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Progressive taxes - the good, the bad and the uhm, I'm not so sure...

Recently I wrote a post that praised the philosopher Jamie Whyte for his clear thinking and rigorous logic. I cited, as an example, his recent interview on (UK) Radio Four, during which he made the case that progressive taxation was a unfair. Since then I've thought a lot about what he said, and how complex a subject this is from an ethical perspective.

What follows isn't just about tax, it's about our tendency to accept commonplace values without asking the question: why do we think that? I'm sure that to many of you it will also be a good example of why philosophers can be irritating.  For the few who get to the end, it might just show how difficult it is to justify much of what we take for granted.

Now back to taxation - don't fall asleep yet please. 

Over recent months, UK politicians and the media have been full of claims that this or that policy is regressive or progressive. The general iimplication is that progressive is good, and regressive is bad. In the context of tax, Progressive Taxation is the idea that the more you earn, the higher percentage of your income you should pay. And it's the 'higher percentage' bit that is offensive to Whyte. 

Whyte isn't arguing that the better off shouldn't pay more tax. What he questions is the accepted wisdom that says they should be obliged to pay an even higher percentage of tax. To put this into context, in the UK the standard rate of income tax is 20%; it increases to 40% for incomes over £37,500; it rises again at £100,000 (because at this point people begin to lose their personal allowance) and again at £150,000, by which point the tax rate is 50%. 

Whyte says this approach is a punishment for success.  He argues that a fundamental aspect of fairness is that we treat people the same, but in this case we are arbitrarily saying 'because you are successful you not only have to pay more - you have to pay disproportionately more.' He says there is no moral justification for this approach - and in no way can it be described as fair.

On radio last week, his interviewer challenged this, saying the system treated all rich people the same, and therefore it did not treat people differently. Whyte replied with incisive logic that this was equivalent to levying a tax on bald people or black minorities and saying it was fair because we treated all bald or black people the same. No, it isn't enough to treat all 'better of' people the same, we have show why it is reasonable that they should pay disproportionately more than others. 

His interviewer challenged again: but aren't richer people lucky to be earning more than others?  Isn't the roll of life's dice such that they have their income by good fortune?  

Whyte argued that this was not so; the vast majority of higher incomes result from a mixture of skill and application.  Success was not a lottery and this is why we encourage education, and reward hard work. And most of us intuitively agree with this - for example, not many headmasters, doctors or company managers would concede that they are where they are, as a result of luck. No, the argument of 'good fortune' is not strong enough justification.

So why then, do not more people and politicians question progressive taxation? 

Whyte went on to argue that the UK's system is actually bad for the economy, because it creates a disincentive to work harder. In making this point, however, he acknowledged it was a practical argument rather than anything to do with fairness. 

And perhaps that hints at an answer to the earlier question. Politically, progressive taxation makes sense - the alternative, of putting taxes up by a smaller amount for everyone, is hardly a vote winner. And frankly, where else are we going to get the money from?  Progressive ideas also make for good soundbites, such as David Cameron's aphorism that, 'those with the broadest shoulders should carry the biggest burden'.  

But none of these are arguments for fairness. Neither are statements you might just be thinking now, such as they can afford it or it would be a nice problem to have. We might feel like that when we hear of bankers' bonuses or footballers' wages, but they are not a coherent argument for fairness. They also ignore the reality that higher tax rates kick in at a fairly low level; for example, most heads of department in a secondary school will hit the 40% threshold. 

So if, like me, you still feel there is something not quite right with Whyte's argument, then what is it he is missing? Why exactly do I think it is right that the better off not only pay more tax, but pay disproportionately more?  In a moment I'll give you my answer. But before I do, I'd acknowledge that my arguments are not very strong; they rely to large extent on unprovable assertions and probably to an even greater extent on a desperation not to share the same views as reactionary Tories.  

Perversely, this is why I like Whyte so much; he makes me think; he makes me question my views and come up with real hard reasons in support of them. 

So why is Whyte wrong?

Actually, I don't think he is. I think his arguments are logically consistent and if you hold to them rigorously they are beyond my skill to dismantle. But I do think he gives too little weight to the idea of society and the economy as whole. 

While it is true that most people who are 'better off' achieve this through skill and application; they also need a flourishing wider society to make this possible. Skill and application will not get you very far if you are alone on a desert island! There is also a historic inheritance upon which all successful people build - today's engineers owe a debt to the past, as do our doctors, teachers, writers... everyone. In other words our success, however great or modest, is almost never entirely our own work. 

I'd argue that those who benefit the most from the existence of the wider society and the achievements of the past, should fairly contribute a greater amount to its upkeep. I'm sure that Whyte would argue, that they would already be paying more - and he'd be right - but then we get into the realm of value judgements. I think it is not unreasonable that better off people pay a higher percentage as well as higher total amount. 

How much more, and whether the thresholds of forty and fifty percent are reasonable, is another issue - in fact, I'd agree with Whyte that our tax system is very poorly designed and that the use of sharp thresholds creates real disincentives. We also, quite bluntly, tax too much - but that really is a different matter.