Wednesday, 23 November 2011

We are the 60%

In countries in which the poor have the exclusive power of making the laws, no great economy of public expenditure ought to be expected; that expenditure will always be considerable either because the taxes cannot weigh upon those who levy them or because they are levied in such a manner as not to reach these poorer classes. In other words, the government of the democracy is the only one under which the power that votes the taxes escapes the payment of them.

In vain will it be objected that the true interest of the people is to spare the fortunes of the rich, since they must suffer in the long run from the general impoverishment which will ensue.

Alexis de Tocqueville, 1835 - Democracy in America, Volume I, Chapter 13

Yesterday I discovered a BBC News article entitled Tax: Do you give more than you get?

Though my household is by no means rich, it seems we are in the top decile. It turns out that a childless couple with both partners earning £32000 before tax is enough. To count among the 9th decile, all you need is £24000 each; for the 8th decile: £19000 each; for the 7th decile: £16000 each. All of these deciles are net contributors, according to the BBC (to the tune of £27221, £12433, £5457, and £1900 respectively).

There are a few things to note here. Firstly, £16000 isn't a huge salary. I'd wager that almost everyone of working age could manage it, if they tried hard enough. According to my calculations, you could achieve it by working 53 hours a week at the minimum wage [1], for 50 weeks. A hard life, but nothing like what our ancestors had to face. On the other hand, you have to ask why people would bother — all that work for the privilege of contributing £1900 (6 weeks of labour) to those who aren't inclined to work as hard.

Secondly, only the top 4 deciles are net contributors; 60% of households are net recipients. In a democracy, we should not be surprised that taxes "are levied in such a manner as not to reach these poorer classes".

Thirdly, the BBC calculator understates the weight of tax-eaters. As Rothbard puts it

The tax consumers consist of the full-time bureaucracy and politicians in power, as well as the groups which receive net subsidies, i.e., which receive more from the government than they pay to the government. These include the receivers of government contracts and of government expenditures on goods and services produced in the private sector. It is not always easy to detect the net subsidized in practice, but this caste can always be conceptually identified.
it is inherently impossible for bureaucrats to pay income taxes uniformly with everyone else. And therefore the ideal of uniform income taxation for all is an impossible goal. We repeat that the bureaucrat who receives $8,000 a year income and then hands $1,500 back to the government is engaging in a mere bookkeeping transaction of no economic importance (aside from the waste of paper and records involved). For he does not and cannot pay taxes; he simply receives $6,500 a year from the tax fund.

So we have at least 60% of households as net recipients of taxes. Are they grateful? On the contrary, many of them are are disappointed that they haven't succeeded in screwing more money out of the top 1%. Such is the tyranny of the majority.

[1] From 1 October 2011, the minimum wage for those 21 or older is (£6.08 for those 21+, from 1 October 2011)

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