Sunday, 24 January 2010

Justifying Progressive Taxation

About time Atlas shrugged? The creator of this 19th Century political cartoon had no difficulty in identifying who carries who in capitalist society. Ayn Rand notwithstanding, it is the countless millions of proletarian Atlases who prevent Capitalism's world from sinking. Progressive taxation is the price the capitalists' pay for keeping their feet dry.

IT’S ALREADY BEGUN – the wealthiest New Zealanders and their hired guns are already laying down a curtain of covering fire for what looks like being the most inequitable Budget since 1991. The report of the hand-picked Tax Working Group has already (and very predictably) recommended a reduction in the top marginal tax rate from 38 to 30 percent – to be paid for by an increase in the rate of GST from 12.5 to 15 percent. And to head-off the inevitable protests from the Left, the editors, journalists and columnists of the Right are already casting (here and here) the objections of the nation’s "progressives" as manifestations of "the politics of envy" and plain, old-fashioned class hostility.

And they’re winning.

Most left-wingers simply assume that "progressive taxation" – the more income you receive, the more tax you must pay – requires little or nothing in the way of economic or philosophical justification. It is simply presented as "a good thing" – like Motherhood and Apple Pie. If its defenders feel at all obliged to justify the fact that 44 percent of income tax receipts are extracted from just 10 percent of the tax-paying population, they do so by pointing out that this same group of taxpayers controls more than half the nation’s wealth. If their incomes weren’t redistributed by means of progressive taxation, the say, our society would rapidly become even more unequal than it is at present.

But, once again, the Left is assuming that everybody, like themselves, looks upon inequality as "a bad thing" – something which, if it can’t be entirely eliminated, must be ameliorated to the maximum extent possible.

But is this true? Do the wealthiest layers of our society, and those who aspire to join their ranks, really believe all human-beings are equal? Or that our society should be organised to give every one in it "a fair go"?

In my opinion, the answer to that question is: "No – they don’t." Reading the columns and blogs of the Right’s leading apologists, I get the distinct impression that the doctrines of Social Darwinism command a considerable following in this country. Just consider the reaction elicited by Social Welfare Minister, Paula Bennett, whenever she exposes the worst excesses of the beneficiary class. Think about the widespread support for Anne Tolley’s campaign to impose a test-based "standards" regime on our educational system – a policy which the upper and middle classes instinctively recognise as likely to rebound to their social and economic advantage.

No. I don’t think all New Zealanders view inequality as "a bad thing". Not at all. Not by a long shot.

The Left needs to ask itself how the notion of "the more you earn, the more you pay" ever got established. How were the upper and middle classes of modern capitalist societies ever persuaded to go along with fiscal policies so manifestly designed to limit both their wealth and their power?

The answers might surprise them.

For a start there was the enormous moral and social force of the Judeo-Christian and Islamic religious traditions. The Jewish prophets reserved their most devastating condemnations for those who refused to share their wealth with the poor; who "ground the faces of the widows and orphans". Jesus famously declared that it was "easier for a camel to pass through the eye of the needle, than for a rich man to enter the Kingdom of Heaven". Philanthropy was similarly mandated by the Prophet Mohammed – all Muslims are required to contribute to the maintenance of the poor.

In an irreligious age, and in a nation as secularised as New Zealand, it is easy to forget that, in the past, conformity with these moral precepts was a condition for the salvation of one’s immortal soul. Jewish, Christian and Islamic culture expected people to turn over a significant portion of their wealth to their less fortunate brethren. After all, to see oneself as a child of God more or less mandates a belief in equality and fraternity: if God is our father, then we are all brothers and sisters.

These fundamentally religious precepts flowed naturally into the secular faiths of democracy and socialism.

The French Revolution struck down the notion that inherited privilege had any legitimate role to play in the modern age. The new capitalist wealth, however, was earned. In stark contrast to the wealth of the aristocracy, argued the bourgeois revolutionaries, the capitalist’s profits were the product of individual wit and energy and, therefore, manifestations of democracy.

Classical Marxism dispelled this notion with a vengeance, imbuing wealth with the same moral taint as the teachings of Jesus, Mohammed and the Old Testament prophets. According to Das Kapital, the capitalists appropriated the "surplus value" of their worker’s labour in the form of profit – exploiting the new industrial proletariat no less ruthlessly than their predecessors, the feudal landlords, had exploited their serfs.

The progressive income tax was simply "social democracy’s" means of clawing back the proletariat’s pilfered sweat and talent. Not for nothing was the second of Marx & Engels’ ten demands in The Communist Manifesto: "A heavy progressive or graduated income tax".

The Right, at least, recognises the revolutionary political, social and economic objectives behind the institution of progressive taxation, even as it rejects and denies the religious and/or ethical justifications for its imposition.

