Taxation is the Price of Civilisation

In the USA there are reports of so-called ‘tea-party’ protests, modelled on the famous ‘Boston Tea Party’ protests against taxation imposed by the British government on the (then) US colonies. But the US protesters (in reality the Republicans) rather the miss the point – the ‘Boston Tea Party’ was not a protest against taxation, but against ‘taxation without representation’, which is rather different.

The US protests are worrying on two fronts. The first is the usual US right-wing concern with simply reducing taxation, regardless of the consequences.

The truth that these ideologues ignore is that to maintain a modern democratic economy requires taxation. The level may vary – across OECD countries from about a third of GDP up to two-thirds – but no successful, advanced, economy exists without substantial taxation (and regulation). A minimum degree of social welfare, health and education is a necessary condition for modern capitalism to work. Not to recognise that is bordering on lunacy, even for supporters of capitalism and “free” markets.

The other issue is what has been called ‘losers’ consent’. Obama and the Democrats won the elections. A small minority of Republicans – some with deep pockets – don’t seem to accept that. The same sort of people orchestrated the attempt to bring down the Clinton second term through the attempted impeachment.

This is, to emphasise, a minority amongst Republicans but it is a very worrying anti-democratic minority which is liable to encourage the even more extreme right-wing – the sort of people who were responsible for the Oklahoma bombings – the worst ever act of domestic terrorism in the USA. As some rush to denounce Obama as a “socialist” (only in America could you call him that), and even rush out to buy guns, they need to be reminded that in a democracy sometimes you lose and you have to accept that. Of course it is legitimate to protest and campaign – but there is a dangerously anti-democratic streak in some of these protests.

The ‘counter-factuals’ to the importance of taxation, and losers’ consent, are the examples of countries where these conditions do not apply. Russia has to collect taxes ‘through the barrel of the gun’ and treats opposition with contempt. Does anyone really think Putin would give up power as, whatever his faults, George W Bush did? Other countries are sinking even more into chaos because of their failure to establish norms of collective action through taxation and legitimate transfers of power through elections.

Francis Fukuyama’s famous ‘end of history’ thesis was not that nothing would ever change, but that, contrary to Marxism and other utopian visions, the real end point of human econo-socio-political experimentation would be some form of capitalist-welfare-democratic system. It is – and taxation is a crucial element in establishing this very civilised state of affairs.

Finally though – taxation has to be fair and seen to be fair to maintain confidence in the system. My own view is that the closer to a ‘flat tax’ regime we can get the better. There does need to be a ‘floor’ to protect the very poorest, but after that taxation should be relatively ‘flat’ – i.e. simply the more you earn the more pay, at a fixed percentage.

There is a case for trying to ‘flatten’ inequalities within societies – but there are more mechanisms to do that than income taxes. The most powerful are not state-controlled – they are cultural norms that reject excessive disparities in wealth as unhealthy as in Scandinavia of Japan.

The Labour government’s proposed 50% tax band for earners above £150,000 does little to really address inequalities or the public sector financial problems. The really rich will find legitimate ways to avoid it, and the only real losers will be the moderately wealthy middle-classes (of which, I hasten to add, I would not be one on a university professors salary).

Some analysts even think that the 50% rate will reduce, rather than increase, the overall tax-take. Moreover, there are other ways of taxing the supper-rich that are, and appear, far less ‘unfair’ and vindictive. Capital gains and inheritance taxes, for example, are far more useful ways of trying to cap inequalities.

But the main message in the USA and UK ought to be – taxation is the price we pay for a civilised society. The reality is no modern society can survive without substantial taxation – we can argue about the total bill, and how it should be distributed, but let’s not kid ourselves we can cut taxes, or even refuse to increase them when we need to, without dire consequences for society as a whole.

One thought on “Taxation is the Price of Civilisation

  1. This is a very astute analysis. My representative in Washington, DC is one of those Republicans shouting ‘socialist’ and occasionally ‘fascist’. Only in America can the implementation of a national service program be used as an example of the Obama Administration starting its own ‘Brown Shirts.’

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