Progressive Taxation, Income Inequality, and Happiness

Psychology research provides new input on the association(s) between progressive taxation, income inequality, and happiness

A recent article from the American Psychological Association publication, the American Psychologist, links the policy of “progressive taxation” with increased happiness among poorer Americans, but- contrary to expectation- it was NOT associated with decreased happiness among richer Americans.

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Authors Shigehiro Oishi, Kostadin Kushlev, and Ulrich Schimmack provided a relatively rare psychological analysis of taxation policies in the United States over the last 40 years. Importantly, they noted that public policy research has historically been dominated by economists and political scientists, though there has been a increased awareness in recent years of the important contribution of psychology research in public policy generation.They also assert that taxation is central to public policy as one of the main financial sources of support for various policies such as unemployment benefits, food stamp programs, and various public goods that are shared by citizens (e.g., emergency services, utilities, roads, education). While Americans tend to have a negative attitude toward taxes overall, they also express dissatisfaction with income inequality, which is a societal problem that can be remediated to some degree by progressive taxation (among several other options such as raising the minimum wage).

Specifically, Oishi et al. looked at progressive taxation, which is defined as “the degree to which the tax rate is higher for the highest income bracket than for the lowest income bracket.” They hypothesized that progressive taxation would be associated with citizen happiness based on its reduction of income equality, which is known to be associated with increased happiness.

They concluded that,

“Contrary to people’s expectations, progressive taxation is not negatively associated with happiness, even for the richest 20% of Americans… more progressive taxation predicted less income inequality, which in turn predicted feeling more trust and fairness, which in turn predicted feeling happier.”

and claimed their “most important finding” as the following:

“…that progressive taxation is not a zero-sum game where a large group of poor people benefit from a big loss of a small group of wealthy citizens. Rather, poorer citizens benefit without a notable loss in happiness among the wealthiest citizens.”

The abstract and a link to purchase full text of the article can be found here.

Links to additional readings on progressive taxation and income inequality:

Internal Revenue Service

Progressive Taxation and the Subjective Well-Being of Nations

Neighborhood Income Inequality, Social Capital and Emotional Distress Among Adolescents: A Population-Based Study

Income Inequality and the Persistence of Racial Economic Disparities

APA’s Advocacy on Socioeconomic Status