The Simple Truth about Progressive Taxation

We live in an interdependent world, both within and between nation states. We all need clean air and water, safety, security and defence, the rule of law and justice for all, plus public highways (free from pot-holes), plus, in a civilized society, health and social care, education, and access to the commons such as libraries, museums, art galleries, parks, rivers and the seaside, all free at the point of delivery. But they all have to be paid for.

In the past it was thought ‘not very unreasonable’, as Adam Smith put it, ‘that the rich should contribute to the public expense, not only in proportion, but something more than in that proportion.’ Such progressive taxation seemed to be regarded as simply a matter of fairness. But the mainstream economic belief system which now rules, has effectively outlawed the very idea of progressive taxation. Today it is rarely ever mentioned. A low single flat rate of income tax is regarded as the ideal.

The world is run by what Roosevelt referred to as organised money, which comprised the leaders of the finance sector, financialised business, the media and relevant strands of academia and politics, all lubricated by the revolving doors, enabling migration between all these sectors and government itself.

That self-perpetuating organised money establishment is guided by the neoliberal economic beliefs which have been dominant these past four decades. That dominance has only increased, despite being based on falsehoods or what Galbraith referred to as ‘institutional truths’ – the lies that people are persuaded to buy into in order to survive and prosper in their chosen careers and institutions.

Neoclassical economics was perhaps one of the most elaborate systems of institutional truths yet invented, the aim being to get economics recognised as a science. Generations of dedicated researchers have bought into it and added further depth and breadth to the ideological institutional truth set. The result has been a labyrinthine web of institutional truths, including theoretical concepts, hypotheses, laws and mathematical models, based on all manner of false and impossible assumptions, which bare no relation to the real world we live in. Fostered by Milton Friedman and others in the Mont Pelerin Society, those institutional truths were popularised as the the neoliberal belief set which still rules.

The neoliberal argument against progressive taxation was that the rich would necessarily invest as well as spend, and therefore the benefits would trickle down for the long term gain of society as a whole. But trickle down has long been discredited. If there ever was truth in it, there certainly is none today.

Friedman, towards the end of his life, admitted he had been wrong about a number of things, including taxation. He had argued that the rich would not find it worth their while to minimize their tax payments, if the rate was low. In an interview with Joel Bakan for ‘The Corporation’ he admitted he had been wrong about that. The rich only invested in ever more elaborate forms of avoidance and evasion. They appeared to regard paying no tax at all as the ultimate measure of being ‘smart’.

So the neoliberal policy of austerity rules. That denies the universal availability of those elements of civilised society referred to above. In the absence of tax income, most areas of public expense are falling into disrepair and failing in their fundamental roles and responsibilities. At the same time, the rich are paying themselves egregious amounts while avoiding and evading the payment of taxes.

How to make progressive taxation work in this globalized, hi-tec, tax haven world, is a considerable challenge. It is rarely treated as a serious proposition. Is that because we, the population at large rather than just economists, have bought into the neoliberal institutional truths? Or are we so intimidated by the self-perpetuating organized money establishment that we have given up fighting for fairness?

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