First, Helen Dewitt (in a Berlin fashion week spread!) on how things used to work in Britain:
I started thinking about it when Britain introduced the National Lottery. Before the Lottery there was an investment scheme called Premium Bonds which gave participants the chance to win a million pounds: you had to buy a minimum of 100 Premium Bonds for Ł1 apiece, you were assigned 100 numbers, and your numbers went into the draw every week. You could get your Ł100 back at any time. You could leave them going into the draw for years. You could buy up to Ł20,000. In other words, you were gambling the interest you could otherwise have earned if you had left that Ł100 in a bank. When they brought in the Lottery, they reduced the frequency of draws in Premium Bonds to once a month. They also promoted the Lottery very heavily – it was widely advertised, tickets could be bought over the counter in newsagents, people could pick their own numbers. So it was much more entertaining, but you were almost certain, not just not to win, but to lose the money you put in. That was interesting in itself, and also seemed to be connected to other things that were going on in Britain at the time.
Given what we know about incentives, beliefs, identities, risks and rationality in modern society, it is hard to argue that the lotteries are anything other than a tax on the poor. God knows the 1% aren’t buying tickets. Of course, it doesn’t feel like a tax to the participants, but rather feels like gambling. But marginal expected loss (the proportion of every dollar paid that the government keeps, averaged out over all participants, including the winners) of the lottery is so high that calling it gambling pushes against the fair definitions of the word. Your chances are better betting on black at Vegas.
It’s interesting to wonder how people characterized their purchase of Premium Bonds under the old system. There is a good argument that people felt at least in part that they were investing in the country, and in the good of society. It’s that, along with the clearly much lower withholding rate of the bond, which make the scheme seem less egregious in light of marginal tax rates on the rich.
But these ruminations lead to a thought, not about how to tax the poor less, but how to tax the rich more. The last thirty years of relative political influence of the world’s well-to-do indicate that, in aggregate, they are not particularly prepared to pay higher taxes, even when it is clearly intended for the overall benefit of the population. So the question is, is there some way that paying taxes to the government can be made to feel like gambling, or like investing on their own account, for society’s wealthiest members? The rise of social impact bonds seems to suggest one possible avenue of pursuing such “behavioural” policy-making. The only problem with these schemes, as with a large portion of private-public partnerships, is that the private party often seems to be the one leaving the table with all the chips.