Saturday 22 October 2011

Why higher taxes wont help the poor

About two weeks ago Dave and Angela Dawes from Cambridgeshire won the lottery. The final amount they bagged was more than 101 million pound sterling. It made them one of the richest couples in the UK. It certainly, in case you wondered, put them into the top 1% of people who are called by the protesters outside St Paul’s the ‘filthy rich’. 
When asked about what they would do with the money Dave Dawes, a Chelsea fan, mentioned that they may buy a house near the Chelsea football ground. Chances are that, once they have spent their win, or invested it somewhere, they will not have gained entry to what Pareto long time ago called ‘the elite’. As they may or may not find out, to get access to power, money is in fact of little consequence. 
Presumably, that is not what the protesters outside St Paul’s think. Their anger is firmly targeted at the inequality that comes with income. We have been here before. In 1974 the Labour government under Harold Wilson identified the root cause of all social injustice: personal riches. It took to tax everyone into oblivion. The top rate of income tax reached the dizzying height of 83% with a marginal top rate of personal income tax of 98% including investments. 
While this meant that government expanded exponentially, income redistribution to the poorest in society (in the age before tax credits) did not improve. In fact social mobility was affected very little. The main beneficiaries were people in the middle income bracket who gained big pay rises and generous pension settlements through their employment in the public sector. 
What is so puzzling about the obsession of the ‘Occupy London’ campaign with money is that taxes as a primary mechanism to transform society have long failed to show any results. Income inequality may be bad or good for society, taxing the super rich however does not tilt the balance of power in favour of the poor. 
Marx knew a thing or two about this. He had very little interest in money as such; the cause of power imbalances, so he argued, was ownership of means of production. In our times, you may call this access to resources, educational, economic and social. They’re the things that make a difference to your chances in life as you grow up, and the record of any UK government, Labour or Tory, is pretty bad at transforming the life chances of the bottom rank. 
Top schools and universities in the UK are still fiendishly out of reach for ordinary people, social networking amongst the country’s elite still significantly contributes to the chances you have in landing a plum job in the city or in government, and with the banking sector ever more reluctant to lend money, establishing a business (still the most important route out of poverty) is near impossible. 
So where does that leave the ‘Occupy London’ campaign? Their ignorance of the Marxist critique of capitalism is mind-boggling. Marx was full of disdain for ‘re-distributive policies’. He clearly saw that any preoccupation with income and taxes is likely to fail to make any significant dent in the distribution of economic, social and political power. And he was also (famously) critical of any moral case for re-distribution of income. Taxing the ‘rich’ may conspicuously be in line with our immediate sentiments of equality, yet, he was convinced,  it would leave the fundamental iniquities in place. So whether or not the ‘Occupy London’ campaign will be successful in making the case for more taxes, chances are it wont change a thing for the bottom 1 per cent of this country. 


  1. I would argue two points:
    firstly, you cannot assume that (all) poor people, given the chance to become rich, would not be able to handle the money properly, would waste it on buying silly material things and would lack the wisdom to use it to finally access valuable resources. We cannot make this assumption, if we do we'll fall into the argument of rich people that they're the only one blessed with this genial wisdom.
    secondly, Occupy London or Occupy Wall Street movement knows very well that money is not the only issue. Mostly, anger comes from the frustration of seeing that the 1% fucks up and walks free but the 99% is asked to bailout and suffer severe consequences. Besides, if poor but genial people want to access valuable resources (particularly education) money is, unfortunately, often the key. Money is also the key used by that 1% to lobby government so that their interests is protected.
    Thus, money equals access to resources equals power equals making more money.

    A re-distribution of wealth and higher taxes for the rich/ultra-rich might not be the only key to resolve such a difficult, unequal financial and social situation. However, it might be the right first steps in reducing the indisputable power that that 1% currently holds, and may help future generations to gain access to a widen range of valuable resources.

  2. Many thanks for your comments! As you can see, this is sparking some interesting debate!
    Your first point is taken! Certainly you are right: there is no monopoly of knowledge on how to get influential in society. My point was more about where the taxes go: they tend to benefit those who are already employed. The rise in expenditure under Gordon Brown for the NHS is a good example. More than 75% went on labour costs (i.e. higher wages and pensions) which meant that there was little increased employment for those who were out of work. In fact, most increased employment (under Labour) benefited foreigners (like myself). There was hardly a dent in unemployment figures for the long term British unemployed.
    Your second point is taken as well. I was slightly caricaturing the movement which of course is far more diverse than I portrayed it. However you do mention that money is important to access good education. Strangely this is what Labour disputes! It argues that the state system is just as good as the private education system and therefore it refused to make good progress on opening up private education for the general public. So, either they are wrong or they are dishonest about the state system's credentials (Interestingly enough, they all send their own kids to private schools- does that tell us something about their convictions?)
    Your last point is more complicated. My point is that simply taxing the rich is a red herring. I argue that (as the piece in the New Yorker showed) taxing does not fundamentally alter power structures in society. In fact, the income gap may go up or down, the fact is that as long as the basics of society are left alone the old elite is back in the saddle as soon as you blink. That was Marx's point as well, he was full of contempt for re-distribution or reform. I am not however, just to put it on the record! So you may tax as much as you like, radical transformations of society are not achieved by that. My suspicion is that taxing the rich speaks to some sentiment of basic justice and a curious obsession with money on both sides.