Fairly Taxing?

I have also sat by this week and watched a lot of political claptrap being bandied about, and it was this I think that really stirred me into action (and impassioned pleas to resume blogging from all (both) of my readers). "Je ne regrette rien" - an interesting choice, when asked in an interview, of personal song for a partner- and point-swapper who has gone back on more vows in his manifesto than in his dissolute marriage. I refer, of course, to Chris Huhne, a man who can pour forth pointless illogical drivel like an extra from One Flew Over The Cuckoo's Nest. His comments in particular piqued my anger this week with his non-sensical economic codswallop on taxation.

It shall not have passed you by that this week has seen the Lib Dem bandwagon (perhaps too grand a name considering their massively reduced popularity - maybe bandtrolley) roll into Birmingham. And my oh my, aren't they pleased with themselves? It had to be expected that they would trumpet all the things they have 'forced' the Tories to do and shout from the hills about their moderating ways stopping the evil Tories throwing 'the poor' on a bonfire for 'the rich' to dance around. In top hats.

The main worrying thing is that as I have previously mentioned (here) is that this influence they lay claim to may not be that false. I just wonder why on earth the Tories feel the need to bow to an unpopular party with some 11% of public support who have a contract to deliver on the Coalition agreement? I worry that with all the talk of the 50p tax rate having to be exchanged for another tax on wealth, it might actually happen. Nobody from the Tories has the balls to stand up and reply to the Lib Dem posturing.

Nobody is willing to say "as with the majority of the Coalition Agreement, as we massively outnumber you and are the senior party, the general bias will be towards our policies". Nobody will say "stop trying to horse trade on policies like you are on an even footing", and no-one will say "we'll make our fiscal decisions based on fiscal reasons with a general bent towards our economic philosophy as opposed to your poisonous hatred of wealth". I cannot for the life of me understand why the Tories accept the posturing of a bunch of middle ground grey men who are trying to win back from Labour the half of their support that has vanished since they had to actually govern rather than write out a distinctly naive wish list of unfunded policies when in third place.

The most important point in there I think is the reasoning behind tax. I read an interesting article a few weeks back about tax policy, and the current lack of it. When we run for Government in this country it seems we are happy to set out our policies on health, education and defence etc. We explain why we have such policies. We explain what the purposes of all our proposals are. Nobody sets out a tax policy though. It is just said that we pay for x,y and z in other policies through taxation. It is just a means. It is not an end. And therein lies the problem and the one the Lib Dems are falling foul of currently.

You need to have a taxation policy - what is it there for, what are we trying to achieve through taxation, through the different parts of the system? It is more than just a money making machine. It is so vital a part of the running and funding of the country that it should not be directionless. Yet it is. That is how we get into the mess we are in now, with the Lib Dems repeatedly standing up and demanding punitively high rates of tax on 'the rich'.

I shan't get into the weeds on 50p tax again, indeed the extra tax may not be that much more of a burden on the highly paid and may actually increase tax takes (we'll see when the independent report comes out, but I doubt it is working), but that is by the by. The point is that the Lib Dems think that this tax, and their 'mansion tax' proposals are designed to be punitive and that that is the right way to go about taxation. They think tax is about retribution. They want all these 'fat cats' to pay 'their fair share'. Yet, as I have mentioned before, nobody is willing to define 'fair'.

It appears if you have more money it is 'fair' that you pay more and more of it in tax (to an as yet undefined limit) so it can be redistributed. Now I'm not advocating flat tax amounts, but at least that is an easy one to justify as 'fair' - everyone pays the same amount seeing as they are all at equal liberty to avail themselves of the services said tax provides: All men are equal - I reckon I could sell that one. Or we could go with a flat rate; not equal amounts, but equal percentages - then one pays relatively the same amount: Even shares of one's own wealth - I think I could sell that too. Or no taxation in a wholly private system where everyone simply pays for the services they wish to use and do not pay for the ones they do not: Pay As You Go - I reckon I could sell that one as well.

But we in the UK have none of those systems. Our system is the 'progressive' system, where the more you earn, the more you pay because of your ability to do so, and vice versa: To each according to his need, from each according to his ability. Now that's where we are now, and it is indeed a noble thesis.

However, let us not fool ourselves into thinking this is necessarily 'fairer' than the first three. It may promote a more caring society. It may redress the imbalance in wealth that fate, genetics, or just hard work has created. However, to call this 'fair' we should acknowledge that we think it is in some way unfair that some people get richer than others. We should acknowledge that inequality even when deserved, is unfair. Which, of course, it isn't.

It is not unfair that at the end of the summer the ant has lots of food for the winter and the grasshopper has none. Now it is often unfortunate that some grasshoppers will have been unable to harvest as much food as some ants. Some may be weaker, some perhaps lack the guile of the ant in his cunning harvesting processes, but some will also be lazier. Inequality is all around us, but it doesn't make it unfair.

Now I'm in favour of a progressive system. It massively benefits the richer in society for the poorer to be helped, and not just in a soothing their souls kind of way. I also believe a progressive system makes for a better society, where there are opportunities for those at the bottom of the ladder to be helped out and helped up. I'm all for that. I also think it is good for those with more to help those with less, but let's not forget that happens with a flat rate of tax too.

The problem is that 'fair', unlike 'equal' is subjectively judged, not objectively judged, therefore they are not always mutually inclusive. They are not the same things. So when someone talks about equal, we know what they mean, but when they say fair, we must insist they qualify it. People claiming this tax or that tax is 'fair' and talking about a 'fair share' have to define exactly what they consider to be fair. They cannot simply hide behind the word, for by being subjective, it by definition requires clarification.

Is it fair for someone to pay more and more of their income in tax as their income increases? I think one is on pretty dodgy ground trying to argue that. Why does your 'fair share' keep increasing the harder you work? Certainly it helps society that those who can afford to pay more do so, but let us not think it would be unfair if they only paid a flat rate. We have an exceptionally generous tax system in terms of redistribution of wealth. The tax system takes its money disproportionately from those who use fewest of the services it provides with those taxes. It takes the least from those who are the highest financial burden. It is a good system, but it should not be said that it is necessarily fair, because a system could be far less generous and easily be defined as fair.

It is not fair or unfair for the strong man in a group to carry the weaker man's load. It is generous, but the overall speed of the group will aid him in the long run. As long as he is able to see the collective benefit of his aid and he does not become somehow obliged to help so, everyone will be happy. When we start suggesting that it is fair to heap more and more weight onto him, we do him a disservice. When you take the strong man for granted and punish him for his strength, or blame him for the weakness of others you run a grave risk. He will happily carry more than his share of the burden if he can see his contribution is valued, if the extra weight is not too great, and if he can see how he benefits too.

Once we understand that we can get to grips with tax rates. Once we understand that our tax system has gone beyond the various measures of equality where it would be easy to call it fair and into territory that is obviously generous we may get somewhere. Once we understand that the economy is mainly kept ticking over by the work of those from whom we ask the most we can progress. Taxes over parity need to be explained with their economic reasons behind them - how they help everyone, including the one paying the tax. This is how you find yourself at optimum tax rates. To go into tax policy with an eye on punishment or retribution is to utterly miss the point and guarantee sub-optimal tax takes. It is biting the hand that feeds you. So no more talk of 'fair shares' please, just sound economics behind a sensible taxation policy. As the social scientist Arthur C. Brooks said, "if you think spreading money around by force seems like an odd definition of fairness, you're not alone."