There is a prevailing sense that paying tax is something everyone naturally wants to avoid. I think it is a pernicious undermining of any kind of social cohesion to give this view too much credence.
It is made worse by the fact that it goes hand in hand with the view that the rich – because their income and assets are often quite mobile – can avoid paying tax and would be stupid not to whereas less well-off people whose income and assets are less mobile (and, because they consume more of their income they pay a lot of tax through consumption anyway) are the patsies that can’t get round paying tax but would love to find ways of doing it.
Indeed, even in the game ‘Monopoly’, taxes are seen as something to be avoided.
This then leads to the accepted ‘wisdom’ that taxes on the rich will lead to the rich and their money running away and therefore it is better to tax people who can’t run away or to tax consumption (or land) because it is easier and therefore more certain in terms of the tax take.
All of this fails to see that tax is actually something we should not avoid.
What is tax for?
Why do we pay tax at all? Historically rulers raised taxes to pay for their wars. Those are the sorts of taxes I’d be the first to run away from. But in modern society, taxes are raised for different reasons (although we still pay for the military through our taxes, but that is a separate issue).
First, taxes are there to provide a budget for the state (national, regional, local government) for them to do the things we want them to do. In a democracy, ideally, election campaigns would be about what different parties are planning to do and how they are going to pay for it so we can make an informed choice.
So taxes pay for the health service, the education system, security services including the police and fire service, social care, parks and other public leisure amenities, welfare for people to ensure no-one goes hungry or homeless, decent infrastructure (water, power, gas, transport, etc.) and support to the economy where it needs it. There is a certain amount of ‘interfering in the markets’ involved in this, but that is no bad thing. Anyway, that’s an idealised version of what tax might be for.
But taxes can also have a redistributive purpose and impact – i.e. closing the gap between the very rich and the less well off. For example, Sweden is a country known for its high taxes and it is therefore a country with significantly less income inequality. And we know that less income inequality leads to better social outcomes across the board and IS THEREFORE BETTER FOR ALL MEMBERS OF SOCIETY.
Paying for Services
If we look at taxes as a way to pay for services, what should this look like? There are two ways of paying for services: paying for what you actually need and paying into a pot that covers your needs whatever they are. So it’s a bit like a game of Snakes and Ladders.
There are some services where it is perfectly clear that you can’t ‘pay as you go’ for what you need. Street lighting would be a good example. How would you measure what any one person or household needs or uses? So those services have to be funded out of a common pot. They are ‘public goods’ in economics speak. That means, we all need them but the amount each of us needs isn’t quantifiable.
There are some services where this isn’t so clear. Take transport, for example. It only works if the infrastructure is there (the rails, the roads, the rolling stock, the system, the network, the timetable and all that. But those people who use transport also make defined journeys that are measurable and can be charged. And we do have a hybrid system. Taxes pay for some of the infrastructure and pricing of tickets pays for part of it, too, and for the variable costs arising from actually running the service. For road transport – i.e. using roads – the cost is entirely met by taxes, though some of them are taxes on the cost of transport, such as petrol/diesel and the like.
Finally, there are services which some people need and others don’t. But the provision of these services is still in part a public good. Having hospitals is a good idea even when you don’t need them yourself. Having schools benefits society as a whole because education contributes to society (whether you have children or participate in courses at any given time or not).
So then the question arises: should we pay taxes to make sure services are there when needed for the people who need them; or should we pay fees for the services we use; or should we have a hybrid system.
Social Care in the Spotlight
There’s been much in the press about the so-called ‘dementia tax’ or ‘death tax’. What is it about?
Essentially, the Conservative Manifesto is proposing that people who need social care in their old age who have assets – in this case we are talking principally about the family home – have to contribute to the cost of that care out of their wealth until they have only £100 k left.
The idea is that this would apply to the cost of care whether it is provided in ones own home or in a residential care setting.
There are problems with this approach:
- This approach puts the bulk of the potential risk of needing care on the individual rather than society; that is the direct opposite of how the NHS works in terms of being free at the point of need. As a society, we need to decide whether we want to approach social care needs in this way. Needing social care is a burden quite apart from the cost of it. It’s a bit of the luck of the draw.
- Valuations of properties vary over time. It is hard to see how a system could be devised that would guarantee £ 100 k left over at the end.
- The only way people could stay in their own home and pay for care out of the asset is to go for an equity release scheme, a kind of insurance policy that signs the asset over to the insurer (less the £ 100 k we presume). But will the insurance premium (i.e. the cut the insurer would definitely want to take) be taken out of the £ 100 k? And could the executors delay selling until they have achieved a decent price – or at least the price on which the deal was based? Because until all this is clarified, this looks like an insurance mis-selling scandal waiting to happen.
- Under the proposal, the partner is protected, i.e. if a couple live in the house and only one of them needs care for a period and the other survives that partner, they can remain in the house. But what if, say, a daughter or son lived with an aging parent and provided some of the care. Would they be turfed out of their home with maybe less than £ 100 k left over after the insurers have had their cut. And where would they go? And what responsibility would the local authority have to find them accommodation. Some of these daughters and sons are not young themselves and may have given up careers to look after their parents.
These are only the most obvious pitfalls. Would it not be preferable if there were a way in which those who are asset rich paid into a pool (all of the people who are asset rich, not just the ones who need care, that is) and the care for those who need it is then paid for out of this pool. I’m quite in favour of some form of inheritance tax that moves significant amounts of such assets to the public purse for this purpose.
Fee for Service?
But this is only one example of a stark choice between a tax based or a fee based system of paying for necessary services.
Governments are also about providing the framework for the sort of society we want to live in, the framework in which our values can be reflected in day-to-day choices.
So we need a basic social contract that determines what people can expect from society – education, health care, social care, infrastructure, welfare, security, and the like, and what people expect to put into the pot to ensure that all these things are available for anyone who needs them – tax.
And any service that is provided, or that we want to have provided in this way has to be run in the public sector because it would be odious to think that tax would feather the nest of private enterprise and multinational companies. That is why privatisation of the health service goes against the grain; that is why privatisation of education goes against the grain; that is why charging tuition fees goes against the grain.
The society I want to live in is one where we all contribute, cheerfully, in accordance with our means and receive in accordance with our needs. That calls on each of us to maximise our potential to contribute because it makes sense and gives everyone a sense of worth.
 The Spirit Level, accessed at: https://www.equalitytrust.org.uk/resources/the-spirit-level on 26 May 2017
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