What Taxes Leave People the Happiest?

People who live in societies where incomes face progressive tax rates, a new study shows, report higher levels of happiness than people who live in flatter tax systems.
Two decades ago, after the Soviet Union’s collapse, various conservative groups from the United States rushed into Eastern Europe. These eager advocates for free-market fundamentalism set out to imprint on impressionable new nations all sorts of public policies they couldn’t get enacted into law back home.

On taxes, these American right-wingers hit the jackpot. A host of Eastern European nations would quickly adopt “flat tax” systems that taxed people with high incomes and people with much lower incomes at the same exact rate.

How’s this flat taxing working out? Pollsters recently put that question to flat-taxed Czechs. Two-thirds of the Czech people, the poll found, “consider the current single rate of 15 percent unjust.” An even greater proportion of the Czech population, almost 75 percent, want to see a return to progressive tax rates — that is, tax rates that rise as income rises.

These poll results won’t surprise psychologists Shigehiro Oishi, Ulrich Schimmack, and Ed Diener. The three scholars have just completed a 54-nation comparative study that explores whether the shape of a nation’s tax system can impact the happiness of its people.

Their conclusion? People who live in societies where incomes face progressive tax rates report higher levels of happiness — or “subjective well-being,” in the technical phrase — than people who live in flatter tax systems.[pullquote]’A fair redistribution of wealth via progressive tax increases the mean happiness of the nation.'[/pullquote]

“If the goal of societies is to make citizens happy, tax policy matters,” explains the University of Virginia’s Shigehiro Oishi. “Certain policies, like tax progressivity, seem to be more conducive to the happiness of the people.”

Oishi, the University of Toronto’s Ulrich Schimmack, and veteran University of Illinois happiness analyst Ed Diener conducted their research within a database of 59,634 Gallup interviews. They measured happiness by three different yardsticks.

Their findings, the three report, show “that a fair redistribution of wealth via progressive tax increases the mean happiness of the nation.”

In other words, the researchers sum up, policy makers need to see tax policy as something much more than a matter of “economic measures.” Tax policy impacts how people feel about their “everyday lives.”