In the months ahead, New Zealand’s left-wingers will have to learn once again what their parents and grandparents came to grasp only after long struggle and bitter experience: that equality and social justice are never simply given; they must be fought for – and won. 


mike said...

Thanks for another great column Chris.

While the wealthy capitalist is taxed more, only they have special opportunities to "tax" everybody buying their goods, via profits.

It is strange how sacrosant the idea of profit or "return on investment" has become. And then neoliberal rightwingers are fond of calling tax "theft".

We have come to truly worship mammon.

Another pioneer socialist the presentday NZ left might want to revisit is John Ruskin. He identified profit & interest as, fundementally, forms of "theft".

As a purchaser of a commodity, one gained no value from the profit margin one was obliged to pay.

Robert Winter said...

"Taxes, after all, are dues that we pay for the privileges of membership in an organized society." Thus spoke F. D. Roosevelt. The problem is the capitalist class has never shared fully that view, or the version thereof which argues that the capacity to manage and sustain capitalism requires a degree of social inclusion (or, if one prefers, incorporation) in turn dependent on progressive taxation. This is one of the reasons some advance for social democracy's ability to manage capitalism better than the Right. But, as you suggest, there is nothing automatic about the universal, or even widespread, adoption of this perspective. Its modern version was, arguably, imposed on Capital by social democracy as the latter sought a means to manage successfully the system. The Right here is perfectly capable of adopting the US Right's tradition of favouring their own in terms of taxation, at the expense of social stability. In passing, I will also be interested in the Maori Party's take on this issue, what with them so hugger-mugger with Mr Key!

Also by FDR: "Taxes are paid in the sweat of every man (sic) who labors."

Anonymous said...

In the months ahead, New Zealands left winger will have to learn once again what his parents and grandparents never came to grasp after a long struggle and bitter experience: that equality and social justice are never simply given; they have to be fought for and usually lost.

Among the Trotteresque this article is, the valid point is only that it is manifestly inequitable to impose 15% GST.
There will be no major left wing learning or thinking or revolution or action, you do not have it in you, Just as you didn't in 1984.

Sanctuary said...

I wouldn't be so sure the right are "winning" this debate. New Zealanders are far more sophisticated - or at least far more cynical and suspicious - than they were in, say, 1984.

From my anecdotal samplings, there is zero apetite for such right wing reform. People are sick of even the threat of permanent revolution, let alone it actually happening. John Key was elected because people were finally persuaded it was safe to entrust the economy to National.

People are willing to put up with tax reforms, even capital gains type taxes, if they can see it will be equitable. But they've seen right through this TWG, and any attempt to shift yet more of the tax burden onto the backs of the already groaning low to medium paid will (perhaps even literally - one lives in hope) explode in the governments face.

Chris Trotter said...

On the contrary, Anonymous, the New Zealand Left mounted the most successful counter-attack against Neoliberalism in the Western World.

New Zealand leftists not only preserved organised labour's rights throughout the period of Rogernomics, but, under National, made up for the CTU's strategic failure by constituting the Alliance - the most successful Left Social-Democratic Party of the 1990s.

It was the Alliance that forced Labour to adopt a more recognisably centre-left programme - culminating in the enactment of both a more steeply progressive income tax regime, and the re-nationalisation of a number of privatised industries.

Phil Goff and the Labour Party are already signalling they intend to stick with their progressive taxation policies and will strongly oppose any increase in GST.

Thanks to Mr Key and his colleagues, the return of a Labour Government in 2011 would, in all likelihood, result in a turning away from the centrist positioning of the Clark-Cullen era toward a more overtly left-wing programme.

So, all-in-all, Anonymous, I'd say we haven't done too badly - and that the best is yet to come.

Anonymous said...

good grief what can I say,
the Alliance, who is that now, where are they?
Were they in Parliament once ?
Is that Matt McCarten and Sue Bradford,
was Jim Anderton ther somewhere also.
get real Chris,
This is a NZ NAT Govt for the next two terms.

the left is lost in words

clay barham said...

Ayn Rand’s writings explained how America’s success with individual freedom. Early settlers had no other choice. No paternal government stood by. Jefferson, in the Declaration, defined what Americans created. We had three constitutions to limit the government and protect close governance, starting between the ears and in the heart, to the County no further than a day’s horseback ride. Our elected representatives take an Oath to preserve our system, yet turn on it and trash it to bring back the Old World system rejected 400 years ago and by force just over 200 ears ago. Modern politicians move government away to a distant city as the center of organized crime, as if run by the Sopranos. They picked our pockets and destroyed our economy. See The Changing Face of Democrats on Amazon and

Robert Winter said...


Partly true about the successful counter-attack (but not just by the Alliance; there remained a Left within the Labour Party)(50%)

No to the old chestnut about the CTU strategic failure, about which we will not agree (0%)

Partly true about the centre-Left programme - people like Laila Harre did a good job in government, but in her case, for example, in conjunction with Margaret Wilson (50%)

Yes about the future (100%)

So, about 50% right by my calculation!

