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September 08, 2011

Comments

PeterM

Your argument seems to presuppose that tax, collected is tax properly allocated. The aggrandisement of the state has led to the current crisis. It was the state that tinkered with the City incentives, allowing the crisis to develop. There is no evidence that money directed by highly-skilled (or lucky) people will be less well directed than if that same money resided in the treasury. The main difference between Left and Right over this matter is in their degree of faith in the state vs the individual. It is the 'knowledge on the ground' referred to by Hayek. Would we rather have central control by one-eyed, partially-sighted bureaucrats, or a massively parallel arrangement of people spending money where they see fit, from their own lowly perspective?

CahalMoran

4. People's pretax income is quite clearly NOT their individual effort. Even after you 'take' 50% of it their post tax income is far higher than if you simply dumped them in a field and told them to labour.

so 2) is a false premise.

Hughsheehy

Those are dreadfully weak and intellectually dishonest reasons.

Let's paraphrase them.

1) Since we haven't made it compulsory to try to improve you and your family's welfare we are perfectly free to take as much as we like of any effort you do make. It's your choice, after all.

2) Since many people are lazy or risk averse or unlucky or unimaginative, or all of the above, it's ok to take as much money as we like from those who are are diligent and take the right decisions because - after all - we can. We'll pretend to call it insurance, but everyone knows it isn't.

3) Because there are some crooks in the world that earn a lot of money we'll assume that any money above some convenient and arbitrary level is unfairly earned and use that as a justification to take as much money as we like from anyone earning that much money, whether they're saints or devils. What we won't do is many any effort to ensure that money is fairly earned if it is earned. That would - after all - remove most of the justification for punitive taxation and we rather like being able to take people's money.

Hard to express my contempt for the arguments in this article, really. I hope the above is a start, albeit a short one.

Emperorhand

"Thirdly, there are circumstances in which we agree that it’s right for the government to take 100% or more of an individual’s marginal effort. If a man works an extra hour a day burgling houses or mugging people, we’d expect the state to take all the fruits of that labour."

That premise is faulty. The state has no right to a person's zero-sum illegal gains; the person from whom those gains were taken is entitled to the full recompensation. The state only serves to transfer that wealth back to its rightful owner.

This is the kind of thinking that lies behind asset forfeiture. The assumption that the state has first claim to another person's property is a dangerous one.

Jimmy Hill

"Herein lies a difference between left and right. Whereas the left see the rich as mainly greedy exploiters, the right see them as public benefactors."

Can't they be both?

The tendency to see all matters of politics as instances of 'heroes and villains' is one of the most intellectually frustrating elements of political 'debate'.

Take the state for example, the state can be a significant aid to human wellbeing it can also be incredibly harmful at times. As such it can't easily fit into a hero/villain narrative.

This causes some libertarians (for example) to tie themselves in knots trying to square anything positive done by the state with their prior conviction that the state is evil.

This approach is a subset of what Tyler Cowen describes as the fallacy of mood affiliation: http://marginalrevolution.com/marginalrevolution/2011/03/the-fallacy-of-mood-affiliation.html

David Jones

'If we were behind a veil of ignorance - not knowing our skills or demand for them - we might well agree some kind of insurance, in which the low-skilled get a payout whilst the high-skilled or lucky pay a premium.'

And we might well not. I thought there was some empirical evidence, in fact, that people are willing to gamble?

botzarelli

"And some high-paid work is similar to robbery, in the sense that it’s zero- or negative-sum activity. "

Each of the activities you listed here, apart from the dastardly banker expecting a bail-out if caught out, is engaged in more often by people earning much less than £150k. Office politics doesn't start in senior management (if anything, there's probably less of it at that level as they're the bosses) but, as sitting any staff breakout room, smoking area or watching "The Office" will show, right from the bottom up. The vast majority of libel lawyers and lobbyists earn a lot less than £150k.

Each of these harmful activities can be controlled or prohibited more effectively by means other than taxation. Don't bail out banks. Instil a positive culture at work which discourages scapegoating and recognises merit. Implement libel and patent laws which minimise abuse and vexatious claims.

