Remarkably, tax has reappeared on the political agenda. Following the direct action activities of UK Uncut, popular attention is now being focussed on tax evasion by large corporations, something with the government is now pledging to address. Even more surprisingly, there have been some Conservative thinkers that have been suggesting that certain taxes could be raised, namely wealth taxes on assets rather than earning. All this is in striking contrast to the New Labour era, when any raising of income tax was taboo, and increases in spending had to be funded largely by growth and debt (including PFI). But this new mood has not extended to any discussion of taxation in general, and why it might be necessary. It is still often viewed as a bad thing, or an unfortunate necessity. On a recent edition of Newsnight in which MPs were asked what the point of tax was, the answers given were distinctly underwhelming, each falling back on some version of ‘we need tax to fund public services’. Such confusion and obfuscation is typical of the current debate around tax—while everyone wants more of it on ‘the rich’ and less on themselves, philosophical explanations for taxation are rarely articulated. We need to go beyond this and investigate the differing rationales for taxation, the different ideologies that they spring from, and the position on private property that each ideology ultimately relies upon.
It is helpful to begin at the beginning: an imaginary justification for a minimal kind of taxation. Such a justification would begin from the premise that there are some services that cannot be sensibly executed privately. An example could be roads; while theoretically you could have a range of different companies building roads and charging drivers a toll to drive down them, this would be a logistical nightmare, in which drivers would have to stop every few minutes when they crossed into another company’s road in order to pay the fee. It would be much more efficient for all drivers to pay a flat fee which covers all roads, and for this to pay for road building and maintenance. Taxation is an approximation of this—as most, though not all use the road network. Another example might be refuse collection, while you could have a system whereby each household pays a different private contractor to collect their bin bags, this would seem to be ludicrously complex, necessitating time and effort for individuals in choosing a company, not to mention the congestion on narrow residential roads while different rubbish vans collect from their one house each. Such a system would also be socially risky; some households might choose to only have their rubbish collected every few weeks in order to save money, with the effect of creating bad odours and attracting rats. A system where each household pays into a central fund that is then used to collect from everyone’s bins is clearly preferable. Other examples of services that are more logically provided collectively include law enforcement (police, prisons) and national defence.
Such examples give us a basic justification for taxation — to pay for services that are far more efficient when delivered in a collective way. But this argument doesn’t take us very far. It implies a very lean central state, only delivering a narrow range of services. Few states do quite this little. What about other services, like health, education and housing? Can these be left purely to the market? A further expansion of taxation can be justified by an appeal to charity, whereby better off individuals give away some of their earnings to help the worse off. While such contributions might ideally be entirely voluntary, it is not such a great intellectual step to accepting the idea of compulsory contributions to fund a ‘safety net’, with which to fund some basic healthcare, housing (or at least shelters) and education. The supporters of such an approach might justify it on entirely selfish ground, that they find it unsettling and upsetting to see homeless people, or to have people in their locality die of easily preventable diseases. They might justify it according to some idea of society — because we are in some way all part of one social group it would be wrong to let others go hungry, or for most of the population to be completely illiterate. What they won’t do is see their contribution as any form of justice — it is essentially charity, a contribution that is made as a result of communal need/altruism even if it is in effect a compulsory deduction from their income. The services sketched out above hardly equal a modern welfare state, it’s a more a level of support comparable to Victorian England, though it seems not so far away from the services available to the poorest in some parts of the contemporary USA.
It might be possible to go a bit further within this framework. In the previous section we implied that those who are primarily paying tax live quite separately from those that primarily rely on the services that taxation pays for. Going forward, let us say the wealthy, or those that are the ones paying the tax, need to employ people in order to gain and maintain their wealth. They find that those who are hungry, badly housed, unhealthy and of low education make poor workers, which limits the profits they are able to make. They might respond to this, as some 19th century industrialists did, by building their own small—scale welfare system, building workers houses and schools. In all probability, many industrialists will consider such a system time-consuming and inconvenient, and would prefer to pay an extra levy to the state to do this work for them, creating a unified education system to prepare students for employment, a health service to guarantee they are well enough to carry out their work, and some support in terms of housing, be it in cash terms or in kind. Also within this framework, the wealthy might fear crime, and its potential to rob them of their wealth. To combat this they may well increase spending on the police, and also to direct more resources to the poor to try to prevent them from turning to crime and making more radical demands (“Give them social reform or they’ll give you social revolution”), both requiring more tax in order to pay from them.
