One rule for the rich...

A recent Washington Post piece by Elizabeth Breunig raises a lot of interesting points and is worth reading.

 

She highlights that in the US (as in the UK) there are constant moves to ensure that those receiving ever shrinking welfare payments are in fact working (or actively seeking work). This is sometimes referred to as 'workfare' 

Breunig points out that most of the non-working poor are elderly, children, or care-givers, all of whom seem to have some reason for not earning more in market employment.

What is particularly interesting about this piece is comparison between the treatment of the poor and rich non-workers.

Everyday libertarianism for the idle rich vs. workfare for the undeserving poor

This comparison might strike some as odd - the poor in question are receiving assistance from society via government spending while the idle rich in question aren't. They receive their money from dividends etc.

The author gives examples of policies that benefit investors and capital-holders, which could be considered subsidies for the idle rich. The point is that these subsidies do not come with a work-requirement as do workfare programmes

I think its possible to go further than this. Even if there weren’t such subsidies it would still be morally acceptable to insist that the idle rich work, even if their income comes from a “private” rather than a “public” source.

This is because the idea that there is a difference between the two is based upon a mistake, labelled everyday libertarianism by philosophers Liam Murphy and Thomas Nagel in their excellent book The Myth of Ownership.

This is the idea that people are led to consider their gross income to be ‘theirs’ and that the tax system takes some of it from them. If you are a libertarian, then you might believe this to be the case. However, since libertarianism isn’t a very attractive political philosophy and since most people aren’t in fact libertarians it is an unfortunate but common mistake to make.  

It is more appropriate to consider the property distribution system holistically, and consider each owner (individual, corporation, charity or government) as the temporary holder of their property. There are strong reasons to let the owner have power of the property while they own it, of course, and I don’t draw the conclusion that the government should be able to seize property unless there is an exceptional circumstance (such as a national emergency, where the property is required for infrastructure development or where the property in question is illegal). I don’t go as far as more radical leftists who would then say that the above means that any private property can be seized by the government at any time.

The point is that when property is transferred from one owner to another it is an opportunity for society to consider whether to (in rare situations) block or (more commonly) tax the transaction. It may appear as if the transaction is just between the two parties involved, but in fact the whole of society is involved. Firstly, society supports the system in which the property and the transaction exists. Secondly, the value of the property exists because of the rest of society.

Investors aren’t just sitting on their property, they are sending it out into the world and getting more back. This is captured by my Comprehensive-Acquired-income tax-base. A self-sufficient farmer who tends their own land and gains from it wouldn’t have to pay tax on their gains. But no-one gets rich from being a self-sufficient farmer who does not engage economically with anyone else.

The idle rich person is then a recipient of social wealth in just the same way as the welfare/benefit recipient.

Why do we care whether people work?

There are lots of possible reasons why we might want to ensure that people work rather than receive money while being idle.

·       Social Consequences: If someone who could work doesn’t do so then this is a missed opportunity for society. Society could have got the benefit of this labour but misses out.

·       Paternalistic consequentialist: This is the idea that it is in people’s interest to work (whether they realise or not). This is because people who are idle will get into unhealthy habits, become slothful, lose purpose and so on.

·       Contributions are important: It is important for people (where able) to contribute to society, and people should only receive social wealth to the extent that they do contribute to society. Interestingly, desert-based (or meritocratic) theories of justice would be against all unearned wealth such as gifts and inheritances since these are unearned.

What is interesting is that these three justifications apply to the wealthy just as much as the poor.

An alternative justification is that people should do whatever they are required to do by the correct theory of justice. Some of those theories will require workfare, and they may or may not require wealthy individuals to work too. My preferred theory would require both. This is the correct way to think about it, and I encourage people to engage with such theories.

However, what about those who want to support workfare but not force the idle rich to work before they can receive unearned income?

To be consistent, anyone relying on any of the three arguments listed above also will have to apply this to wealthy individuals who choose not to work.

What is a contribution?

In the article, Breunig makes the point that carers can contribute to society without receiving market income. Furthermore, many clearly socially useful activities aren’t well-rewarded in the market (such as most minimum wage work), while some activities that aren’t as clearly socially useful are well-remunerated. This is because remuneration follows from supply as well as demand.

