Is there an egalitarian argument against sharply progressive income tax? I’m prompted to ask by John McDonnell’s plan to raise tax those earning more than £70,000.
From the point of view of raising revenue, he’s bang right to target these rather than the mega-rich. For one thing, there’s more of them. And for another, they are a slow-moving target. Whereas a multi-millionaire hedge fund manager might react to higher taxes by retiring, downshifting, emigrating or fiddling the books, middle managers and head teachers have much less wiggle room. Optimal taxation theory thus says we should target them.
And Ben Chu is dead right to say that people earning over £70,000 a year are rich - they’re in the top 5% of earners – and that denying this fact tends to serve the interests of the really rich.
There is, though, a problem here. People on higher incomes aren’t happier than others. In fact, ONS research (pdf) shows that those in higher income deciles are actually less happy (albeit not statistically significantly so) than those on middle incomes.
Yes, they enjoy higher life satisfaction and a sense of worth than others. And yes, net financial wealth more strongly correlated with subjective well-being. But higher earners aren’t happier than middling earners.
Another was pointed out by Adam Smith. It’s that high wages are often offset by other disadvantages, such as the disagreeableness of the work. Headteachers and middle managers are often stressed out; bankers and lawyers work stupid hours in unfulfilling jobs; and successful people, especially the minority who come from poor backgrounds, often suffer from imposter syndrome or a sense of alienation.
Yes, some lefties might think I’m bringing bring out the world’s smallest violin here – but that just shows a narcissistic lack of empathy. I’ve tried earning big wages. And it’s pretty unpleasant.
From a welfare egalitarian point of view, big taxes on high incomes aren’t altogether satisfactory.
In saying all this, I’m not merely parroting right-wing clichés against taxation. For one thing, the same data that tell us that high income earners aren’t happy also tell us that the poor are unhappier, more anxious and less satisfied with their lives than the average earner. This is an argument for redistribution – or at least for paying more heed to the mental health of the worst-off. And for another, there might well come a time when higher spending on schools and education requires higher taxes rather than more borrowing.
Instead, I’m questioning here whether income is the right base for taxation. I suspect instead that – at least in efficiency terms – there’s a case for shifting the burden onto land. (Yes, Tim’s right that the UK taxes property more than most countries, but we don’t do so terribly efficiently or equitably).
But there’s a bigger point I’m making. There must be much more to leftist thinking than redistributive tax. In particular, what matters is inequalities of power and autonomy. The tyrannical boss oppressing his staff might not be far up the income distribution, but he’s well up the power ladder. That matters. And one reason why many of the rich – yes, the 95th percentile is rich – don’t feel good is that they lack power and autonomy, in part because of the conquest by managerialism over professionalism and craft skills.
For me, proper leftist politics would speak to these issues – and in doing so create a common interest between many of the financially well-off and the worst off. Traditional social democracy, however, has failed in this regard.
Another thing. I’ve never been happy with the utilitarian argument for higher taxes on the rich – that diminishing marginal utility means a rich man values £1 less than the poor one. The rich are different people than the poor, so we can’t so easily compare marginal utilities.