Chris Trotter said...

To Anonymous:

The National-Act Government you so fervently support inherited the reforms of the Labour-Alliance Government you appear to have forgotten, and will remain in office only for so long as they preserve them.

A shift from progressive to indirect taxation will undermine Mr Key's popularity faster than you can say "political amnesia".

To Robert:

If you read my comment carefully, you will note that I talk about the Left - not Labour. (50%)

And on the issue of the CTU's strategic failure, well I'm sorry, but the critical academic research into that tragedy by Dr Brian Roper of the University of Otago is conclusive. His findings, plus the personal recollections of those directly involved (my own included) make any attempt to defend the CTU's 1991 decision-making Quixotic (at best) and (at worst) complicit. (0%)

So, that's just a bare pass mark of 50% Robert :-)

Robert Winter said...

I will head off and look at Dr Roper's work. I guess that I prefer to be complicit than Quixotic - I've had enough of tilting at windmills!

The serious point about the Left is important - the link across party boundaries during the schism was maintained in many ways as it had to be in a relatively small movement - rather like all civil wars, 'families' found themselves on both sides. The interesting thing, in my experience, is the difference between those who could keep their politics and friendships (or at least respect) alive through the schism (Bruce Jesson being a excellent example), and those who couldn't and ended up embittered and engaged in ad hominem and ad feminem behaviours (on both sides). That former tradition is, for me, the current hope.

Chris Trotter said...

Amen to that, Robert!

Anonymous said...

I agree with the implied likelihood which Chris Trotter proposes in that New Zealanders in general will reject a 15% GSt utterly and wholeheartedly.
Except for the population politically left of course, they won't even notice as they didn't in 1984,
The left notice nothing because with few exceptions,[ocassionally here] the left is dumb.

Chris suggests that the shift to GST will be so unwelcome as to instill " political amnesia" in Govt, and presumably a loss of election.
I don't think so.
There will be no need for our Nation to suffer.
NZ Nat Govt is aware of the inequity of GST
obove 10%, and will not follow recommendations.
The land tax is far more welcome,and the screaming can be ignored.
Chris can look forward to prosperity.
We won't even cut him out of out blogs .

Anonymous said...


Although I would define myself as broadly speaking a person of faith, I think the case for progressive taxation and, indeed, for social democracy, can be made without reference either to religion or to the Marxian and other revolutionary traditions.

Social Democracy is simply the most effective and humane way of retaining and building up the social cohesion and capital upon which we all depend. It is also, in the long run, the best way of running capitalism.

It's essentially a conservative doctrine albeit with a very small 'c' and diametrically opposed to the irresponsible, inhumane and vainglorious individualism of the neo-liberals.

So why frighten the horses by conjuring with the admittedly illustrious ghost of Marx?

As far as taxation is concerned, I agree with you that there is a widespread appetite for calling perceived bludgers to account and that the monied interest and its journalistic hirelings are busy wipping up populist passions on this issue.

But I sense little enthusiasm for battering those viewed as the deserving poor, e.g. fellow battlers, parents of disabled children etc.

I think that any government seen to be unreasonably hurting those population segments (e.g. by a stiff rise in GST) would pay an electoral price.

I don't think that our current government would necessarilly lose office at the next election, as a result of adopting such policies. But it would probably lose all chance of forming a single party majority government.

Meanwhile, it's suddenly struck me that we're nearly half way through the life of the current parliament (don't life just rush by when you're enjoying yourself!). There isn't all that much time left for National to drop its moderate mask and get away with it electorally.


Joseph said...

What the Socialists are arguing for-

Peter said...

While I don't personally agree with the notion of a progressive tax system, I'm realistic enough to consider it probably will not be changed in my life-time. In which case I would like to see some more thought about how to make the current system fairer.

Surely there is room for rationale debate about whether or not the current tax steps are set at an appropriate level? New Zealand is probably unique in having its high marginal rates kick in at the relatively low levels they do, penalising not just the "wealthy", however that is defined, but also anybody earning over $48K. Does anyone seriously believe that people earning at that level should be classified as member of the upper and middle classes? I note that President Obama has pledged not to raise the taxes on anyone earning over $250K. Plainly there is a different interpretation of “wealthy” in the US.

The other point to remember is that taxation is a social contract between the payers and the rest of society. However, if the payers believe they are being unfairly gouged, then like any oppressed group they will probably seek to rectify that situation. In this case, by hunting out ways of minimising their payments. If the TWG report is correct and 44% (or 76% once beneficiaries are included) of tax receipts are extracted from just the top 10% of the payers, then surely the system is unfair and therefore its sustainability is brought into question?

Peter said...

An error in my previous post, I of course meant to say that President Obama had pledged not to raise the taxes of anyone earning UNDER $250K.