- and that the party he belongs to is funded by people who will benefit similarly - seems very unjust to some people. In exchange though, the majority of Americans, at least for the time being, will see a small tax break. This tax break may or may not be renewed. Also, many social programs that help the most disadvantaged people will be cut as part of this.

The rub here, for me, is that in the case of the experiments, my impression is that people are a bit naive to not just take the money on offer, even though it is unfair. But, at the same time, I find the tax cuts incredibly unfair, and I would not urge people to support them. 

The tax cuts are clearly a far more complicated situation than the experiments. They come not only with massive tax cuts for the wealthy, but also with cuts to social programs and a massive increase in the national debt. They also could arguably lead to further corporate tax reductions all over the world (though that hasn't happened yet) which could have all sorts of negative outcomes - like the mistreatment of workers as laws continue to bend in favor of large companies.

Defending the average person's support

But, these issues are at this moment very far removed from the average person who benefits from this tax cut. They see a small amount of money in their favor, and they see a better life, at least for now, for their children and themselves. Like the person in the study, they may see that it is a bit unfair (though they likely would perceive it is as more fair than might be expected), but they still see it as benefiting themselves to go along with it. This is essentially what billions of people all over the world every day do when they go to work, and just participate in society in general. Yeah some things suck and aren't fair. But it is far too costly to oppose these things. And does it make sense to anyway? The answer to that really depends on the person.

You probably think this song is about you

This connection between the experiments I described and Trump's tax cuts is clearly not a direct comparison. As I said, there are loads of factors at play in the tax cuts situation that are not at play in the experiments. But, I wholly endorsed taking the money - even if it was unfair - in the experiments. So the idea that I am entirely opposed to the tax cuts being supported by the average person seems a bit inconsistent, even if I factor in the loss of social programs and the reality that these cuts might not be renewed (and the other factors I mentioned, among others).

I still do not endorse the tax cuts for those reasons. But  - attempting to not succumb to the bias blind spot - I had to check my ideas a bit for consistency. And, as much as I still oppose the tax cuts I still had to step back a second and see that supporting them might not be the entirely irrational thing that I had framed it as in my mind. 

I need to go bathe in disinfectant now.