On the benefits the rich really get from paying higher tax

Over the weekend, I watched on iPlayer Nick Robinson's programme "Your Money and How They Spend It", which was a look at the UK budget and why there's a deficit. In the first programme, he looked at government spending, and in the second he looked at taxation. It's the second programme that I intend to discuss here.

I have a fairly dim view of Nick Robinson's analytic skills, and my usual reasons for that view were again on show in this programme, and that's why I wanted to write about it. The reason being that the errors of analysis that Mr Robinson makes are pretty common in people's thinking. For those whose education or jobs don't cover these sorts of matters, that may be excusable, but Mr Robinson is the Political Editor for the BBC's news service, and might be expected to have a broader and more in-depth understanding of these things than most.

A brief synopsis of the programme may be helpful to provide the context for my criticisms and thoughts.

Mr Robinson opened by describing tax as "governments asking us to give them money, for them to give to other people". (This is my first point of contention.)

He then showed a computer graphic illustration of where the UK government gets its tax revenue:

The Big Three:
• Income Tax
• National Insurance
• VAT
• Corporation Tax
• Fuel Tax
• "Sin" taxes:
• alcohol
• tobacco
• etc.
• Council Tax (based on size of property)
• Stamp Duty (percentage of house sale price)
• Inheritance Tax

He also mentioned something to do with air travel, but I don't actually know the name of the tax involved there.

He gave a history of income tax, and how it was originally a "temporary" tax introduced to plug a budget deficit brought about (IIRC) by some war or other.

After that, he discussed who we mean when we talk about "the rich". In a "vox pops" piece (with my usual caveat and scepticism that any clips of someone saying the wrong thing is left on the cutting room floor), it transpired that most people at Newbury racecourse (a place populated by people in very expensive-looking suits, it seemed) seemed to think that "rich" was always someone else whose income was higher than their own. When presented with a range of options, most people seemed to think that being "rich" meant an income of around £120,000.

This is interesting, when taken in conjunction with the 1% versus 99% message that the Occupy movement(s) use, because it turns out that only 1% of the UK population earns £120k or more.

He then gave another graphic this time showing the proportions of incoe tax revenue provided by those segments of the population above or below certain income levels:

• less than £10k - 0.5% of income tax revenue
• Bottom 90% of earners - 47% of income tax revenue
• More than £48k (top 10%) - 53% of income tax revenue
• Top 1% (i.e. £120k+) - 27% of income tax revenue

This is remarkably close to the graphic I saw on one Occupy leaflet about how the wealth in the UK is divided up (a quarter to the top 1 % another quarter to the rest of the top 10%, and half for the bottom 90%) Without having the leaflet to hand, I can't check what their source was, and it might have been the same.

Mr Robinson then discussed proposals for taxes to help plug the deficit. First, the idea of a higher top rate of income tax, for the extremely rich. The debate, said Mr Robinson, was more about "what it says about Britain" to introduce such a tax, than how much the tax would actually raise. Those arguing for it said that it "says Britain stands for fairness", those arguing against it said that it "say Britain is against aspiration and rewarding success". (This is another point I intend to discuss).

The ways that tend to get used are more often targeting the "comfortably off" - that next 9%, effectively. Often, these involve cutting benefits such as child benefit that are received by these families.

After that, Mr Robinson explained about National Insurance (NI), and VAT (where the rules now extend to 3,000+ pages concerning which items are liable for VAT and which are exempt).

Mr Robinson showed us another graphic, taking the 10%-wide income bands and showing what proportion they paid of tax revenue against what they received from the government in direct benefits, and in pensions, healthcare and so on. Not surprisingly, the top 10% of earners paid in massively more (as a proportion of the whole) than the rest, but received somewhat less in benefits, healthcare entitlement, etc. Mr Robinson stated that the bottom 60% receive more than they pay, but the top 10% pay 5 times what they put in. This is the point over which I have the strongest disagreement, and the main focus of the argument I wish to make in this post.

Finally, Mr Robinson talked about tax avoidance, and how extremely wealthy individuals can afford to spend time overseas to avoid tax liability in this country, and big business can afford to make their affairs and accounts so unfathomable that it becomes almost impossible for politicians and civil servants to track the money down and thereby tax it.

***

I highlighted three things I wanted to discuss from that, which were Mr Robinson's assertions that:

• "Tax are the way that governments take money from one and give it to another, maybe even back to us when we're unable to work, or sick, or old."
• The top 10% put in 5 times what they get out

I also wanted to address the argument that high rates of tax for the very richest people send a message that "discourages aspiration".

I'll start with "aspiration".

Many people aspire to be successful sportspeople. Obviously, the fact that the most successful sportspeople are paid enough to put them in the top 1% (and probably top 0.01%, though that's just a guess from me) i part of the attraction, but we'll look at the aspiration to excellence to start with, and deal with aspiration to financial success a little bit later on in this analogy.

Now, someone aspiring to be successful as a sportsperson needs to practice, and train, and work hard to achieve success. The level of success is generally contingent upon the amount of effort (work) that one puts into it. Professional sportspeople have to treat their sport as a full-time job, because that is what it is: it's how they earn their money.

Now, consider this: For each extra unit of effort you put into your training and playing, do you expect to gain the same amount of advancement? I think probably not. I think, you expect it, in general, to cost more effort for the next level of advancement up the rankings in your chosen sport. I think, when you reach the top, you are putting in the same amount of effort, but only making very small advances in your performance and success levels (but knowing that if you didn't train and practice, you would lose it all).

