The depressing (lack of) debate about tax

The level of taxation has always been one of the most hotly contested topics in politics, with the debate pitting those who favour taxes to rise in order to pay for more public service against those who see a lower level of taxation as a way to encourage more private sector activity. Unfortunately, there is often little difference between the two sides. Most of the time those who want to lower taxes do not forward any principled arguments for their position, and from a classical liberal/libertarian viewpoint the two positions are often just slightly different versions of the same flawed argument.

There are two main problems. The first is a lack of principle. You often hear the argument that taxation above a certain level is wrong – but how is it that some taxation is good, but more is bad? There is no principle here. Taxation is expropriation of private individual’s property. Either you have a problem with that IN PRINCIPLE, or you do not. If you believe in private property and individual freedom as rights with which man is born into this world, then taxation is wrong as a general concept, and level of taxation is a moot point.  If you do not believe in this principle (even if some will argue that they do accept the principle, but that taxes are a necessary evil), then the level of taxation is reduced to a mere practical issue: what level of taxation is optimal to achieve a certain goal – that goal often being to maximise tax revenue. So the debate about whether to increase or decrease taxes becomes a debate between technocrats, devoid of principle and reduced to treating the unfortunate taxpayers as pawns in a game which goal is to maximise funds available to the state.

The second problem is what Milton Friedman called “The Tyranny of the Status Quo”: the phenomenon that future policy is debated relative to current policy. While politicians must have a raison d’etre, and therefore are bound to argue that policy should be changed, such policy changes generally consists in incremental moves from current policy, inferring a general acceptance that current policy is broadly right and requires only minor adjustments. At the very least the debate about taxation should start with a debate about the appropriate size of the state; after all, if you think taxes a necessary evil then should you not at least have in mind how to minimise this evil given a certain need for the state to fund itself?

There are of course reasons for this behaviour. You can only lower taxes significantly if you simultaneously make drastic cuts to the states expenditure – something which is a political minefield and in any case a major task that no politician wishes to undertake in practise. This is the reason politicians spend so much time debating taxes that matter little from a revenue perspective, such as inheritance tax or the top rate of income tax; taxes which can be lowered without denting budgets significantly (it is of course clear that increasing marginal tax rates on the highest paid is about punishing a minority for political purposes, and likely to result in little or even negative additional tax revenue). No-one wants to seriously touch the taxes paid by middle income families, where a significant reduction would require significant budget cuts, in turn requiring a fundamental debate about the role of the state and its appropriate size. As a percentage of GDP, UK’s government revenue has hovered around 40% since the end of the Second World War; it seems difficult to move from that level (the establishment like the term “revenue”, suggesting that somehow the state has acquired the money in a transaction with the citizens, but of course they just mean “tax”).

So the taxation debate is a depressing affair, here like in most areas politicians seek to make minor policy differences look like chasms and debate not from any principled standpoint, but seeking mainly political expediency. But who can blame them when the electorate are equally loyal to the doctrine of the welfare state, and dogmatically wedded to every major spending programme? The rest of us must take every opportunity to challenge the status quo and demand proper, principled arguments rather than simplistic statements about this or that group being better or worse off from any given policy change. And hope that sometime soon there will be a platform for a real debate about tax.

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