Thursday, April 26, 2012

Free Market/Green Debate: the Rich-Poor Gap

I am debating with Mark Littlewood of the IEA, a free marketeer. 

He writes:
What sort of contribution from the top 1% or top 10% would be considered “fair”? 
If Mr X earns £1m per annum and Mr Y earns an average salary of £25K per annum, when (if ever) should the next marginal £ of tax be charged to Mr Y? 
Only when Mr X’s and Mr Y’s post-tax income are identical? 

I don’t pretend to have a perfect answer here – although I probably lean towards proportional rather than progressive taxes on income, anyway. 
But then I’m not the one crying out for the rich to be taxed more. 
Those who think the present contribution of the rich is patently unfair and a greater burden should be placed on their shoulders need to ask when this burden is sufficient.

To my mind, if the top 1% earn 12% of income but pay 28% of income tax, this isn’t obviously and transparently too small a burden.

My response:

Mark, I think you should be crying out for the rich to be taxed more, and I will try to show why.

There is huge scope for confusion in the realm of taxation. Accountants can produce wildly different analyses from the same set of figures. To start from a hypothetical individual and work out from that does not strike me as a promising method, so I am not going to try to answer your points, but to establish a framework.

The best way forward is to look for some sound scientific facts and work from there.

In their book the Spirit Level, the epidemiologists Wilkinson and Pickett (among others) have shown that more equal societies are more healthy societies.

We therefore need for economies to tend towards more equality, need our societies to tend to become more equitable.

This is not to say that we seek perfect equality of wealth and income, but that at least, inequality should not be continually increasing, as is the case at present.

I glean, from Injustice Facts, (10th April) that the income hap between the richest quintile and poorest quintile was
                             108:1 in 2007
                               74:1 in 1997
                               60:1 in 1990
                               30:1 in 1960

We have a very clear divergence tendency here. Are you content that this should continue?

We believe that, over time, there should be a tendency for rich and poor to converge, rather than to diverge.

There is an innate divergent tendency in our economic system.

This comes at least in part from the role of lending at interest in the production of money. The owner of surplus money can lend it out, and will will see his wealth grow, while the borrower will have to pay for his access to money. This leads to a net flow of money from poorer to richer.

This divergence, carried to its logical conclusion, means that the poor will tend to the point of starvation. Before they get to that stage, there will be food riots, leading to general riots, arson, repression, and civil war, ending either in revolution (usually resulting in dictatorship) or repression (more dictatorship).

Therefore enlightened self interest should tell the rich that divergence  is not sustainable, that divergence must end, and that convergence must replace divergence.

Progressive taxation levels is one of the instruments needed to bring this about.

Therefore it is desirable for all, including the rich, for the rich to pay a greater percentage of their income into the common wealth.

Quod erat demonstrandum.

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