Monday, 28 February 2011

Equality and Low Taxes?

I just finished reading The Spirit Level: Why Equality is Better for Everyone by Richard Wilkinson and Kate Pickett.

Though most of the more equal societies on their graphs have high-tax regimes (the Scandinavian countries most obviously), one does not: Japan. It is more equal before tax, not after tax, and in fact has a low tax regime.

This interests me because I think there is a progressive / left-wing case for low tax governments, at least in the UK.

The core argument is simple and pragmatic: the chances of a high-taxing government in the UK spending money cost-effectively are nil. The accumulated evidence is everywhere and on this issue the (right-wing) Taxpayers' Alliance has everything on its side. In the UK, everyone has a sound reason to begrudge government its money. Governments have proved themselves over decades to be self-indulgent and stupid wasters. High taxes have done nothing to promote equality.

There is no left-wing merit in taxing anyone, even the rich, in order to then waste their money.

But if you reduce taxes how do you then make a society more equal? Isn't redistribution of income through taxation the only route to more equality?

No. You can stop inequality at source. Here are some of the things you can do:

- You put a cap on income differentials. It becomes illegal to pay anyone more than ten or twenty times or forty times (take your pick - you are still an egalitarian at forty times) the minimum wage. This is the core of a low tax - low inequality world.

- You abolish regressive taxes like VAT and instead impose selective consumption taxes on luxury goods. Sumptuary laws of this kind existed under the Conservative governments of the 1950s and they could be brought back.

- You reduce income taxes all round and shift some of the (reduced) burden of taxation to inheritance taxes to damp down the inequality which passes from generation to generation. You aim to create a more level playing field.

- To discourage the benefits scrounging culture which post-1970s UK governments have fostered, you re-emphasise the original notion that benefits are funded from insurance-based schemes. Equality cuts both ways: the richer should pay their fair share and the poorer should be expected to contribute not scrounge.

- You deny charitable status (and its tax breaks)to public schools; possibly, you close them down.

Along these lines, you would be aiming to get the overall burden of taxation down to around 20% (a favoured right-wing figure) and the level of social equality up to levels not known since World War Two.

Of course, a left-wing government would be closing down different expenditure areas to a right-wing one. That would be the area of political difference.


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