On the other hand, someone who inherits a fortune and lives off the returns from this obtains a market income without contributing. It would be possible to insist that only those who work should be able to receive unearned income, or that lifetime unearned income should be linked to the amount of work someone has performed.

Market income is not a perfect indicator of contribution. However, again, I don’t take the hard-left conclusion that market income is meaningless.

Nevertheless, there is often some correlation between market income and social contribution, something I mentioned in my blogs on desert-theories of justice. The point is that we can look at a broad conception of contribution as participation in the labour market or undertaking some socially useful activity such as studying or caring.

Workfare for the rich?

So, do we need to insist on workfare for rich investors as well as the poor?

I think so, on the basis that this would make for a fairer society. My CLIPH-rate tax system would link people’s net income to the hours they have worked (or undertaken some equivalent or having been excused from doing so).

However, those who argue for workfare on more limited grounds, such as the three arguments listed above, should also support workfare for the idle rich on the same grounds. This would presumably mean taxing non-working but able people from gaining unearned income through punitive taxation or by blocking such benefits until the individual has undertaken the requisite about of work.

How else could they avoid the inconsistency?

·       They could stop insisting on workfare and instead support a Universal Basic Income, i.e. to give up on workfare.

·       They could advocate a theory of justice which justifies workfare programmes for the poor but not the rich. This rules-out desert or contribution-based theories. Furthermore, it probably also rules-out consequentialist theories which emphasise economically strong outcomes.

As I mentioned, my proposal is to link net income and work for all those who can work. This applies whether they are wealthy or poor, high-earner or low-earner. 

UK Inheritance tax - why on earth do a lot of people support the proposals even though they shouldn't?

I could write lots of different pieces explaining why the recently leaked inheritance tax changes are economically foolish and make our society less just.

For example, the changes might further heat the dysfunctional housing market—even the rabidly libertarian “Tax Payers Alliance” have queried the wisdom of a policy that gives a tax break to one class of investments—housing. If anything, governments should be doing everything in their power to make housing cheaper not more expensive.

The important fact is that it is reduction of the tax taken on the most obvious of all tax bases – unearned income. And why? To benefit a relatively small number of people who are children of the wealthy.

What I will write instead is about how on earth people will go along with it. Why won’t people be rioting on the streets against a policy that makes no sense in terms of economics or fairness?

Well, the right-wing press such as The Daily Express and Daily Mail have predictably come out very strongly in favour of it. The argument is that people who have paid tax on something shouldn’t have to pay it again, but this is nonsense.

Even an egalitarian such as me would argue that people should be able to keep their property unless it was a matter of national concern that it be taxed or compulsorily purchased. Inheritance tax is not such a tax, however. It is just a crude way to tax beneficiaries in the most convenient way for governments. A more principled approach would be to tax the recipients of bequests but also substantial gifts, as would be done with an accessions tax or my own tax proposals.

If we get rid of the double taxation argument, then, what is left? My theory to explain how the right-wing press can hoodwink its readers into supporting a mad proposal like this is by tapping into a feudalist vein in British thinking.

House ownership is a big part of the recent British psyche (or is it psyschie?) and it represents a major part of many people’s self-identity. They are lords of their suburban castles. British (perhaps English) people buy into the regressive idea of a class system much more than any other country. And what do feudal lords do? They pass their castle onto their children (well, first born male, but the whole edifice breaks down when moving into the modern economic world anyway).

Inheritance tax doesn't even stop anyone from passing their house onto their offspring anyway. Even if the estate did not have the liquid assets to cover the tax this would not stop the squire from taking ownership of the house. They would simply have to pay the difference between the value of the house and the inheritance tax due.

So under the existing (extremely generous) system a widow with one child who dies with only an 800k house to their name at present would have a 60k tax liability. The child would have to find 60k to buy a very expensive house. If they haven’t saved up the money they could just get a mortgage to cover the difference.

No one would provide an intellectual justification for feudalism, but I think that vestiges of this line of thinking are the only reason that people would support the latest IHT changes. Is this really where we are? People supporting terrible policies that almost certainly won’t benefit them or the country as a whole ‘because feudalism’?