Would Labour Tax Too Much?

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.