Public versus private – the case of taxation

 

Trump stands for private over public values – the take-over of government by the corporate elite, the displacement of collective liberalism by private interest. The same has happened in the UK, but more by stealth.

At the heart of what is at stake lies taxation.

The public/private tussle is one without end, for if we want a social contract in which we make small sacrifices for large social gains, then this implies – has to imply – that the wealthy give up at least their excessive their wealth for the common good. When both Thatcher and Reagan assumed power the highest marginal income tax rate was around 98% in the UK and 91% in the US. This was long-standing and was considered fair in societies that valued well-funded public services. Anything you earned over $400,000 in the US you paid 90c in the $ in tax. Of course, everything up to $400,000 was taxed at successively lower rates, so you still earned a lot of money.

What are the highest marginal income tax rates now? 45% (UK), 57% (USA – this includes Federal, State and local taxes on income).

A similar story can be told of Corporation Tax – the tax on a company’s profits. When introduced in 1965 this stood at 45%. It fell and rose to 52%, and fell under a sustained period to its current level of 20%. This is the same level as the Basic Rate of income tax. What Amazon, Google and other large corporate entities are trying to avoid paying is not a marginal rate of tax that reflects the large sums being made, but the same rate that any working person pays on low incomes.

Finally, there has been the story off the shift from progressive to regressive taxation – essentially, through the introduction of VAT – a tax on what you buy. Introduced in 1973 at 10% of the price of an item, this has crept up to 17.5% and now makes up something like £100bn of government income – 2/3 of what income tax brings in. Income tax is progressive because it rises with the amount you earn – it has a fairness factor built in – the more you can afford, the more you pay. VAT is regressive in that we all pay the same amount, rich and poor. An unemployed person buying a pair of socks pays the same tax on it as a billionaire.

One way of looking at public economics in the past 40 years – the lowering of tax-rates, the privatisation of public goods and services, the shift from progressive taxes (income tax) to regressive taxation (VAT), the collapse of corporation tax, the bail-out of the banks – is to see the return of wealth from public to private hands.

Donald Trump wants to accelerate this in the USA with massive reductions in taxation. In the UK it is already being accelerated with measures to reduce the deficit, not by taxing wealth, but by cutting spending on services to the public. This includes measures to transfer central government grants from metropolitan, urban areas (where we find the greatest need for public services) to the shire counties and those authorities which historically have voted Conservative.

And here’s the point: with a well funded public sector we have to say that what we earn is increased by the amount of free public service we can access. We may be poor in income, but we might have free health care, safe streets, social support, excellent education, even though we cannot afford it. Those who can afford it have made these things available through the taxes they pay. Reduce those taxes, cut public services and we are cutting the effective income of those lower down the social and economic scale, while leaving the wealthy with more of their wealth.

 

 

 

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