February 20, 2014
Chris Bertram is professor of Social and Political Philosophy at Bristol, he tweets as @crookedfootball and blogs at Crooked Timber. In Today’s post he argues that “Squeezing the rich is good, even when it raises no money“. Essentially his argument boils down to the left’s new theory of everything – that inequality is bad.
This may, or may not be the case. But the argument that punishing the wealthy ends up hurting the poor, by shrinking the pie, is not even considered as valid. There are so many near lies, distortions and pure hate for people who do things an academic political philosopher doesn’t understand, that the article is worth looking at in more detail.
However, the feature of the discussion I want to write about is the assumption, generally taken as decisive by the commentariat, TV interviews and the like, that if such a tax would raise little or no money then that should count against it decisively. On this view taxes are an unfortunate necessity, required to finance state expenditure and to be minimized whereever possible: a tax that raises no money is therefore pointless, imposing needless pain for no benefit.
The art of taxation wrote Jean Baptiste Colbert, is “maximum pluck for minimum hiss”. The top rate of income tax has been set at 40% for a generation. The rich are willing to pay 40% in a way they’re not willing to pay 50%. Thus rich people who might have settled in England to do business, settle instead in Spain where the weather’s better, or Geneva, or Monaco. At a stroke you’ve deprived the exchequer of £100,000 because you’ve asked for another £12k. For very little extra pluck, a 50p rate probably does in the long run, see the economy smaller than it might have been, and causes a great deal of hiss. No-one is better off.
But this view is just plain wrong, for several reasons. First, in a complex society structured by all kinds of institutional rules, the idea that people have full liberal property rights in their pre-tax income is unwarranted. They participate in a co-operative venture with others in society subject to certain conditions, and those conditions include one that part of “their income” already belongs to the wider society, via the state. This point, hated by libertarians, defeats the widespread view that people are having “their money” take off them: it wasn’t theirs to start with. Though I think such an argument, with some caveats, is correct, it is a second and third consideration that I’d want to rely on here.
This view seems dangerously close to the totalitarian view that all your money is the state’s except that which they let you keep. This man is a professor of Political philosophy. Be afraid. Be very afraid.
The second consideration is that inequality is deadly for democracy, and for the equal political status of citizens. Because the power and influence high earners derive from their income threatens such status equality, there is a strong public interest in constraining it, even if doing so raises no money at all. It isn’t just that the rich come to own media outlets or that politicians are swayed by their donations to parties, it is also that the prominence their cash gives them gets them listened to and taken seriously by opinion formers. Their experience matters and shapes public policy, that of an unemployed teenager in the North East doesn’t: we need to shift the balance of voice in favour of the unemployed teenager and against the City trader.
Inequality is sometimes “deadly for democracy”, because it’s often a symptom of extractive political institutions – much of Africa for EG. However that is not the case in the UK. Most people who get rich enough to pay the 45p band are not politically connected. They’re just business people. Where there is a problem, it lies in the quangocrats and state apparatchiks walking through revolving doors on huge salaries with apparently no oversight. Even worse, many of these are superannuated, (mostly labour) politicians, conducting a gramscian march through the institutions. I agree here, in the crony capitalist, and quango state, we could do with some pay restraint.
In any case, the UK is not particularly unequal. Remove London, and it’s international mega-rich, the UK is a pretty bog standard north-European welfare state whose inequality is relieved by direct transfers at least as much as it is in Germany. I fail to see how chasing the International Mega rich who choose to pay a lot of tax here, makes anyone better off.
Third, income inequality makes life worse for the rest of us in real terms. Economists are supposed to believe that utility (whatever that is) matters intrinsically and money only matters instrumentally. But right-wing economists often seem to forget this as soon as they are asked to comment on tax policy and inequality, arguing as if their theorems apply to cash and not to utility. If we’re dealing in cash terms, then a tax that makes some people worse off and nobody better off looks bad, and looks Pareto inferior. But it isn’t necessarily Pareto inferior if we focus on well-being: making some cash poorer may make some others better off, a Pareto incomparable outcome. Here’s one way how: if those on high incomes have too much, they can outbid the rest of us for goods that are intrinsically in limited supply or where supply can’t be quickly increased.
I see, he wants stuff that a political philospher would once have been able to afford, but can’t now. He seems ignorant of the fact that, in general, markets are better at relieving scarcity than making the rich poorer.
If I’m further away from being able to buy a house near to where I work, because house prices are raised in an auction I can’t compete in, then I’m worse off even if my income stays flat. Reducing the purchasing power of the wealthy is therefore good for me (unless I got hold of a house early and can earn windfall gains from the auction). And similarly for many other goods.
I see. It’s the nice big house he can’t afford that he’s envious of, the poor dear. But house builders cannot respond to demand, because the permits to build are not being issued to cope with population growth. So prices rise. Contrast with Germany, where building is encouraged – house prices haven’t risen relative to incomes. This is a market failure which can be laid directly at the door of the state, and particularly, the left’s beloved councils. The answer is not to drag down the rich, but to ensure greater supply. And markets do this better than any other mechanism.
Unrestrained income for the wealthy also means that they can commit more of their resources to ensuring that their offspring make it to the top in the next generation, thereby harming the opportunities for the rest of society.
State education is rubbish. That is not the fault of those who can afford to escape it. But the education establishment of which Professor Bertram is part, opposes any market mechanisms which may drive up standards in state education.
I could go on and enumerate more mechanisms whereby squeezing high earners is good, even if it raises no money, but the general point should be clear. It should give Labour reasons to go on the offensive (“class war”); it certainly gives the commentariat reason to stop making their stupid talking point. They won’t, of course.
The real reason for this attitude is that the incomes of political science professors haven’t kept up with people like business owners, bankers, corporate lawyers and the like. This is pure envy by members of a profession which feels undervalued. And it demonstrates a profound misunderstanding of who the payers of the top rate of tax are: there are a number of city traders in there, sure, but the majority are business owners, many of whom will have financed their company with a mortgage, risking their house on their business. As business owners, they often have options to pay themselves in a number of ways – dividends, capital returns, income etc… prudent tax-planning is not avoidance, but this is why the 50p doesn’t raise as much as left-wing academics, who comprehend nothing but PAYE wages, think it should.
This hostility to wealth creators (whoever they are) is simply a lack of understanding, and worse, the sneering of a profession whose people were once able to afford the houses now snapped up by people involved in mere trade. This left-wing politics of envy, so common amongst academics is pure bitterness from a profession which no longer commands the respect (and money) they think they’re due. It doesn’t help the poor to tax the rich so much they seek means to pay less tax. For the means by which the rich pay less tax shrink the pie for everyone.
The reason Marxism is doomed to end up murderously totalitarian is that everyone imagines themselves as the planner, not the man condemned to the salt mines to fulfil the plan. The professor of Political Philosophy at Bristol university has not grasped this simple point.