Would taxing the rich reduce inequality? We need to know how it is to be done, how would the tax be raised, and how would the extra revenue be used?
Shall we tackle the last question first?
How would the tax be used? The current cry is that wages are too low, so we might suppose that some or all of the extra tax is to be used to alleviate the condition of the poorest. They are certainly squeezed. If you read the writings of Paul Nicolson of “Taxpayers Against Poverty” it is plain that the poorest are under great pressure (1). So, maybe the minimum wage is increased, or the level of benefits is raised, or that VAT is reduced. What would be the result?
Here is an example told by Winston Churchill in his campaign speeches of 1909. “Some years ago in London there was a toll bar on a bridge across the Thames, and all the working people who lived on the south side of the river had to pay a daily toll of one penny for going and returning from their work. The spectacle of these poor people thus mulcted on so large a proportion of their earnings appealed to the public conscience, an agitation was set on foot, municipal authorities were roused, and at the cost of the ratepayers the bridge was freed and the toll removed. All those people who used the bridge were saved sixpence a week. Within a very short period from that time the rents on the south side of the river were found to have advanced by about sixpence a week, or the amount of the toll which had been remitted.” (2)
Would it be any different now? All experience tells us that this is taking place now, under our noses, and inexplicably it is accepted as the way things are. So, how did the poorest land up in this quandary? Let us cast our mind back to the history of the conditions of the working people. In the first place, at the Conquest in 1066, William parcelled out all the land to his supporters, so every farmer had a landlord. He was expected to provide service to the king, so he levied a charge on his “tenants”. Bit by bit, the control of the land that was given to the barons morphed into a rent, and instead of being sufficient to meet the king’s demands, became the most that the farmers could pay. Skip a few hundred years. The farmers were replaced by sheep as nearly all common land was enclosed. Displaced people drifted to the towns where the recent birth of industry promised them employment. But now they had nothing to sell but their labour. The product of their work belonged to the entrepreneur or landlord. There was no fall back to a piece of land they could call their own. The owners or landlords exploited this position to the maximum, forcing down wages to a minimum. Their condition was aptly described by Dickens and others.(3) The public conscience again arose, just as Churchill describes, and various measures were brought in which alleviated the problem, more by increasing the minimum acceptable than anything else. But the basic conditions were unchanged. The measures had to be paid for, so taxation was introduced, which eventually became paid by those poorest. Of course, such taxed could not be paid for out of a wage already pushed down to the minimum acceptable. The result was that taxation came out of rent. And let no-one tell you that the poor do not pay taxes. Recent figures from the ONS show that the lowest quintile of earners paid 31% of their take home pay in indirect taxes, that is VAT, fuel duty, etc.(4) This is even before they hit the thresholds for Income Tax and National Insurance. (5) And they also have to pay Council Tax.
Thus the lower paid and those who pay rent are held in a vice like grip. Rents and taxes are now supplemented by the withdrawal of benefits as they seek to better their position. Truly a triple lock!
Taxing the rich cannot help them. Instead let us use the extra money to improve living conditions and infrastructure. That will surely benefit all.
But the plain fact is that such expenditure only goes to increase the rent of land. More pressure on the wage earner, and more receipts to the landowner, who benefits. Taxing the rich in this way only makes them richer!
How would the tax be raised? We are obsessed with taxing work. It can be shown that of the total cost of employment, one half is spent on taxation. (6) This magnifies the cost of getting work done and produces many harmful effects. An employee has to add value to the tune of two times the amount he has to live on. No wonder we have an army of unemployed! Is there not a better way?
Those who follow the teachings of Henry George will know that the outcome of our work is the product of two causes. The first is the work we undertake individually. This should be rewarded by the full product of that work. The second cause is the work we do together. If this is accounted for to the community which creates it, rent does not arise. So all get their just reward and none get something for nothing. There is plenty to spare for those who cannot work.
Inequality has two causes, and the first is differing ability and the amount of work a person is prepared to do. We admire those who work hard and build a fortune thereby. But the second cause is derived from something for nothing. Those who receive the rents from land are receiving something for nothing. We are not talking about rent for buildings and equipment, just that relating to land, which is a free gift to all. But now we read that UK landlords make £177bn from rising house prices over 5 years.(7) What this reflects is rising rents, of maybe £9bn over 5 years, on the basis of 5% relationship. This is £9bn taken from the result of other peoples’ work. The fact that landlords can do this, despite not having made any effort, reflects the result of the whole community’s efforts to run and improve the whole country.
So now we can answer the first question;-
How it is to be done?
You collect public revenue by an auction of the benefits provided at each site; you then reduce taxes on wages first, then other taxes, and at the same time provide free land wherever it is not in use. The public revenue collected will inevitably be more than the current cost of providing the services. The alternative of free land will provide the antidote to keeping wages low. Wages will rise to the most that can be produced on the best land still available. The surplus public revenue will be put to improving infrastructure, which will become self- financing as market- values increase. We can call this “Location Value Refund” as it simply returns to the community the amount of benefit received from the occupation of a site.
In this way, the undesirable side of inequality is removed, as also is the triple lock on the lowest paid.
Pikety and his team did a huge amount of valuable work in setting up his thesis. What a pity he did not add some insight into natural law as well.
- “The Peoples Rights” by WSC – Jonathan Cape 1970. SBN 224 61748 6
- “The Village Labourer” and “The Town Labourer” by JL & B Hammond, Longman Group 1995 ISBN 0-86299-345-8 and 0-7509-0966-8
- ONS paper “The effects of taxes and benefits on household income, 2010/11 page 9.
- “Employer’ Burden ” see http://landisfree.co.uk/EmployersBurden2014-15.pdf
- Ibid http://landisfree.co.uk/EmployersBurden2014-15.pdf
- Financial Times 12/1/2015 Kate Allen and Jim Pickard. http://www.ft.com/cms/s/b94cd0d2-95a8-11e4-a390-00144feabdc0.html