We have now reached a state that doesn’t look too different to our own, but seen from an entirely conservative perspective. Taxation has been justified, firstly to pay for services that are used by all (or most) but would be inconvenient to run privately, secondly to provide a safety net, as a form of organised charity, and thirdly to provide a level of welfare that employers require in order to be profitable. Is then Conservatism entirely self centred on this matter — is it only concerned with the interests of its supporters, who presumably are disproportionately wealthy? Does it fulfil political philosopher Will Kymlicka’s dictum that all modern political theories are based around equality of concern, treating the interests of each member of the community with ‘equal consideration, as each citizen is entitled to equal concern and respect’? On the face of it Conservatism would seem to fail this test. As I have described it, as it takes its starting point as those who already have wealth rather than those of the entire community. Even if there is extensive charity, it is the wealthy who are active and the poor who are passive recipients, with no justice based claim on greater resources. And indeed I would argue that traditional conservatism would be happy to reject Kymlicka’s test — it prides itself on being anti—ideological and anti—utopian, concerned with life as it is rather than life as it should be. A traditional conservative might suggest that ‘the interests of the whole community’ is an impossible abstraction, and that we have to start from the division of wealth as we find it. If traditional conservatism wanted to respond to the notion of ‘equality of concern’ it does have one possible card up its sleeve. It can suggest that the existing system, with its vast inequalities of wealth, is in fact better for everyone, because any alternative would likely lead to a break down of society in which all would suffer. A more ‘utopian’ solution, according to this argument, could lead to lawlessness, war and perhaps even famine, as those with wealth fight to protect it and those without are motivated by vengeance rather than a desire to produce wealth for all. They might allude to experiences of Communism in the twentieth century to bolster their claim. Not many modern conservatives talk explicitly in this way, though it is still an element in conservative thought. The explicitly anti—ethical claim, that we should not be equally concerned with the interests of all, is still, I think, widely felt, though it is often one that is politically unacceptable to articulate. Most modern conservatives who wish to argue for the strictly limited taxation that I have described above rely on Neo—Liberal approaches, explored later.
A modern liberal perspective would have much in common with the conservative one, but go somewhat further, as a result of a greater idealism. While conservatism sees no obvious need for social mobility, liberalism is committed to at least a vague notion of meritocracy. So while conservatives are happy if the propertied wealthy and their descendants are always wealthy who employ the poorer members of society, liberals want some mechanism for those at the bottom to have the opportunity to rise to the top. They would propose several ways of achieving this, firstly by removing discriminatory policies that were directed against the poor, as well as those around gender, race and sexuality. On top of this they would seek a substantial education, with the intention than education should not only give students the tools to enter employment; it should also enable some of them to rise up the social ladder, to themselves become employers and owners of capital. They might even fund higher education, targeted at the brightest from all backgrounds. Such an expansion of education would require substantial additional taxation.
Liberals might take another step. They might set up some kind of insurance system, in which everyone pays in when they are doing well, creating a notional pot from which they can withdraw when they are in need. This is the original theory behind National Insurance, which was designed to fund unemployment benefit, but can also justify healthcare and pensions. A conservative might prefer this to be done privately, with each person encouraged to save for a ‘rainy day’, and the rise of private pensions do precisely this, while liberals (and some paternalistic conservatives) might worry that some people might fail to save, and thus be left without sufficient support in hard times, and therefore decide to make such a saving programme compulsory and centrally administered. This will require a further increase in taxation.
