Recently, Rachel Reeves has found there is a £50bn blackhole in the public finances. She is reportedly trying to fix this problem by raising capital gains tax and ending the seven-year rule concerning inheritance tax. Generally, she is looking for the rich to cough up even more. As a libertarian, I oppose all taxation as theft — however, if anyone should pay more tax now, it should be the poor and not the rich. Why? While taxation can be plausibly justified to help the truly needy and finance public goods, redistribution for “fairness” is unjust, thus, taxing the poor as net recipients of the welfare state instead of taxing the rich again as net contributors, reduces the total amount of net redistribution, and, therefore, injustice.
In Britain the rich are taxed to a huge extent. The top ten percent of the income scale pay a grand total of 59 per cent of income tax while the bottom ten percent only pay 0.4 per cent of it. The top rate of tax is 45 per cent, and, between £100,000 and £125,140, the marginal rate of tax is 60 per cent due to withdrawal of the personal allowance. Just shy of half of inheritance tax, which raises £7bn, is paid by those who inherit estates worth in excess of £2.1m. Capital gains tax which raises £19.7bn is also overwhelmingly paid for by the rich; first homes and cars being exempt from its scope. So redistributive is the state today that a majority of the public are now net recipients from it.
An ideal society adheres to the natural principle of human respect which demands everyone be free to do as they please with their own person and legitimate holdings. A proper harmony of individuals results from this where none are used as a mere means to the fickle fancies of others. Moreover, prosperity is ensured by not interfering in the free market because uncapped profits lead entrepreneurs to allocate resources to their most desired uses, unrestricted prices tell consumers not to use too much, and unconstrained wages tell people where their labour is best put. Theft and violence always diminish this proper harmony and prosperity. The state is not exempt from this moral law either. Indeed, it remains its greatest violator. Theft is taking a person’s property without their consent, taxation takes a person’s property without their consent; therefore, taxation is theft. As Murray Rothbard once wrote: “The state is a gang of thieves writ large”.
Most people will not buy this libertarian argument and will counter with social contract theory, the legally defined nature of private property, or, democracy warranting taxation. I don’t want to dispute those terrible arguments here. Instead, let’s look at two decent arguments for taxation: One, taxation is required to finance public goods such as defence and law enforcement, and, two, taxation is warranted in order to meet people’s essential needs. We will find that neither support massively taxing the rich as they are taxed today. In The Wealth of Nations, Adam Smith argued taxation is required in order to finance public goods which are by their nature nonrivilorous and nonexcludable. If a private army provided defence, no rational person would pay for it because they could get it free even if they didn’t pay — so, no one pays and no defence is provided. A similar argument can be made for policing, courts, street lights and lighthouses. Anarcho-capitalists have disputed that the state alone can provide public goods, but let’s leave them aside.
Just accepting the public goods argument for taxation, however, it is far from clear that the top one percent of earners should be paying 28 per cent of income tax as they do today to finance them. Consider this example: A long road connecting houses in a rural area needs to be repaired and so all twenty residents come together to discuss how to finance it. An obvious solution is each resident pays a twentieth since they all use it equally. The suggestion that poorer people on the road should actually be paid to drive on it is surely wrong. Analogously, then, poorer people in Britain at large shouldn’t be net recipients of a state which should only provide public goods. Why should poor people freeload on the rich? An immediate answer to this question is because the poor need the money.
A starving person who steals a loaf of bread is said to be warranted in doing so because of his great need. Taxation, then, is just a simpler way of enacting this taking. Again: Libertarians such as Robert Nozick have disputed need as a proper claim to resources, but let’s put them aside. The fact is the welfare state today via universal credit, state pensions and housing benefit more than covers needs and actually ends up financing the pleasures of the poor. The bottom ten percent of households by expenditure spend a total of 18 per cent of their income on alcohol, tobacco, recreation, culture, hotels and restaurants along with chocolate, sweets, cakes, buns, biscuits and fizzy drinks. While the starving man may be entitled to a rich man’s apple pie cooling on his windowsill; a poor man who can afford all the essentials of a decent life already is not entitled to take £100 out of his wallet to pay for his Netflix subscription and takeaway. Taxation which does that is straight up theft. And this is definitely what much tax is today as redistribution to the poor is immense. For example, the bottom ten percent of households receive on top of their net income close to 40 per cent of it in net transfers too, i.e., benefits minus direct taxes.
