Equity is defined as “the state, or ideal, of being just, impartial and fair.” On this basis, who could be against equity? It’s a term frequently heard in policy discussions, and whatever one’s political stripes, it’s used positively.
But when people are pressed on what they think equity means, in operational terms, that’s when the love-in falls apart. I recently experienced this first-hand in two situations, and it’s convinced me the word equity should be banned from public-policy discussions and reserved for harmless applications, such as professional sports.
My first recent encounter with the pitfalls of equity was in a discussion about tax policy. About 60 business people, academics, think-tank heads, legislators, and interest- group advocates had been convened to discuss the state’s tax structure. As soon as we began debating specific tax components, it was clear everyone wasn’t on the same page when it came to defining equity.
For example, what is an equitable system of tax rates for the individual income tax? Some say the only “equitable” system is one where the tax rate rises with the taxpayer’s income. That is, higher-income taxpayers pay not only more dollars in taxes, but they pay a higher percentage of their income in taxes.
Supporters say such a system is equitable for two reasons. First, higher-income households can afford to pay a larger share of their income in taxes. Second, to equalize the “pain” of paying taxes, those with more income must pay a larger share because each additional dollar is worth less to them than it is for a lower-income taxpayer.
But such views of equity aren’t universally accepted. Just because a richer taxpayer has more and can pay more doesn’t mean she should be taxed at a higher rate. This isn’t logic based on equity; it’s logic based on confiscation. Even if added dollars mean less to upper-income folks, how do we measure this decreased value? Where are the income cutoffs, and how much higher should tax rates be to account for the reduced marginal value of the dollar? I don’t think anyone knows.
Only when the committee dropped attaching labels of “equitable” and “inequitable” to tax proposals was it able to move on.
My second-latest encounter with defining equity came in a response to a newspaper op-ed piece. The author of the piece cited rising shares of national income going to the highest-income households as evidence of increased poverty in the country. I replied that this interpretation was a distortion of the facts. Indeed, while higher-income households have enjoyed the largest income gains in the past 30 years, lower-income households have gained too, just not as much.
It’s not a matter of the rich gaining income at the expense of the poor. Rather, it’s a matter of both the rich and the poor gaining, but the rich gaining at a faster rate. (Incidentally, the reason has to do with the increasing returns to education, not inheritance or luck).
My response was blasted by some as inequitable. To them, equity in income is a relative term. If the rich are gaining income at a faster rate than the poor, this, in the eyes of my critics, was considered inequitable, even if poorer households were still attaining a higher standard of living.
Oh, well, as they say, it’s all in the eyes of the beholder. But now you see why I’m not a fan of the word equity.
Michael L. Walden is a William Neal Reynolds distinguished professor at North Carolina State University and an adjunct scholar of the John Locke Foundation.