Progressive taxation and wealth redistribution are sometimes referred to as programs designed to “rob Peter to pay Paul” by economists and libertarians alike.  Still, there is something about using government intervention, regulation, and taxation to make life a little bit more equal that appeals to most people.  After all, why should some people enjoy an extraordinarily high quality of living while others suffer in poverty?

The simple answer to this is that some people have worked very hard for a very long time to amass their fortunes, and to say that they owe it to the rest of the world to spread the wealth around suggests that we are unsympathetic to or even ignorant of the sacrifices they have made to achieve such financial success.  To say that people who have money don’t deserve it is a dangerous thing indeed, for it can be taken to a point that not only discourages some people from becoming wealthy but also encourages others to be lazy.

Incentives matter.  This is a basic lesson of economics, but you don’t have to go to business school to understand that.  How many of us, when we were growing up, found ourselves much more willing to mow the lawn or clean the bathroom for our parents when our allowances depended on it?  As adults, would we continue to do our jobs if we weren’t going to get compensated in some way?  Probably not.

Taxation follows the same rules.  I dislike taxes as much as, if not more than, the next man -- but there are certain things for which I am more than happy to be taxed.  I want a reliable infrastructure, a strong national defense, and a functional judicial system, to name a few.  Because I am getting something in return, I do not mind being taxed (to a certain extent).

Today, both our state and our nation have finances that mirror those of your average teenager who has control of mommy and daddy’s credit card.  That is to say, they’re broke; they’re paying out much more than they are taking in.  Clearly, this is an unsustainable situation.  The question, as we all are well aware, is “what we can do about it?”  What is the best way to bring our spending in line with our revenues in a way that yields the greatest gains in the long term and the least pain in the short term?

Syndicated cartoonist and business satirist Scott Adams sums up the situation humorously and eloquently in his latest piece for the Wall Street Journal:

The president was too polite to mention it during his State of the Union speech on Tuesday, but here's a quick summary of the problem: The U.S. is broke. The hole is too big to plug with cost cutting or economic growth alone. Rich people have money. No one else does. Rich people have enough clout to block higher taxes on themselves, and they will.

Likely outcome: Your next home will be the box that your laser printer came in. I hope that you kept it.

He goes on to point out, quite accurately, that so far all the solutions we’ve been tossing around aren’t exactly what you would call “new.”  We’ve cut funding to special programs, raised taxes and fees, spent stimulus money, extended unemployment benefits, and on and on and on.  Each of these solutions is met with accolades by some and cries of outrage by others.  Clearly, what we need are some new ideas.

Now this is where Adams’ article differs from so many other editorials and scholarly papers written about our current crisis: he doesn’t pretend to have the solution that will make everyone happy or will wrap things up with a neat little bow on top.  He openly admits that his suggestions are less than optimal, but he puts them forth as an illustration of our need to think, and think hard.

The common thread in all of his so-called “bad version” solutions is so subtle that I’m sure many readers might miss it.  He suggests going about things a lot of different ways, but really all he is trying to do is find a way for those who have money (the aforementioned “rich people”) to give up some of their income in exchange for something.  In other words, to offer an incentive for bailing out our spend-happy government.

I can’t say that I entirely agree with him that the optimal solution is to increase taxes on the wealthy, but I have to admit that this would get a lot easier if the people we are asking for help know that they would get something back in return.  Like I said before, incentives matter.  If you are a progressive who looks at someone who makes over $250,000 a year and thinks, “Look at all the needy people out there -- you should be giving back,” just remember that they will likely be willing to do exactly that if they think it will be worth their while.

At least then we wouldn’t be “robbing Peter to pay Paul,” we’d be “convincing Peter that it is in his best interests to help Paul.”  That’s a big difference, and one that wealthy people won’t fail to recognize.