An editorial in The Economist has expressed some concerns about the irresponsible pledges being made by the contenders for the leadership of the Conservative Party.
These proposals range from unwise to extraordinarily bad. Mr Johnson’s tax cuts would be both a waste of scarce resources and grossly unfair. He would reduce their cost by raising national-insurance contributions, a payroll tax. As a result the biggest beneficiaries would be well-off pensioners, because payroll taxes fall only on those in work. The policy is a shameless bribe to the elderly and prosperous Tory party members who choose the leader.
That critique has been rebuffed by neo-liberals on Twitter. An argument from @_JamieWhyte runs as follows:
What do they mean? How are scarce resources wasted when the government collects less income tax? Does @TheEconomist believe that private spending is more wasteful than govt spending? I cannot think of any other interpretation of this claim (help, anyone?)
That’s an intriguing argument, because it has implications its supporters may not have recognised. If tax is a means of financing government, this would leave a deficit (which the Conservative right has consistently claimed it’s concerned about), and the money has to come from somewhere. To govern is to choose, and this is a distributive decision. If on the other hand tax reliefs are basically transfer payments – altering the balance of spending power between private citizens – then the same argument made here, that money held in private hands can’t be wasteful, also applies to social security payments, which are another way of doing the same. That can’t waste resources, either.
For most of the last sixty years, however, it’s largely been accepted that tax reliefs are simply a cost to government (the argument was made by Titmuss). If they’re a cost, they must be justified; and a cost to benefit the rich, imposed at the expense of lower-paid workers, is hard to defend.
The libertarian right usually sees tax relief as allowing people to keep ‘their own’ money. The basic objection to that position is that incomes and tax rates are entirely conventional. (Note that the defenders of the proposed tax cuts have been commenting that senior policemen and nurses – whose pay is determined entirely by public policy – should not be subject to higher rates of tax. ) The reason why Nordic countries can sustain higher tax is that the structure of their incomes is different, and conversely the low taxes in Mexico are not compensated for by higher incomes. No-one should imagine that, if the structure of tax rates was to be fundamentally reformed, their income will ultimately look the same as it does now. We have to counter the illusion that tax is capturing people’s private incomes. The distribution of income is not a private matter.
Well argued as ever. private spending good, public spending bad. private sector capital investment good, public sector borrowing bad. Industrial subsidies good, benefit payments bad. Tax cuts good, tax increases bad. Ad nauseam. Even left of centre politicians can get mislead; eg Scot Gov happy to throw money to Scottish Enterprise (to pay for consultants?) but less so to give money too the poorest (who have a marginal propensity to consume, locally of 99.9%)? It’s my money, I earned it; it’s my property/land – my ancestors stole it via rape and pillage. It’s all make-believe. Economics needs to be refreshed to show the real world as it actually works; the interconnections with society and power, rather than the quaint theories of one individual? The left wing Economist, now that’s a laugh! Anyway, thanks for re-stimulating my brain cells to remember some of the economic stuff I studied.