Simon Duffy

Thoughts, Bemusements & Arguments

Tag: tax

Taxing Love

You can’t redistribute love. 

Love is the most important thing in life. It is what keeps us strong, makes great children and build good citizens.

The government cannot take away someone else’s love and use it on other people. Love is bound up with real human relationships, commitments and families.

However, while the government cannot redistribute love it can tax love and often does so in ways that are highly damaging. In the UK system we find love taxed in many ways:

  • If you are in poverty and live together then you lose benefits
  • A family where one partner is working loses the tax allowances of the non-working partner
  • If you need care or support you are often deemed ineligible if you have family in your life

So we punish people for love, impose taxes on families, means-test family strength. For example, disabled people have sometimes found social workers encouraging them to get a divorce in order to be entitled to higher levels of benefits or social care.

The design of the current tax-benefit system is anti-love – it punishes and penalises people for being in relationships and it incentivises family breakdown. The answer is not to reduce benefits but to design a system that does not punish love.

Odysseus and Taxation

Sometimes, like Odysseus before the Sirens, we seek to limit ourselves, to put ourselves under the control of others, because we do not trust ourselves.

Insurance has this function – we tax ourselves in order to put something aside in case of adversity. While this strategy can be useful it can be also dangerous.

In a democracy we see the same phenomenon when citizens are taxed from afar, that is passing their resources far away, to higher authorities – only to have them come back (or some proportion of them come back) with strings attached.

Some people like this process, it encourages national uniformity and if you trust those who further away more than you trust yourself or those who are more local it makes sense. But this indicates a kind of weakness and an unintegrated mentality. This encourages centralisation of power and undermines the community’s own development.

Sometimes, as with health care, we are right not to trust ourselves – we would be better to trust others. But we must be wary of unfounded faith in ‘the system’ and ‘the powerful.’

Spartan Tax Rates

…the Helots were tied to the lands as serfs of the Spartan community, paying for their right to live by a contribution of half the product of their labours on the soil. 

E B Castle from Ancient Education and Today

Hence we might observe that the Spartan tax rate, placed upon their slaves was at 50%, just a little more than the size of the UK’s tax rate (once we aggregate the many different taxes we pay).

However it may be too strong to conclude that we are slaves like the Helots. After all the political elite have to pay the same tax rates as we do, whereas the Spartan elite were supposed to own no private property. Moreover we have effectively agreed to pay our 50% tax through the electoral and democratic process.

But do we really feel that these resources which we hand over to the state and to politicians to spend on our behalf are well spent? Do not growing rates of inequality suggest that we have failed to grasp the real causes of injustice?

The Tyranny of the Medianocracy

Aristotle feared that democracy might become the rule of the mob, the demos. He saw their short-sighted, wilfulness as a threat to good order. Of course Aristotle did not know how big and powerful a state could become, nor how sophisticated the democratic process could be at refining the will of the people.

Today, at least when it comes to matters of money, the real threat to good order does not come from the rich or the poor but from the median voter. The rich, as always, can always buy themselves some power but it is the median voter – the swing voter – who holds the key to power. Typically the median voter is also the media income earner and so politicians have learnt how to bend the welfare and tax systems to ingratiate themselves with this group.

In the central distributionary matters of tax and benefit policy there are two competing tactics at play. The Right tries to find ways of making the median voter believe that they are one of the rich, but are being exploited by the poor; the Left tries to make them feel that they are one of the poor, and are being exploited by the rich. The reality is that it is the median man who is exploiting both rich and poor.

What justifies extra high tax rates for the rich? The rich must pay more in tax, of course they must, but it is more difficult to explain why they should pay at a higher rate of tax. What justifies the even higher marginal tax rates (or benefit reduction rates) faced by the poor? If high taxes create disincentives then the poor should face the lowest tax rates – not the highest.

Rationality supports neither policy. In fact both poor and rich groups are more likely to be subject to disincentive effects than are middle-earners; for they are not in the kind of steady and secure work that the typical middle-earner enjoys. It is not rationality or economics that explains the current system – but political pandering to the key voter group.

We currently live in a medianocracy and this distorts our tax, benefit and welfare systems. Constitutional government has always been justified on the basis that the rule of law must also be used to discipline the will of the people. It seems to me that we must begin to learn now what rules should discipline the welfare system. A fair welfare system would pay much more attention to ensuring that those who worst off were given the fundamental guarantees and securities that protected their active citizenship.

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