A Case Study of Utilitarian Income Redistribution, by Harvard economist N. Gregory Mankiw, Weinzierl proposes the optimal taxation on height. The idea of taxation based on the height of a person instead of the income is so ludicrous that is should be ignored without any further waste of time. But if the case study is conducted by an economists of Harvard, it warrants a reading.
The main framework economists use to think through tax policy supposes that when a government needs to raise tax revenue, it wants to spread the burden of taxes among its citizens in the least painful way, Weinzierl says. In other words, the government wants those for whom it is relatively easy to earn money to pay more in taxes than those for whom it is difficult.
"The problem is this: The government can't tell whether it is easy or hard for a given person to earn income, because it can't measure 'ability.' What the government can measure is income, so it tends to tax income. But when the government taxes incomes, it discourages people from working as hard as they otherwise would have worked.
"The holy grail of tax policy, according to this framework, is a fixed and observable measure of ability," Weinzierl continues. "That is where height comes in. It turns out that each inch of height is associated with about a 2 percent higher wage among white males in the United States. Wage is one measure of ability, since it measures how much someone can earn in an hour of work. Therefore, if height is taxed, you are taxing ability directly, so you can cut the economic pie more equally without it shrinking."
Intuitively I do not agree with the above logic. However, it is evident that to measure 'the ability to earn' is not an easy task. And use of any proxy such as the income or the education level can only lead to a trade off where more equally a government tries to slice the economic pie, the smaller it will get.
It makes me ponder if a way to measure the 'ability' will make it easier for the companies to recruit people.