So far we have said nothing about people’s different starting points. We have assumed that some people start out wealthy and some do not, presumably because of the relative wealth of the parents. While traditional conservatives see these hierarchies of resources as natural and unproblematic, liberals and many neo—liberals seek an explanation for how they have arisen in the first place, how the property on which the hierarchies are based has been acquired. Market libertarians, or neo—liberals offer an explanation for how resources can be justly acquired, and therefore an argument that is compatible with equality of concern, on which many modern conservatives rely. Ultimately, any argument for acquisition of resources has its roots in an argument over private acquisition of land. Philosophers like Robert Nozick utilise the position of John Locke, when he described ‘the tragedy of the commons’. This argument (which was a justification of the enclosure which took place in 15—18th century England) states that land held in common would be unlikely to be used productively: no—one would have much incentive to work hard on it, as the proceeds of their labour would be shared with those that had done no work at all. Therefore one who labours on a piece of land is entitled to appropriate it and take it proceeds as long as in Locke’s formulation, there is ‘enough and as good left in common for others’. This latter point, threatens to undermine the whole argument, as clearly most acts of appropriation do not leave enough and as good land for others, but Locke understands it as meaning that appropriation leaves everyone better of in general, because of the greater productivity associated with private ownership. This is coupled, in the work of Nozick with a justification of how property that has been previously appropriated can be bequeathed, and thus passed on to the owner’s descendants. Nozick says this is justified when ‘the position of others no longer at liberty to use the thing is thereby worsened’. Once again, everyone is better off when private property is appropriated and bequeathed, because if it remained unowned the ‘tragedy of the commons’ would mean that everyone would enjoy less resources overall.
Socialist thinkers would seriously critique this argument. Firstly, this allocation of property it is entirely arbitrary, it can be taken by whoever comes across it first, or (and perhaps more likely) who is best able to defend it through physical strength. To this, a supporter of Nozick can argue that this arbitrary element is unimportant, so long as everyone’s condition is improved. The market libertarian argument becomes unstuck when we ask the question: improved compared to what? Nozick is only judging the difference compared to a totally unowned world, in which the tragedy of the commons fully applies. But there are in fact a host of options. Land (and all productive resources) could be allocated by a competitive process that selected who was best equipped to use the resource most productively: which person would farm the land most effectively. Naturally the process would need to restart each generation; otherwise you would run the risk, in the felicitous phrase of Warren Buffet of ‘choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics’. In alternative approaches the land could be rented out for a period, or given to each person who desires a plot of land. In both cases, a person would have an incentive to work the land and make it more productive. The land could even by allocated to a group of people, a model of shared ownership in which a community shares the product of the land and the fruits of their labour. These alternatives demonstrate a libertarian failure to justify the initial acquisition that underlies private property and thus their critique of taxation, as we do not require such an absolute and permanent notion of private property to avoid the tragedy of the commons.
Nozick begins from a premise that natural resources are originally unowned. Socialists (and some left—libertarians), however, may argue that the earth belongs to everyone collectively, each of us having an equal share as our birthright. Under this philosophy it would be evidently unjust for someone to take over more than their fair share (and with it the resources that it contains, oil, coal, diamonds etc.). The only property/external resources that people can rightly claim to own is that which is created by their own labour out of the share of natural resources which is justly theirs. One way to implement this philosophy politically would be to give everyone a small piece of land, an agrarian egalitarianism, giving them a basic self—sufficiency and independence from others. This would be however problematic, given the vastly unequal value of land, in terms of how fertile it is and in terms of whether it contains natural resources like oil underneath it. It seems more successful, and more appropriate in the modern world to deal in payments. People are thus entitled to appropriate more land than their equal share would imply, but to do so they have to ‘rent’ it from the community at its market value (thus reflecting differing land values), i.e. it is heavily taxed. The proceeds of the tax are spread amongst the rest of the population, in compensation for the loss of the ‘share’ of natural resources. Such an approach has been called a land value tax, or ‘Georgism’, deriving from the 19th century economist Henry George. This approach constitutes a major expansion in the level of taxation, and brings in a new justification for tax, namely redistribution of wealth. We are all born equal, and entitled to an equal share of the fruits of the earth, so taxation is a modern way to rectify the unjust acquisition of resources in previous generations. A socialist approach to taxation might well therefore focus on inheritance — in order to give each new generation an equal start it would impose a high tax (justifiably 100%, but somewhat less might be more successful in practice) on inherited wealth, and use the receipts to give a lump sum to each citizen at birth, perhaps accessible to them when they reach the age of majority.