Alternatively, if it is so morally justifiable to stop this stuff, why not tax at 100% the servers at a McDonalds who are gossiping to undermine the assistant manager so that they can get promoted instead? Perhaps punish their employer by taxing them at 100% of turnover for letting it happen.

Luis Enrique

there's nothing special about the number 50, and if the question is whether it is "moral" for those with lots of money to contribute more towards everything the government does than those with less money, the answer is yes. All that is left is haggling over how much more, and that's what democracy is for.

In the current situation, we either need to raise taxes on the not-rich, raise taxes on the rich, or cut government spending, so if you are worried about what is moral the question is not whether raising taxes on the rich is moral, it is whether it is more or less moral than the other options.

Charles Wheeler

"For me, this means that inequality cannot be tackled through the tax system alone. There must be other institutions in place which penalize zero- or negative-sum activity. (Clue - workers’ ownership). One reason why I’m not a social democrat is that social democracy has, generally, failed to see this."

I don't think many social democrats think that inequality can be 'tackled through the tax system alone', but, given that workers' ownership is unlikely to happen on a significant scale, perhaps social democrats are wrestling with the art of the possible?

Charles Wheeler

"In the current situation, we either need to raise taxes on the not-rich, raise taxes on the rich, or cut government spending ..."

That's the mantra anyway. But it can't work.
http://goo.gl/sYznA

Account Deleted

You shouldn't choose to ignore the marginal rates of income from work at the lower end of the spectrum.

Work should pay, whatever your income. When you figure in National Insurance (both employer's and employee's), for someone earning enough to pay 20% tax, the marginal tax on their remuneration is 46%. For someone on 40% tax, 56% and the top earners pay 66% on earned income.

People earning their income from capital investment, rent and other investments pay much lower rates of tax. (Yes, share dividends, representing profits made by companies, will have had corporation tax paid as well, but earnings from capital gains are only subject to the basic income tax rate, helped by a £10,000 of capital gains allowance, no capital gains on selling your main residence and taper relief of some capital gains).

People in this category might have much to contribute to the economy by working, but who wants to work for only 34% of what the company pays you, when you get 60% or more of your un-earned income?

I strongly believe we need to re-balance the tax contributions paid so that un-earned income is taxed more-or-less in line with earned income.

At the lower end, we should phase out benefits more gradually, bringing the marginal benefit rates of work in line with the rest of the population.

Luis Enrique

Charlie,

well, in the long run the gap between govt spending and tax revenues need to close, even MMT hokum doesn't get around that. But you're right, I wrote "in the current situation", which was wrong. There is of course the option of printing money to fund the deficit. Some might question the "morality" of that too, so that point that the question concerns relative morality, not absolute, remains.

Fcablog

"an individual is usually free to expend marginal effort - to work harder or to take a higher-paid job. This being so, he chooses to pay that 50%"

One could use the same argument to "justify" woefully bad pay. "If you don't like it, don't do it". It's not really a moral argument, and it's the moral question I'm interested in.

"a high marginal tax on high incomes can be seen as a form of insurance payment"

Except it's an insurance payment to insure others; indeed those doing the paying are usually precluded from participating even if they do fall on hard times.

You could apply that line of reasoning to "justify" any form of state intervention that serves to improve the lives of the many, even if it ends up (perhaps seriously) inconveniencing the few. I'm afraid I don't really buy this argument.

Your arguments are interesting from an economic perspective but they don't answer the moral question. Clearly if the state were to put the top 1% of earners into slavery and force them to work for the state for nothing, this would be thoroughly immoral. That's economically equivalent to a 100% tax on their entire earnings. So if we can agree that that's "thoroughly immoral", by how much would you have to reduce the tax rate until the rate was moral?

Thomas Boyle

The question is not just whether this treats the wealth creator morally. The question is whether it is fair to the people with whom they would have traded, and with whom they would have created wealth that would have benefited them, and the rest of society.

For, indeed, it is true that the wealth creator is free not to work above a certain income threshold - and in fact many will not. When the wealth creator says, at the margin, "it's not worth it" (and yes, that does happen - I've done it myself), others (employers, marginal employees, etc.) lose opportunities that would have had value to them and to those they care for - or who care for them.

