In praise of tax

Sometimes we need to remind ourselves of the purpose of things that are unpopular. Many things have a beneficial purpose, but somehow become associated negatively, not helped by screaming media and opportunistic politicians.

 

The EU would be one such thing. We haven’t had a war among members for two generations. Huge social benefits have accrued to people in former dictatorships in Southern Europe and previously communist nations to the East. We can all enjoy holidays with less restriction and hassle, in some cases without even a border check. We can consider living elsewhere. And we can transact with each other without paying fees to banks and wasting time. We can generally trust products from partner countries, and enjoy the extra variety and benefits of competition that brings.

 

Yet all we here is negative. Stuff about loss of sovereignty and wild bureaucratic interference. True, mistakes have been made with the Euro. But the balance, in my view, is overwhelmingly positive.

 

Similar arguments can be made for the benefits of immigration. The biggest one, we conveniently forget, is the resulting potential for emigration. Ex colonials sometimes seem to think they can trample anywhere, while blocking others from trampling on our land. Then there is the benefit of diversity, not least in cuisine, and the labour market stuff. Twenty years ago you couldn’t find an honest plumber. But again, all we hear is the negative, from benefit scroungers to strained housing associations.

 

An even bigger public good portrayed as an enemy is tax. It is even easier to vilify, because we actually pay directly, unlike for the EU or immigration. We see tax all too painfully every time we look at our wage slip or fill up our cars. But we forget what it achieves, and few public figures see any value in reminding us.

 

Tax started badly as a means of enforcing feudalism, and to prop up institutions such as monarchies and Churches. In less developed societies, tax can still be a means of the wealthy exercising power, such as the agricultural marketing boards across Africa. I don’t enjoy (or even partake) in collections for the Vatican. Today’s news of an arrest of a senior monsignor for fraud will not grow that particular collection box.

 

But, as societies developed, well run states became active partners with their citizens, with checks and balances provided by democracy and legal systems. The state provides all sorts of services for the common good. And these services have to be financed. That is why we pay tax, and we should try to celebrate it rather than complain about it.

 

Someone has to provide water and sewerage infrastructure and service. The police , fire brigade, jails and the armed services needs funding. What about the judges themselves, and the civil service? Health care needs a basis to operate. What about education, the most important investment in the future for any group of people spanning generations? Who is going to build roads or train tracks? What about providing old age pensions?

 

Consider the alternatives to the state (federal or local) providing these services. I can think of three. One is to rely on donations or charity. The second is to make them self-financing, operated by the private sector without state support, so the consumer must pay the full cost. And the third is not to provide the service at all.

 

Charity is how things used to work in the nineteenth century. In practice, it hands incredible power to the wealthy. Those with money (because they do not have to pay tax) can choose where to provide their charity. In return the rest of us must belittle ourselves in front of them. Often the charity is not as free as it looks, but comes with hidden strings such as political patronage or even the self-aggrandisement of publicity.

 

I hate it. It is wonderful that Bill and Melinda Gates choose to invest their fortune for global good. It is better that some banker supports a new theatre at the cost of it being names after him, than the alternative of the theatre not being built. But it would be better still if the public good were served without us having to pray to the banker (or Church), just like the gentry of old. Donations are good. But a system that relies on donations is rotten.

 

Full self-financing has the same effect. The children of the wealthy receive the best education, while their parents receive health care to keep them alive. The rest go without, or at best suffer a lower quality of service. Gated communities are kept safe by security guards, while crime is rarely punished and becomes rampant elsewhere. Inequality of opportunity perpetuates across generations. And roads and sewers are left to disintegrate, except those required by those who can afford the cost of their private system.

 

Now, of course there are limits. If every service is effectively free, why should anyone strive to work harder or develop themselves? If the state starts taking over industries and contractors, then the effects of competition and what capitalists call creative destruction are lost. Just look at the fate of communist countries to see where this leads. There should also be some check on all state budgets.

 

I am not advocating communism for a minute. I also support trends such as linking unemployment benefit to acceptance of training, or challenges to disability benefit. I don’t see why state workers should have markedly better pension or holiday conditions than those in the private sector. I also support private provision of services.

 

But over my lifetime I see trends that I don’t like. Thirty years ago income taxes took in more revenue than expenditure taxes, and rates were more progressive. Much of the western world has a crisis in infrastructure. And corporate taxes have been relentlessly squeezed due the effects of globalisation – well done Cameron and the G8 for at least acknowledging this last week. Finally, politics itself has become more driven by money. All of these trends have widened inequality of wealth and also inequality of opportunity and social mobility. In each case, the US has a more extreme position than most of Europe.

 

Furthermore society seems to become progressively more virulently anti-tax. Part of this may because the media itself has moved away from state to private provision. The tea party has no trouble finding a willing media. Nor does UKIP.

 

There is a balance, and France, for example, seems to have swung too far towards a high-tax low-incentive model. All I ask is that we all consider three things before we thoughtlessly campaign against any tax.

 

First, do we really want to rely on charity and self-financing? Was the nineteenth century a beneficial model? Almost every tax has an equalising effect. Each time we argue against one, in effect we are supporting the wealthy against the less wealthy. Which, given the skew of wealth in the world, must mean supporting the 5% of them rather than the 95% of us. Is this progress, or regress?

 

Second, even if somehow we are in the 5% not the 95%, to what extent do we have any moral right to argue to widen inequality? True, some people work harder than others, some rise to great heights from humble beginnings. But for far more of us, our wealth is largely a product of where we happened to be born, the education our parents were able to give us, even our gender.

 

Finally, even if you are hard-nosed enough to wish to grab more, think about where history tells us that rising inequality leads. Revolution, war, hardship. Are we more concerned with cutting inheritance tax for our kids, or of giving them a more developed society?

 

So, we will join me in the pro-tax party? Oh well, worth a try.