Taxing our way to happiness


Readers as long in the tooth (or as elephant memoried) as I am will recall that Richard Layard laid out, in his book "Happiness", a method by which we could determine an optimal tax system. One, which as the title of the book might indicate, would lead to the greatest amount of happy puppy stuff as any tax system could be said to provide.

Simply, there is a level of income above which happiness, purely as a result of greater income, does not increase. Below that level each extra £ or $ increases happiness simply by the having of that extra £ or $.

Over and above that amount, no happiness is produced by the having of the extra cash: but others in that same society will become unhappy, not through jealousy, oh no, but through the hedonic treadmill of trying to keep up with the Jones's. This creation of unhappiness is a form of pollution and so those incomes above that flatlining happiness mark should be taxed at 30% as a Pigou Tax on the hurt caused to others.

Now, quite what you think of the theory is one thing, but clearly an important question to ask is, what is that flatlining income? Below what income should there be no tax, above what income should there be 30% tax? Fortunately we have a Nobel Laureate to help us here:

Here's Nobel laureate Daniel Kahneman giving a talk on happiness.

It's 20 minutes long, so if you're pushed for time... he surveyed 600,000 Americans and found the happiness baseline to lie at $60,000 a year:

“Below 60,000 dollars a year, people are unhappy, and they get progressively unhappier the poorer they get. Above that, we get an absolutely flat line. I mean I’ve rarely seen lines so flat.

$60 k is around £40,000. So, for our tax system which will provide as much happiness as a tax system ever can, the personal allowance should be £40,000 and the higher rate for income tax should be 30%. Quite what I think of the original theory is another thing too but I'm sure that's a tax system we could all agree on working towards.

And if it doesn't bring in enough money to feed the State? Well, so what, we're trying to maximise happiness aren't we? Just keep firing bureaucrats until we are all as happy as it is possible for us to be.

Who could object? Certainly not those who keep telling us that the joy of the people, the happiness possible, is so vastly more important than just the continual piling up of more lucre or GDP, eh?