The intelligent question posed by Saturday’s march is: what alternative is there to Osborne’s spending cuts? There’s one popular answer here that I’m not happy with - that we should tax the rich. UKUncut says:
Rich corporations and individuals collectively get away with dodging £95bn every single year…collecting the tax dodged by the super-rich would render the vast majority of the government’s spending cuts unnecessary.
I have three problems with this.
1. Is there really £95bn lying untaxed? My chart suggests not. It shows the tax paid by non-financial corporations as a share of their total income; it comes from table K1 and K2 of today’s national accounts data. This does not tell us whether or by how much firms are dodging tax. But it does tell us something - that even if we could return this share to its peak of 15% - when the anti-capitalist Thatcher was PM - we’d only raise an extra £13bn. To get a lot more out of firms would, then, require an unprecedentedly high tax take.
2. Even if we could raise £95bn in tax, should we? £95bn is equivalent to 6.5% of GDP. How could firms and the rich pay this? One extreme possibility is that they would do so simply by running down their savings, with no impact on economic activity. At the other extreme, they would reduce employment and spending to pay the tax. Even if the truth is largely the former, such a tax rise would be significantly recessionary.
The best reason to oppose Osborne’s cuts is that the economy is too weak to take a fiscal tightening - but taxing the rich is a fiscal tightening too. And remember - the best evidence we have is that, as Stephen Gordon says, it is workers who end up paying corporate taxes.
3. Insofar as rich people dodge tax, this is only a symptom of the underlying disease - that the rich are too powerful. They have the political power to get tax breaks, and to dissuade HMRC from investigating them, and have the economic power to (credibly?) threaten to migrate or to employ lawyers to exploit loopholes. Whilst they have this power, they are unlikely to be heavily taxed. The state will not have better lawyers and accountants than the rich.
Now, I must be clear here. I am all in favour of hitting the rich - via land value tax, inheritance tax and nationalization of the banks rather than higher corporate taxes. But this should be part of income redistribution policy, not fiscal policy - or at least, not fiscal policy alone.
What’s more, it is not good enough merely to take the rich’s money. Efforts to do so will be only weakly effective without measures to reduce their power. Achieving this, however, requires radical social change - such as forms of worker ownership that make hugely-paid bosses redundant. Such change requires thought. Sadly, though, one lesson from Saturday is that some on the left are better at posturing than thinking.