The morality of low tax

By Philip Johnston

 

 

You may have received by email, as I did a few months ago, a story that purported to illustrate the way the tax system works. It concerns 10 drinkers in a bar who decide to settle their £100 weekly beer bill roughly the same way we pay our taxes. So, the first four men (the poorest) paid nothing; the fifth paid £1; the sixth £3; the seventh £7; the eighth £12; the ninth £18; and the 10th man, the richest, paid £59.

 

Then the barman decided to give them a £20 discount for being good customers. The group wanted to continue to pay the new £80 bill the same way as before. While the first four men still drank for free, the other six divided up the £20 windfall by following the progressive principle of the tax system. So the fifth man, like the first four, now paid nothing, making a 100 per cent saving; the sixth man paid £2 instead of £3 (a 33 per cent saving); the seventh man paid £5 instead of £7 (a 28 per cent saving); the eighth £9 instead of £12 (a 25 per cent saving); and the ninth £14 instead of £18 (a 22 per cent saving). The 10th man paid £49 instead of £59 (a 16 per cent saving).

 

The men then began to compare their savings. “I only got £1 out of the £20,” declared the sixth man. He pointed to the 10th man, “but he got £10 – the wealthy get all the breaks!” “Wait a minute,” said the first four men, “we didn’t get anything at all. This new system exploits the poor.” So the other nine men surrounded the 10th and beat him up. The next week he didn’t show for drinks, so the nine sat down and had their beers without him. But when they came to pay, they discovered they didn’t have enough money between them to pay even half the bill.

 

This seems a compelling, if glib, argument for not scaring the wealthy out of the tax system and into avoidance schemes. Reducing the 50p upper tax rate to 45p, as George Osborne did in the Budget, was inevitably going to benefit the rich disproportionately; but was it, as Cardinal Keith O’Brien, head of the Roman Catholic Church in Scotland, suggested at the weekend, an “immoral” thing to do?

 

There is, in fact, a moral case to be made for lower taxes, not that you hear many politicians talk about it any more. Only Boris Johnson among the Conservatives consistently makes an unabashed case for tax cuts, as he did again in an interview with The Sunday Telegraph. Perhaps it is no coincidence that he is the one Tory politician who is actually popular with voters.

 

But there was always something that niggled me about the tax/beer analogy, however pat it looked. Its obvious flaw is that the drinkers are able to do with their money what we cannot do with ours – that is, to decide what to spend it on (beer). No discussion of the morality of taxation can be divorced from what is done with the money. It is not enough to say we must all contribute according to our means without at the same time questioning where it all goes. Tax has become the new immigration: a taboo subject for politicians who fear being derided as friends of the rich or denounced for immoral policies.

 

Yet, even with the parlous state of the nation’s finances, an argument can be made for low taxation that speaks to both a desire for smaller government and for greater personal freedom. The last Labour government took too much in taxes not merely because it believed that ever-increasing amounts of public spending were the only way to achieve better services. It did so because socialists think they know best how to spend people’s money and should be entrusted to do so. That is the essence of the Left’s worldview; and it is the principal reason why the state has grown so much in the past 50 years.

 

Where is the morality in taking money from people so that politicians can feel good about themselves? How is it ethical of a government to remove 40 per cent of an individual’s income with the purpose of engineering society the way it sees fit, rather than ensuring that people have the means to get on, by and large, with their own lives? Our system of governance has become characterised by grotesque waste, unfulfilled promises, incompetent delivery and excessive red tape. It has over-reached itself and seems incapable of retrenching, even under a Tory prime minister.

 

The moral, and Conservative, case for lower taxes is that they allow people to make their own decisions, to save when they wish, to give if they choose and to spend on what matters to them. Tory politicians should not be ashamed to talk about cutting taxes, because high taxation removes the need for individuals to take responsibility for their own lives and heightens cynicism about the ability of the government to deliver. The point of the beer/tax story is that a Robin Hood tax system of the sort envisaged by Cardinal O’Brien will harm those who create the wealth and jobs, without which there are no services for the less well-off.

 

The Cardinal is right to recognise the moral dimension to taxation; but it cuts two ways. Yes, we should be prepared to render unto Caesar what is Caesar’s, but it is incumbent upon Caesar to ensure the money is properly spent; and while that was certainly not true of the appalling Tiberius in Jesus’s time, neither is it true today. Taking people’s earnings to spend them wisely in the interests of the common weal, however defined, is one thing. Squandering them is quite another. Each year, billions of pounds are taken in tax for programmes that by no measure can be justified in the public good, while at the same time the individual’s right and duty to choose is restricted. That’s immoral. Telegraph