Taxing position, position, position

Put another way, Jack’s enjoyment of fashionable houses generates a kind of pollution for others, his gain being their loss. And pollution should be taxed. You don’t have to believe in higher taxes overall to think that taxes should be progressive - with rates rising as a proportion of the value of what is taxed, whether it’s income, land or cars. And that’s just what our income, land and “luxury car” taxes do.

Mostly this is justified on the grounds of fairness. But does it reduce economic growth - for instance by discouraging harder work?

In fact despite greater emphasis on the “fair go” (or was it because of it?), Australian economic reform has actually accompanied faster economic growth than reform in New Zealand, the UK and America, which cut top tax rates much more than us and accentuated growing wage inequalities where we offset them.

Of course if you think that our economy exists to meet human needs rather than to expand for its own sake then - at least up to the point where disincentive effects predominate - progressive taxes increase economic efficiency. Redistributing income to the less well off helps meet their more urgent needs at the expense of the less urgent needs of the better off.

In the meantime, the ever growing significance of positional or status goods is another reason for thinking that progressive taxation is efficient. It diverts economic energies away from positional “arms races” and towards more productive endeavours.

The Great English liberal John Stuart Mill put it well, many decades before Lady Bracknell was a glint in her great creator’s eye:

A great portion of the expenses of the higher and middle classes in most countries ... is not incurred for the sake of the pleasure afforded by the things on which the money is spent, but from regard to opinion, and an idea that certain expenses are expected from them, as an appendage of station; and I cannot but think that expenditure of this sort is a most desirable subject of taxation. If taxation discourages it, some good is done, and if not, no harm; for in so far as taxes are levied on things which are desired and possessed from motives of this description, nobody is the worse for them. When a thing is bought not for its use but for its costliness, cheapness is no recommendation.

Tax cuts usually involve lifting thresholds at which higher marginal rates cut in rather than cutting the top marginal rate. So they should. Should we defend this tradition of the “fair go” against its many enemies on the grounds that it’s fair, or that it’s efficient.

Both, if necessary, I presume.