Libertarians (unlike anarchists) recognize that government can add value by enforcing rules. They recognize that taxes are necessary. However, they believe that taxation has this socially harmful side-effect, and therefore the functions being funded by taxes must clear a high moral hurdle. Only a small number of state functions are likely to do so.

"Reduced income inequality" achieved by preventing wealth creation does not clear that hurdle. It is simply pandering to envy, and its social costs are high - which is why every major religious tradition treats envy as a sin, not something to be pandered to.

On the other hand, the wealth creator and his/her trading partners need not offer any moral "excuse" for creating wealth, no matter how much of it (s)he creates.

As an aside, the claim that high marginal rates do not cause people to say it's not worth it, is based on the observation that many people keep working anyway when their tax rates rise. That's true: many people who already have a career or a business keep going because they don't know what else to do (although business people can "back off" at the margin more easily than employees can). But incentives do matter, and while it's easy to see the people who keep going, it's hard to see the people who never start. It's hard to see how many people decide not to study to become doctors or engineers, or how many people decide not to risk career and savings to start a business. But that's what happens; the damage is there, invisible. It takes years, even decades, for the consequences to fully appear, and by then the damage takes a very long time to reverse.

gastro george

Enough crocodile tears about the 50p rate. Let's look at a few facts.

As Chris noted at the end of his post - the poor regularly pay a marginal rate of tax well in excess of 50%.

Secondly, the 1% seem to be quite happy voting themselves higher than inflation salary and pension increases, so they could always do that even more to compensate.

I'm more inclined to see the solution that applies all the more to the financial sector. Find some way to stop the 1% from paying themselves so much - off the top of my head perhaps via some average salary multiplier.

WRT the financial sector, it's transparent that if the sector is so profitable for little economic benefit, then you have to find some way to drain the profit out of the system (like a Tobin tax).

Keith

If you want to bring morality into economics that would be a radical policy. The right wing rich think morality is humbug, "greed is good". So they cannot bring in a concept they reject in their system of private greed. It is special pleading to oppose taxation on moral grounds if you reject morality in your economic theory. If morality is a valid concept in economics then the consequences of the market distribution of income and wealth cannot be immune to alteration by Tax or other policies. I grant it is clever of one of the commentators above to use positive externality as a justification for low tax rates; someone has read their Adam Smith, but taxes and public spending also create positive externalities that are good for us as a society as Smith also accepts. All anti tax moral arguments are wrong as they rest on a absolute conception of private property rights that no one really believes in. If you think as most do that you must balance the good and bad effects of social customs like the market or private property then you can reach a compromise about taxation and wealth distribution. Morality lies in a good compromise if we can find it.

Jim

"All anti tax moral arguments are wrong as they rest on a absolute conception of private property rights that no one really believes in."

So you don't own your own body and the labour it is capable of then?

Its an either or situation you see. Either you own your own labour, in which case you are entitled to all the fruits of it, or you don't, and whatever you get to keep is entirely at the whim of the State, who might choose to take 100% and effectively enslave you.

Just as you are either pregnant or not, you are either a free man or a slave. Which is it to be?

Blissex

«Either you own your own labour, in which case you are entitled to all the fruits of it, or you don't, and whatever you get to keep is entirely at the whim of the State, who might choose to take 100% and effectively enslave you.»

This is a the usual maliciously and knowingly dishonest position that gets trotted out to justify no-taxes advocacy: being forced by Leviathan to pay up or else.

It is knowingly dishonest because paying UK tax is entirely voluntary; it is just the price that people voluntarily pay membership of the UK state, so called "citizenship".

Nobody forces you to pay 100% or 50% 10% or whatever of your income to the UK Treasury, indeed several billion people on this planet refuse to do so quite rightly; only a few dozen million have chosen voluntarily to do so. You too can opt out, and pay for membership in another State that will have you.

You have an entirely free choice in the state membership market, and with your superior sagacity and resources you can choose whichever deal suits you best.

