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A commonly cited statistic in American politics is the top 1% of Americans earn 20% of all income, but may 40% of all income taxes. This is measured in dollars, however, and a dollar is worth more to a poor man than a rich man.

So my question is, what percentage of the total utility loss of income taxation does the top 1% incur by paying income taxes?

Now I’m aware of issues like heterogeneity of preferences and interpersonal utility comparisons that make it hard to calculate a fully accurate figure, but are there estimates of diminishing marginal utility and the like that would allow us to get some kind of ballpark estimate at least?

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I would argue that utility theory is unfortunately meaningless in this context. As you point out, interpersonal utility comparisons don't work, I can always multiply a utility function by 10 and it will represent the same preferences.

In some studies they assume quasilinear utilites and say that money has the same value to everyone, but this assumption would go against what you are trying to measure, as you specifically want to move away from money and on to utils.


A comment on an implicit assumption of your question: taxes also pay for public goods, so it is possible that everyone gains by paying taxes compared to no one paying taxes.


My unpopular opinion is that utility theory is just a storytelling tool, which is useful if the students have a good grasp of math, but the theory is flawed in many ways. People seem to use heuristics rather than maximizitation in general contexts, preferences are sometimes revealed as non-transitive, etc.

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