Tax cuts for the rich - enough to make you sick

Yet again government is making noises about cutting the taxes of the rich. This is against the background of a seemingly “intellectual debate” about tax policy, disincentives to work as a result of high taxes, questions of whether poverty in Australia is growing or decreasing and whether or not inequality matters.

There has in particular been much huffing and puffing of late about the measurement of poverty and inequality and whether these phenomena, in some sense or other, “matter” - the Saunders (pdf file 477KB) of the Centre for Independent Studies (CIS) versus the Saunders not of the CIS, the CIS versus St Vincent de Paul and Christopher Pearson in support of the CIS.

And just last week, Sinclair Davidson (pdf file 689KB) of the CIS (with foreword by Peter Saunders of the CIS) asked the supposedly rhetorical question, “Are there any good arguments against cutting income taxes?”

The CIS, funded as it is by big business (pdf file 192KB), is in the business of promoting and peddling the neo-liberal market. Anyone who is vaguely to the left of their point of view (and that means a lot of people and with many different views) gets labelled “socialist”.

Apart from any other consideration, while those who write for the CIS often seem to be well educated in a formal sense, their frequent misuse of the term “socialist” indicates they are either poorly read or are using it as a term of abuse. See for example Saunders on Davidson (pdf file 689KB) and Hughes and Warin (pdf file 431KB) on Aboriginal policy, where they manage to mention it no less than ten times.

It comes as no surprise therefore that the CIS are very much in favour of lower taxes, especially for the “poor old” rich. Small government and low taxes are central to neo-liberal philosophy.

There are however - and despite the rhetoric from Saunders and Davidson - many good reasons for not cutting income taxes. Most are dependent on appeals to ideals such as altruism, social solidarity, compassion, building the social fabric, developing a civilised society, or to social justice or a social responsibility to take care of the vulnerable in society. But these are not arguments that will appeal to neo-liberals.

The neo-liberal market place is based on the values of individualism and on maximising first, individual freedom, and second, individual utility (that catch-all of neo-classical economists which allows them to avoid defining a social good).

The closest they get to defining or even considering the social good is in the aggregation of individual freedoms and of whatever it is that each individual seeks to maximise. They also take the distribution of income as a given so that in any social cost-benefit study it is irrelevant whether it is the rich or the poor who benefit. Just add ‘em all up and never mind the distribution!

In the foreword to Davidson’s paper, Saunders rehearses many of the arguments for cutting taxes. He writes

The only way to achieve proportional “fairness” whenever taxes go up or down would be through a flat tax (where everyone pays the same percentage of their income in taxes).

The only way? Well, no. We could have equal amounts per capita, or as Saunders is dealing with “fairness”, we could have a “fair” tax which might well be progressive. But why in any case do we want taxes to be proportionally fair? Where did this idea come from? Fair yes: but proportionally fair?