You are not enslaved to whoever is selling you food, even if you need food to live, because if Waitrose is too expensive for you can can shop at Aldi. Actually a better analogy would be with housing association/condominium fees, which you got to pay by free choice, whether or not you like what they are being spent on, or what level the other members voted for, and you can always sell your house/flat and buy another one that comes with a better membership.

In the same way, if you think that the mutually agreed bargain that you voluntarily entered into to have UK citizenship in exchange for paying UK membership fees is no longer in your interest, buy another membership.

There are no jackbooted commissars of the people's dictatorship with a gun at your head forcing you to pay UK membership or else.

You can escape to Saudi Arabia, Somaliland, Afghanistan, Monaco, Bahrain, etc. if you think that those are better bargains.

Blissex

I think that discussing the "morality" of a 50% marginal tax rate is ridiculous in isolation, because of course *any* tax is immoral if it is arbitrary. Otherwise it becomes a fairy tale of punishing highly productive winners for their superior ability and greater effort.

One can only discuss the desirability of a certain overall tax take, and how to apportion it among members of a given State.

So for example the question is whether tax take should be raised by increasing tax from 40% to 50% on incomes above £150,000 or on lower incomes.

For example whether one should raise £20,000 by taxing an extra 10% the income above £150,000 of someone making £350,000 or by taking an extra £1,000 from 20 people making £17,500.

Now seen that way, it is clear that confiscating £20,000 from a producing hard-working winner generating £350,000 of value is much more damaging to the economy than raising them from 20 parasitic slothful losers generating only £17,500 each of value; punishing those who are the bright and best instead of the lazy or stupid sends the wrong message and is counterproductive; one should punt on winners not losers.

Therefore a truly progressive tax system, one designed to reward progress, should be designed to incentivize and reward members of the UK state to better themselves, producing more:

THE "TAX POVERTY INTO HISTORY" SCHEME:

* 50% "undeserved income" tax rate for the economic parasites who lazily contribute less than £20,000/y to the national income.

* 35% "unearned income" tax rate for the slow, not-trying hard enough members who only contribute less than £40,000/y to the national income.

* 25% "earned income" tax rate for the barely productive people who contribute less than £100,000/y to the national income.

* 10% "ordinary income" tax rate for those productive enough to contribute up to £400,000.

* 0% "deserved income" no-tax rate for the meritorious hardworking people contributing up to £1,000,000/y to the national income.

* 10% "Productivity Tax Credit" given to those heroes of the UK economy whose massive productivity contributes more than £1,000,000/y to the national income.

The goal here is to make sure that the lazy or stupid losers who are now living it large in luxury on lower incomes and fabulous benefits are incentivized to get off their fat arses and start contributing to economic progress like those who are now struggling to make ends meet on higher incomes with punitive taxes yet working hard to do their duty to the Country.

:-)

Blissex

«absolute conception of private property rights that no one really believes in.»

Well, some people do believe in it, but then there is the counter argument by Communist extremist Benjamin Franklin:

http://press-pubs.uchicago.edu/founders/print_documents/v1ch16s12.html
«All Property, indeed, except the Savage’s temporary Cabin, his Bow, his Matchcoat, and other little Acquisitions, absolutely necessary for his Subsistence, seems to me to be the Creature of public Convention. Hence the Public has the Right of Regulating Descents, and all other Conveyances of Property, and even of limiting the Quantity and the Uses of it. All the Property that is necessary to a Man, for the Conservation of the Individual and the Propagation of the Species, is his natural Right, which none can justly deprive him of: But all Property superfluous to such purposes is the Property of the Publick, who, by their Laws, have created it, and who may therefore by other Laws dispose of it, whenever the Welfare of the Publick shall demand such Disposition. He that does not like civil Society on these Terms, let him retire and live among Savages. He can have no right to the benefits of Society, who will not pay his Club towards the Support of it.»

Blissex

«The economic parasites who lazily contribute less than £20,000/y to the national income.»

BTW I hope that readers realize that the median UK taxable income was £18,500/y in 2007-2008 (probably lower now).

Which shows that at least half of the UK members prefer easy, lazy lives producing little as shop assistants or bus drivers instead of choosing to work hard producing real value as derivatives traders or mortgage brokers or marketing vice-presidents.

