I do get angry about tax dodging. I don't like cheats of any sort. Most of all I dislike those who abuse tax rules whilst masquerading as the pillars of society. And there's a simple reason for this anger. Cheating has a cost.
Tax this as an example. Just as the Observer was reporting on the tax abuse of the private equity industry today it also reported that:
More than 200,000 elderly and vulnerable people have stopped receiving help at home with basic tasks such as washing and dressing over the past decade as local councils desperately try to save money, The Observer can reveal.
Officials figures show that many pensioners no longer get personal care services which are vital to their health and well-being because of cutbacks by local councils, which have excluded growing numbers of people officially classed as 'needy'.
I'll state my case clearly. Those who provided these services to the elderly did more for our society, in my opinion, than any private equity boss. Now they're unemployed, through no fault of their own. And those who needed their services are living more desperate lives.
Nothing private equity will do will probably ever benefit these people much, whether they be those who supply or receive these services. The private equity industry is indifferent to such people. Their incomes are so low they simply don't count to them. But I do care. I see both urban and rural poverty in the area where I live. As a GP my wife sees it daily at her practice, and sees the real social cost of these sorts of cuts. The cost to the wellbeing of those involved is vastly higher than the cash saved. But in this crazy world this does not count. These people are on the fringes of the market and always will be. As such they are economically disenfranchised by it.
Well there's a simple answer to that. The market's wrong in that case. And we should ignore it. And we should tax market generated wealth precisely because it does misallocate resources away from those who really need them and directs those resources to those who need them least.
Yes, I'm arguing for wealth redistribution. But as anyone who really understands market theory knows, if there is an inequality of wealth in the world the market is bound to be inefficient and redistribution is the only hope we've got for achieving a better outcome for society as a whole.
I unashamedly believe in progressive taxation for precisely this reason. Any proper tax system has a bias to the poor inherent within it. The UK's treatment of the private equity sector has no such bias. It's why the laws on private equity taxation have to be changed. Or the majority will continue to suffer.
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The market is not “wrong”, it is irrelevant to deciding how wealth should be re-distributed.
Even a perfectly competitive market would only guarantee a pareto optimal outcome. This leaves open the question of whether one should act to make some (i.e. poorer) people better off at a cost to others (i.e. richer people).
The idea that market mechanisms guarantee the best possible outcome is not grounded in economics, but in ideology.
Incidentally, we are a long way from a perfectly competitive market, and, in my opinion, getting further away.
Graeme
You’re right. I agree. But sometimes it’s necessary to engage with those who have a belief in market economic theory. So I use their language on occassion, even though I actually think Richard Dawkins would do considerably greater good for society if he targetted his dislike of what he sees as irrational against economists, instead of those who believe in God.
Richard
Two points, 1) I have said before on this blog site, but will say it again, those who do not pay their codified tax liabilities should not expect the police to turn up when their house is broken into, or the fire service to turn up when their house is on fire, or an ambulance to turn up when they have a heart attack.
2) I remember reading some case studies several years ago about how a local authorities were saving money, in that it was cheeper to send a care worker to wash the top half of pensioners and send a nurse to wash the bottom half of pensioners (for moral and ethical reasons), but of course this would not happen at the same time or day.
Those who do not pay their taxes are nothing but leaches who suck public infrastructure dry and destroy civil society.
In defence of economists: my first year students address the equity implications of a mindless pursuit of Pareto efficiency. Any economist who would really make policy purely on the basis of Pareto would be deeply flawed.
Graeme is certainly right that we’re nowhere near a perfectly competitive market (it’s hard to be sure whether we’re moving closer or further away, such is the distance and the range of necessary assumptions that are violated). What this means is that, if we’re interested in the economic impact of redistribution, we have to focus on empirical research at the macroeconomic level rather than theoretical contributions at the micro level. Overwhelmingly, the evidence suggests that greater redistribution is associated with wealthier economies and stronger economic growth. High levels of inequality are associated with lower income, weaker growth and greater risk of conflict. At this point then, even naive and short-term economic analysis supports genuinely progressive taxation structures.