Would Labour Tax Too Much?

8 Jun

One way to interpret this question is in economic terms: Would Labour’s tax plan have a negative effect on the economy? But as I am a philosopher rather than an economist, I will focus on the moral interpretation of the question: Are Labour planning to take too much from the individuals (all in the top 5%) from whom they plan to raise taxes?

Most people agree that inequality is a bad thing, especially the gross levels of inequality that have arisen since the Thatcher/Reagan revolution of the 80s. However, many people think the moral imperative to reduce inequality needs to be balanced against the moral imperative to let people keep a reasonable amount of ‘their money.’ This argument, for example, was made many times by David Cameron as Prime Minister. The thought is this: Yes, inequality is bad, but on the other hand people have a right to the money they’ve earned, and it’s unfair to take it from them above a certain level, even if this helps to reduce inequality. I have heard Michael Portillo argue on BBC Radio Four’s ‘Moral Maze’ (a very frustrating show to listen to if you’ve had any philosophical training) that the state should never take more than half of an individual’s income.

Although very common, this line of reasoning is utterly confused. Your gross (or pre-tax) income is just the money the market delivers to you. So if you have some special moral claim on your gross income, this must be because there is some special moral significance to market outcomes. But only the most extreme political philosophies are able to make coherent sense of this idea, and these political philosophies are inconsistent with the idea that inequality has any moral significance.

One the one hand we have the philosophical position known as ‘libertarianism’, according to which market outcome are always perfectly just as they are the result of voluntary transactions between free individuals. If you have this view, then there’s nothing wrong with inequality, so long as it results from the free market. For the libertarian, if the market dictates that a banker receives a hundred times than a care worker, then that is how things ought to be.*

Crucially, libertarianism is the only theory ever proposed in the history of political philosophy according to which market transactions have any intrinsic moral significance. And it’s not a theory you can compromise on. If the state interferes in the market by redistributing wealth or taxing to fund public services or education – even a little – then the resulting distribution no longer reflects the voluntary transactions of free individuals, and hence no longer has the moral significance libertarians impute to it. If libertarianism is true, then market outcomes are just, but only if the market is completely free, and hence only if there is no redistribution of wealth whatsoever.

On the other hand, if libertarianism is false, then market transactions have no intrinsic moral significance. There may be economic reasons for giving some respect to market outcomes – a questions I am not primarily addressing here – but that is another matter. And if market transactions have no intrinsic moral significance, then we cannot make sense of the idea that individuals have a special moral claim on their gross income, a claim that should temper the moral need to address inequality.

In summary: If libertarianism is true, then there’s nothing wrong with inequality; but if libertarianism is false, then the argument that taxing people above a certain level takes too much of ‘their money’ makes no sense.

What is the moral of the story? If you would like to see zero redistribution and no public services and publicly funded health care/education whatsoever, then you don’t need me to tell you that you probably shouldn’t vote Labour. But if you don’t sign up to such extreme ideologies, then worries about the moral rights of people on 3 times the average wage to keep more of ‘their money’ make no sense.

The only remaining question is whether Labour’s choice to focus income tax rises on the top 5%, as opposed to the population more generally, will crash the economy. I’m not an economist so I won’t offer an opinion on this matter, other than to point out the obvious fact that the top 5% (who of course dominate the media) have a huge incentive to persuade the population that it will.

 

*I’m ignoring left libertarianism for the sake of simplicity, something I explore in a lengthier piece on these issues I’m currently working on.

 

 

 

4 Responses to “Would Labour Tax Too Much?”

  1. Johnny Broadacre June 8, 2017 at 12:52 pm #

    Interesting article but I have a couple of questions:

    How does the imposition of higher tax rates (that discriminate purely on earnings levels) magically produce a morally acceptable result to even the individual’s post tax income? If you follow your argument doesn’t it mean no one has any moral right to their income whether pre or post tax? If the market doesn’t produce a moral result at the start simply reducing it by 50% or whatever the rate you choose still bakes in the market result. Taxing at a different (higher) rate is not some special fairy dust.

    How does the current system produce zero redistribution? The tax system is clearly progressive as higher rates apply to higher income groups. May be not as much as you would like, but it’s not true to say there is zero redistribution.

    • conscienceandconsciousness June 8, 2017 at 1:56 pm #

      Thanks for comments.

      The thought is that inequality is bad (admittedly haven’t argued for that here), we can reduce it through the tax system (by taxing higher incomes more, and then either taxing lower incomes less or spending of public services) and there’s no moral reason against. You have a legal right to your post-tax income: our only concern should be to ensure that post-tax distribution of incomes is as just as is possible within economically feasible limits. It doesn’t bake in the market result: you’re altering the market distribution by taxing different income groups at different rates.

      I didn’t mean to say that there is zero redistribution now. I just said if you’re a libertarian and hence would favour zero redistribution then you problem won’t be voting Labour.

      • Johnny Broadacre June 8, 2017 at 8:36 pm #

        Thank you for the clarification on redistribution and that makes sense.

        On the moral question, I guess you don’t, in principle, fundamentally object to some people earning more than others. You may also agree that the market could occasionally produce a morally acceptable result for someone’s efforts but at other times it doesn’t? So sometimes pre-tax income is morally acceptable but other times it isn’t. If this is the case, it follows that sometimes a high earner may have morally acceptable gross earnings but someone else on the *same* earnings may not. So, doesn’t the application of a tax rate (at whatever rates) to those earnings still bakes in the morally unacceptable result for some when we trace it through to post tax income? Differential tax rates discriminate based on income level only, not on the many other variables that could mean the market produces a morally acceptable result or not.

        So why is it a morally superior result unless your view is it is just because inequality of income *levels* is generally bad and no inequality is morally good? Surely that is contentious as most people expect their own earnings to increase as their skills and experience improve through their careers.

  2. conscienceandconsciousness June 20, 2017 at 1:57 pm #

    Yeah, I would go for a more nuanced view than perfect equality, and it could in principle be the case that the market happens to deliver the correct result. But I just can’t really imagine of how this might actually be a problem. We can still preserve progression in career and any other inequality that we might think is justified. Can’t you give an actual example? The point is that there are gross inequalities that we can lessen through the tax system and I can’t see anything to counterbalance that.

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