Is it not fair, then, to think that maybe after the first £100,000, it might be a bit harder to get the same advance in pay after tax? But why would that discourage aspiration, or the drive to financial success? Just because it costs more to get more? But that is the same whatever your chosen field of aspiration. I chose sports above, but I could just as easily have chosen musicianship or any other field of endeavour. Do some people give up their aspirations to sporting prowess because it is hard? Of course! Do some people give up their ambitions of a musical career because it is difficult to make it? Definitely! (Or they seek a short-cut by applying for talent shows...) Does that mean that these fields "discourage aspiration"? Bollocks! Of course it doesn't! How absurd!

And that's why I give that argument short shrift.

On to Mr Robinson's statements. In a way, my contention with them both is the same concern. Mr Robinson treats us as atomised individuals operating utterly independently of one another, except for this curious system of transfer called "the government", that "takes from one" and "gives to another, or back to us". It seems as though we have no other contact with one another except that, in the political worldview that Mr Robinson inhabits.

This, incidentally, is the thesis that underlies modern free market or "liberal" capitalism, the idea that we are all separate and independent of one another, only meeting in order to trade. Capitalism defies the purest exposition of free market economics in various ways (and the requirements of no hidden costs, and perfect information, also make FME impossible to achieve in real life) but the idea is still the same. It is disappointing, and frustrating, that a political editor for a highly-respected news business such as the BBC's news, should be so blinkered as to believe that this is the only way things can be. It is not surprising that the general populace should believe it, because capitalist hegemony makes it hard to see outside of the box, but for someone whom one would expect to have some knowledge of other political viewpoints (even if he didn't share them personally) to present it that way is just shoddy work.

So, what's the alternative? Well, Marx and Engels wrote passages that reflect this concept, and I know other philosophers before them touched on these ideas as well. We can start with the oft-quoted line from John Donne, "No man is an island, entire of itself; every man is a piece of the continent, a part of the main;" By interacting with others, we are woven together and could not exist fully but for the existence of others. Indeed, these days, we could not continue existing but for the efforts of others. We rely on others' work to provide us with the benefits of living in a society. We are not an archipelago, but a great continent woven together by common experience and - yes - by common trade.

What that means is that none of anyone's income is theirs alone, by their own efforts produced. All of us depend upon the effort of someone else to be able to earn a living.

Taxation is not "taking from one to give to another", but rather, is the cost of keeping society functioning so that we can enjoy the results of living in society.

In his first programme, Nick Robinson did not just talk about pensions, healthcare, and the benefits system (although he talked a lot about those things). Taxes also pay for defence, for policing, for infrastructure, education (without which, of course, there would be no healthcare, and precious few highly-paid jobs!) and so on.

Take away the roads and rail, and suddenly your money counts for very little. Take away the defence or police and just anyone could come and take over. Take away the education service, and sooner or later you'll find that there's no one to help you stay alive, or at least, no one able to get you what you want (because they don't know how). Some time ago now (several years, I think), the comedian Jo Brand appeared on Question Time along with a bunch of politicians. They were debating taxation, based on a question from the audience. Jo Brand made one remark that has stuck with me ever since: "Taxes aren't there to punish us. They're so that the government can buy us nice things." Now, we might think that the things they buy for us are not up to scratch (for instance, the NHS computer system that was recently abandoned after the people who designed it botched to job) and we might be angry that tax revenue is thus being "wasted", but that doesn't make taxation a bad thing. And, let's be honest, what makes any of us think that we are better at avoiding cock-ups such as buying the wrong sort of tea by mistake, or failing to get the very best possible bargain on light bulbs? It's just that when a government does it, it tends to involve sums that make the mind boggle, instead of just £2.50 or whatever.

And we all know that bulk, wholesale, purchases tend to be cheaper than buying things at retail prices. That's one reason why we have a government so that we can club together and get those nice things at wholesale prices. When people buy private healthcare or education, what they are really doing is buying retail instead of wholesale, and paying over the odds (this is another topic, for another post, however).

Taxation isn't really about the transfer from one individual to some other individual(s). It's about the membership fees for a club - Club UK, if you like. Membership of this club comes with certain benefits, among which are the benefits of having a relatively safe place to do business of various kinds, and the maintenance of a functioning society that makes it beneficial to carry out those businesses.

So, what do rich people (that top 1% earning £120k or more a year) actually "get back out" of government, when they pay in their top rate taxes?

Well, it's not just the benefits, healthcare entitlement, pensions etc. It's not just the defence and the police. It's not just the infrastructure. It's everything they get as a result of those things being in place. In short, it is everything they earn from any business conducted in the UK. Whether that's by salary, or investment, or whatever. What you get out is, in fact, everything that you didn't pay in.

When you look at the excess not just over the tax costs, but of the "what you get out" over "what it costs to stay alive" then the proportion of income that can be spent on luxuries becomes much greater. Some people tend to add in a much bigger food bill, but that's because the nature of the foods they are buying are luxury rather than necessity.

When you get vastly more out, and when what you get out is actually greater in proportion to your other costs, it seems perfectly fair that a greater proportion of that should go to helping the club that benefits you disproportionately compared to the rest of its members, running.