:-)

Jim

@Blissex: the fact that I could go and live abroad and pay less or even zero tax in no way affects the determination whether a person owns or does not own the fruits of their labours. The moral question still exists, even if you can evade the consequences by leaving the county.

For example, is it moral for the State to execute people who disagree with it? Lets assume you are free to flee the country and avoid death. Does that validate the policy morally? Or does the moral bankruptcy of the policy remain even if you are able avoid its implementation?

Lee T

"As Chris noted at the end of his post - the poor regularly pay a marginal rate of tax well in excess of 50%."

Yes, and that does need to be dealt with. However, shall we not neglect to mention that those people are, and remain, net beneficiaries (in cash terms) of the tax/benefits system. It is a little disingenuous to speak of 'taking more' and 'giving less' as if they are the same thing.

Strategist

50% marginal rate of income tax on income over £150,000 = moral bankruptcy = comparable to the State executing people who disagree with it.

Calm down dear!

Blissex

«could go and live abroad and pay less or even zero tax in no way affects the determination whether a person owns or does not own the fruits of their labours.»

I'll try try not be dense here: you fully own the fruits of your labor (subject to Benjamin Franklin's argument...) if you can decide where to spend those fruits in state membership fees, as a bargain freely entered into by willing subjects.

If you can say NO to a bargain, it seems that you do own whatever means of payment you would have exchanged in that bargain. And most definitely you can say NO to UK tax, and indeed literally billions of people around the world have freely chosen not to pay any UK tax, because they willingly enter in other bargains that they find more affordable to them. The UK membership fee is not an offer that you can't refuse, it is just one of many available options.

There is no moral question at that level - simply your freedom to choose which of the available membership bargains to buy with your money in the citizenship market, as a willing and discerning customer.

Giving some of the fruits of your labor to the UK treasury in exchange for UK membership is just a purchasing decision on your part, and nobody forces you to continue to buy UK membership (in this online age try to imagine it as a subscription to WWW.gov.UK services in a similar way as subscribing to WWW.FT.com services).

That you MUST buy food or die does not make Waitrose or Aldi immoral for confiscating some of the fruits of your labor as a condition for giving you food; and you can freely choose whether to spend your money at Waitrose or Aldi (or stop buying food...).

If you don't like the high prices of Waitrose you are entirely free to move your food shopping to Aldi, and complaining that it is a moral question that Waitrose charges more for food than Aldi and thus steals your hard earned property when you choose to buy food at Waitrose seems rather silly to me. You can choose how much to pay for what from which supplier, among the available choices, as a freely entered bargain between willing subjects.

And all this without even entering the argument that unlike Waitrose or Aldi, the UK state membership fee is for a group purchase agreement that comes with the right for you and your peers to vote on which particular costs and benefits are to be group purchased.

Jim

@Strategist: if you cannot see that I was not comparing taxation to summary execution, but in fact pointing out that being able to escape the consequences of a policy does not validate its morality, there's no point discussing things any further.

@Blissex: I'm afraid you are being dense. The morality of a policy is in no way affected by the fact you CAN escape it if you choose.
Lets pull it down to a personal level. Say I accost you on the street, pull a knife and demand your wallet. If you stand there I will knife you and steal your wallet, but if you run away I won't chase you. Are my actions moral or not?

Thomas Boyle

Blissex is correct. States whose taxes are too high are no more "immoral", in that sense, than supermarkets that overcharge.

Of course, we know what happens to supermarkets that overcharge. They fail, resulting in their employees losing jobs, their suppliers losing business, and their customers losing a place to shop.

Countries, like supermarkets, need to consider the consequences of mistreating those they need most.

Jim

@Thomas Boyle: there is a difference between the State demanding your money and a shop asking for your money. A shop has no sanction against you if you refuse its kind offer of an overpriced piece of tat.

Whereas as a citizen of the UK, just by existing, the State demands I pay it money, and will punish me, with force if necessary, if I refuse. I must make a positive action to avoid this sanction, ie leave the country.

If you allow me to refuse HMRCs kind offer of taxation, in the same way I am free to refuse Waitrose's offer of expensive food, then I will be more than happy.

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