So socialism, in addition to using taxation to provide services that are more efficient when purchased together and to pay for some kind of social insurance scheme, would also use taxation to redistribute wealth from those who would otherwise begin with more than their share of external resources (or the financial equivalent thereof) and to give to those who would otherwise have less than their fair share. Socialists (and liberal egalitarians) often see one further area for legitimate taxation: the wealth a person has gained by luck. While socialist thinkers would argue that people have a right to keep the wealth that has accrued to them due to their labour and to the choices they have made (i.e. to do more work and have less leisure) they should not enjoy such total rights over that which they have accumulated through brute luck. So while, under socialist egalitarianism, individuals would begin with the same amount of resources, massive inequalities could still arise during each generation due to luck; via gambling, via the stock market, via housing (the way the London property marked has behaved in the past 30 years being a good example), or whether or not you are unfortunate enough to have an accident that leaves you dehabilitated. It would not be right to tax the proceeds of such luck at 100% — we instinctively see such luck as a necessary part of life, and it would constitute a major limiting of self—ownership, but it would be justifiable to impose some kind of taxation on good luck, so that those that have bad luck can be compensated for their loss. An analysis can also be made about genetic luck — whether one is unlucky because they are born with a disability, or is lucky due to be being extremely good-looking. This is a difficult area because we intuitively think of these things as intrinsic to a person rather than separable from them, but seems justifiable when we focus predominantly on extreme negative genetic luck, such as all forms of genetic disability. It is then justified to impose some tax on everyone’s earnings (which are obtained at a particular level in part due to genetic luck) so that healthcare and support for those who are disabled or have health problems can be paid for.
We seemed to have witnessed a gradual expansion of taxation, and by implication the size of the state. From the very limited payments needed to fund basic services like road maintenance and rubbish collection, to a form or compulsory charitable support to the more, to a form of social insurance, to an expansion of welfare for the sake of industry, to an expansion of education for the sake of meritocracy, to taxing wealth for the purpose of giving everyone an equal start in life to taking luck in order to help the unlucky. But in reality the journey is not so goal—orientated. It is more like a binary opposition between two positions; one in which the wealth of the wealthy is legitimately theirs and they dispense it according to their own interests and their wishes and another view in which each person is entitled to an equal share of resources at birth and therefore tax is required to distribute the wealth that derives from natural resources equally. Much of the taxation and spending that is necessary under the conservative perspective is only required because of inequality in starting points; if everyone had an equal share of (national/international) wealth at birth, the sort of ‘compulsory charity’ and ‘self—interest welfare provision’ schemes we discussed would not be necessary; people could feed, clothe and house themselves without relying on the largesse of others. With a substantial taxation of inheritance and a distribution of wealth at life’s outset (or distribution in stages, more like a universal basic income) many other forms of welfare could be abolished. We would be left with an insurance scheme, by which relative equals could democratically decide how much to pay in, based on what level of support they thought was necessary, and a mechanism by which those with luck give some support to those without, most notably in creating some kind of fairly comprehensive healthcare provision. Thus an egalitarian position need not require the state to become overbearingly large — only to redistribute wealth to create a community of relative equals, who can then make informed choices about how much of their wealth to keep and how much to pool for the sake of services and social insurance.
Such philosophical reflections as these have been unpopular in recent years. Tony Blair preferred not to dwell on intellectual debates, instead following his political instinct that Labour had to promised not to raise the basic rate income tax, a promise that the party made in 1997, 2001 and 2005. David Cameron, on coming to power, knew that it would be politically impossible to cut the 50p tax rate (for those earning over £150,000 per annum) whilst making cuts to public services. The absence of serious reflection on resources, wealth and taxation makes a serious political debate impossible, instead they are fought via proxy wars. One side argues that cutting public services is unacceptable because of its disproportionate effect on the poor, while the other argues that millionaires and corporations should pay less taxes in order for them to be able to invest in the economy. We need to move beyond this analysis of symptoms, by focussing on the principles behind taxation, separating principles from pragmatics and considering what kind of society we want to live in.