Income tax is a fairly recent addition to life – like a grumpy old employer or birthing pains, a necessary monster. Until the early 20th Century (under Prime Minister Lloyd George, actually) it had occasionally been introduced as a temporary measure – mostly, to fund the conscription of young working men into an aristocrat’s war. As society became more complex and humanistic, and as the growing need was realised for a welfare state (if only to keep those young men healthy enough to fight), and we needed a complex State infrastructure, it was obvious that taxing income had to become the underlying, stable basis for an expanding State. If we wanted the benefits of a modern State – from a world-class armed forces and industry to public health and universal education, even pavements with good street lights, and new professions like social workers – these things weren’t to be paid for by philanthropists and those interested only in making profits. Efficiency dictated that if we all pooled a portion of our income we could afford all these things and more. How else were pavements to be built and street lighting installed – without asking a wealthy person to stump up in exchange for charging a toll to walk down the street, or having their name plated on a lamp-post?
Even when income tax was just a temporary measure it was accepted that fairness insisted on the wealthy paying more – in fact, fairness came to be an overriding principle, in the teeth of opposition from the wealthy, of course. Income tax was accepted as a social equity measure – especially since it shifted the burden from indirect taxes (eg. sales tax which the millionaire paid at the same rate as the pauper) to direct taxation (which can be made more progressive).
When William Pitt (the Younger) introduced income tax in 1799 the wealthiest (those earning more than £200 annually) were charged 10% of their income with those on lower incomes (above £60) charged somewhere between 1% and 9% depending on how much they earned. Tax rates have risen inexorably since Lloyd George made it permanent and since our modernisation needs intensified. The highest rate of income tax peaked in the Second World War at 99.25%. It was then slightly reduced and was around 90% through the 1950s and 60s. In 1971 the top rate of income tax on earned income was cut to 75%. A surcharge of 15% kept the top rate on investment income at 90%. This is what the wealthy paid on incomes above £150,000. In more recent years, starting with Margaret Thatcher, the top rate of tax was reduced from 83% to 60% and the basic rate from 33% to 30% – up to now when these rates are 45%, 40% and 20% (after allowances, of course).
One of the features of modern government (post-Thatcher) has been reversing the gains of Robert Peel and William Pitt by shifting taxation away from direct taxes to indirect taxes (like VAT – remember, the millionaire pays the same VAT as you and I). Why would the wealthy want to pay tax? You might say, so as to live in a more stable, fair, well-ordered, peaceful, humanistic society – these are, after all, what high taxes bring. But it seems not. It seems that accumulating yet more wealth and avoiding moral obligation to the poor is enough. After all, who cares if roads have potholes if your car is luxurious enough not to notice. Or maybe it’s that the growth of poverty – an inevitable result of lowering taxation – brings your privileges into sharper and more enjoyable focus.
You may have wondered why, let’s say, more than 40 years ago, there never seemed to be an argument about how many police officers we had, or nurses, or hospitals; about whether classrooms had books and pens, or whether you could get legal aid if needs be; or about potholes in the road or how many trains are running; about whether or not you could get an ambulance on time or whether you could afford to go to university…and so on. Not that there were no arguments over resources! But they were never at the bottom of the barrel, so to speak, where the very integrity of a service – social work, probation, policing, schooling, health – was at stake. Women’s shelters, for example, and youth clubs and community libraries and parks and swimming pools were there and expanding throughout the 1960s and 1970s, whereas now they are threatened, closing or closed down. You may not be able to afford to even take a job in public service – or, if you do, you may still be officially classed as ‘poor’ and receive in-work benefits.
All of this is a result of the State having lost massive amounts of income with the reductions in income tax. In my lifetime alone, I started paying income tax at 33% and ended up now at 20%. There are those who argue that reducing tax means more people will pay it (only the wealthy have the means not to pay tax), or that reducing tax makes people invest more and work happier and harder, such that the government, in the end, takes in more tax. But, then, there are also those who argue that peace can only be won through war; or that the more you punish a child the better a person they will be; or that the moon landings were, actually, filmed in slomo at night in the Colorado desert. See, there is a connection between the State losing around a third of its revenue from income tax, and public services losing around a third of their support from government – don’t you think?
Anyway, don’t take it from me. Look at Adam Smith, the inspiration for the right-wing, wealth-protecting, free-market, tax-cutters. Adam Smith was one of the founders of Political Economy – ie. a philosopher who looked at the political effects of economic arrangements. He was a Professor of Moral Philosophy, in fact, and was much concerned with how understanding economics can contribute to a humanistic society. He was, actually, mightily suspicious of the wealthy, and saw fair taxation as a way of disciplining their greed. Here’s a short extract from a wonderful blog by Deborah Boucoyannis at the London School of Economics:
“Smith revelled in showing how “those who live by profit,” namely the merchants and manufacturers, the dealers and bankers, habitually mislead the public, often by imposing higher taxes on the workers—foolishly not realizing that ultimately, they would bear the real cost. They were also responsible for convincing gullible parliaments that high wages were bad. Legislators should always beware of the sophistries of employers, who, for instance, blame rising wages, yet “say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people.”
‘Convincing gullible Parliaments that high wages were bad…’ – ring any bells??