But even with the proper needs of people for emergency healthcare, disability benefit, and the prevention of extreme poverty, it is far from clear that the rich should pick up a disproportionate share of the bill. If the starving man later gets a job, he should probably return the price of the bread to the shopkeeper, not get a random rich guy to compensate the shopkeeper, and, the disabled, being neither the greater fault of the rich or the poor should probably be burdened equally if not proportionately among those two groups. Again: This is not at all the case today. The bottom fifty percent of the income scale only pay 10 per cent of income tax, or, about £32bn; the top fifty percent pay 90 per cent of income tax, or, about £291bn, while the disability benefit bill is an astounding £55.1bn.
Both of the most plausible arguments for taxation then do not support most of the taxation we have today, and definitely don’t support the current rinsing of the rich. Indeed: Both would support a dramatic reduction in public spending and a massive slashing of taxation. Taking the remaining taxation to be legitimate though, which, I don’t, there would be a relative increase in taxation on the poor. This is because they’d have to self-finance their share of public goods, and, where possible, their own welfare over their lifetimes.
Returning to practical politics, if taxes are going to go up, who should they go up on? Although libertarians who apply the natural principle of human respect are opposed to all taxation; not all taxation is equally bad. A thief who takes £10 from you but then gives you a chair you value at £7 is better than a thief who takes £10 from you but returns you nothing: The lesser the net taking of wealth from someone the better. Redistribution of wealth for notions of fairness is unjust and the less of it on a net analysis the better. If Reeves has to find £50bn to fix the public finances then she should tax the poor because they are actually wrongly receiving net benefits from the state while taxing the rich would be to increase net taking from them again. Although a pauper head tax set exactly at the rate that would eliminate their net gains from the state, subject to still meeting their genuine needs would be an ideal solution in the nonideal predicament of taxation existing at all, a more politically feasible solution would be to broaden the VAT base.
By putting the full rate of VAT on everything now exempt and zero rated, for example, food and housing, the Institute of Fiscal Studies estimate Reeves could raise £100bn per annum — more than enough to cover Reeves’s £50bn blackhole and to significantly cut into the budget deficit of £137bn. Inevitably it would be the poor who would be justifiably hit the most with the greatest percentage reduction in their disposable income. Yet the bottom ten percent of households could still afford the about £1,500 annual increase in tax from this. They could simply cut back their post-tax food expenditure by 33 per cent and save £728 and then save a further £936 by cutting their recreation, culture, hotel and restaurant spending by 50 per cent. But the poor couldn’t afford to eat! No. Following the economies above, £22 for each person per week in the poorest households would still be available, or, about £18 for food itself excluding the VAT. More than enough.
If the poor or the rich have to be taxed more, the poor should be taxed more
Sure, broadening the VAT base still increases the absolute net taking from the rich compared to today, but compared to raising £100bn from increasing inheritance tax, capital gains tax, or, the higher rate of income tax, it is a lesser absolute net taking from them. Against taxing the poor more it will be argued Labour made a promise to not increase income tax, national insurance, or, VAT on working people, and, political promises shouldn’t be broken. I’d agree these taxes shouldn’t be ideally increased, but ultimately promising to not increase them is no warrant to engage in the greater evil of taxing the wealthy as opposed to the lesser evil of taxing the poor via them.
Finally, it may be asked by the poor what entitles the rich to their legitimate holdings? Answer: individuals are entitled to what they create and acquire through voluntary exchange. Where a man has grown a plum tree from a stone, fermented barley into beer, or made a pot out of virgin clay, his products rightly belong to him. When he sells such goods or services for money, the money belongs to him too. Failing to acknowledge that people are entitled to the fruits of their labour, would, given the centrality of the material world to our lives, permit the subordination of the lives of some to others. The creators would be at the mercy of the moochers.
It’s always popular to try and get those with the broadest shoulders to bear a greater burden of taxation; primarily because most people know they’re very weedy in this respect. As a libertarian who takes the natural principle of human respect seriously, I take all taxation to be theft. However, if the poor or the rich have to be taxed more, the poor should be taxed more as they already unjustly receive net benefits from redistribution which would be reduced by higher taxes. The great wealth creators are thieved from enough already and increasing inheritance tax, capital gains tax, or, the higher rate of income tax would only compound the wrong of redistribution from them further. No. The rich must not take another fiscal beating; it’s time the poor got the tax stick.
