Ritchie on redistribution

As ever our laddie has managed to get the wrong end of the stick:

In fact, this understates, if anything the conclusion they reached. They say that even large scale redistribution does not appear to harm growth.

The article, I know, comes with a few caveats attached but the message is clear: the argument that redistributive tax policies (such as a 50p tax rate in the UK) harm growth has been holed well and truly below the water line.

In unequal societies it is now clear that if we want innovation, opportunity, jobs and growth then tackling inequality through progressive taxation is a very clear way to achieve that goal.

Umm, no.

Second, we found little to suggest that a modestly redistributive tax system has an adverse effect on growth. True, there are some signs that highly redistributive tax systems – the top 25 per cent of our sample – may crimp economic performance. But the levels of redistribution seen on average in the broad cross-section of countries we looked at seem to have had negligible direct effects on growth.

What the IMF has actually found is that modest redistribution seems not to harm growth while “excessive” does.

Ritchie then leaps from this to insist that his demands for “excessive” redistribution thus are justified. Which ain’t at all what is being said.

There’s another very interesting bit to add to this as well. Which is that other work tells us that how you do the redistribution does indeed matter. Transactions taxes are worst (they have the highest deadweight costs), then capital and corporation taxes, then income taxes, then consumption and finally repeated taxes upon real property. And it’s notable that the countries that do the most redistribution (the Nordics, they have the biggest gaps between market and post tax post benefit gini) do it by having heavier than we do consumption taxes and lighter than we do capital and corporate ones (note that that last is influenced not so much by the rate but by the base).

That is, that raising the money to do more redistribution without killing off growth is best done by exactly the tax policies that Ritchie abhors.

Which is rather fun really.

39 thoughts on “Ritchie on redistribution”

  1. Add in the fact that the UK is already in the top 25% of most redistributive countries in their data. You know, theones they say this about:

    “True, there are some signs that highly redistributive tax systems – the top 25 per cent of our sample – may crimp economic performance.”

  2. A question Tim:

    The Nordics have consumption taxes, on what? I ask because VAT, as practised here in the UK, is regressive.

  3. It would help his arguments (probably by not making them in the first place) if he read the whole paper, rather than a simple headline which he then twists out of all proportion to sit his agenda.

  4. And yes, VAT isn’t a consumption tax as such but rather is supposed to be a tax on added value. However…

  5. The Meissen Bison

    …and finally repeated taxes upon real property

    This is fairly repugnant – it means that you have to keep working to generate income to maintain property and ultimately equates outright ownership with consumption for it’s only when the property no longer exists that you no longer have a tax liability.

    Why ever save?

  6. @Meissen Bison,

    because the value you extract from the property is greater than all the costs (including the taxes) associated with owning the property?

    If they weren’t, you’d sell it, or even give it away, wouldn’t you?

    Just because the LVT Nazis want to capture even more and ideally all of that value for the gubmint doesn’t mean that all property taxes are fundamentally worse than other forms of taxation.

  7. The Meissen Bison

    BiG:

    I’m not sure I accept your first point, I’m afraid.

    Anyone with either heirs they trust or insatiable appetites would be mad not to die a pauper.

  8. Perhaps it’s the American in me, but I find the entire conversation distasteful. Individual rights gets no consideration; it’s all a discussion of managing affects. “How much can we take away from successful people and give away?” Being successful means losing your rights to fair and equal treatment under the law.

  9. “What the IMF has actually found is that modest redistribution seems not to harm growth while “excessive” does.”

    Pendant alert. If redistribution is “excessive”, then by definition it must be doing some harm. And Ritchie is not saying “let’s have excessive redistribution”. He’s saying “let’s have more.” Now the question for bods like Tim/IMF is whether what he is asking for *is* excessive.

  10. Luke

    This is the man who has praised the French 75% rate and is on record as saying 90% would be fine as well.

    There’s no need to ask the question mate.

  11. Gamecock, Edward Lud. I think you’re a bit off point. It’s the International Monetary Fund, not the International Ethics Committee. If you want a discussion of the fairness (or otherwise) of redistribution, you can read Nozick/Rawls etc.

    This just serves as a precaution both to those who say “Even redistribution is desirable, it does massive economic damage” *and* to those who argue “redistribution is costless, however far you push it.”

  12. Ironman, fair enough. (I don’t read him. I tried once. If this blog did not exist, I would be blissfully unaware of him, and a marginally happier man, not having wasted the 20 minutes I spent in the attempt.)

  13. @Meissen,

    You want to die a rich pauper though, right? Heart attack after drinking a bottle of rare malt scotch on your private jet on your way back to your huge house with marble bathroom and gold taps kind of thing? But massively in debt.

    Though you need to be careful, since in many jurisdictions your heirs get your debts as well.

  14. BIG, don’t the heirs have a choice – you inherit estate *and* debts, or just walk away? I think that’s the Swiss rule.

  15. The Meissen Bison

    BiG

    No, you misread me. I want to die in the bed I used to own in what used to be my own house and I don’t want to saddle my heirs or creditors with any outstanding obligations I might have.

    This seems a reasonable yet almost unattainable desire given the agendas of political parties of the left and the tergiversation of the Conservatives.

  16. It’s unattainable because banks are loathe to lend money to pensioners. You don’t have to be spectacularly rich to not be able to work out how you could ever possibly consume everything you produce.

    @Luke, true, but you have to actively reject the inheritance within some short period of time, during which it might not be possible to work out if it is a net positive. And if you reject, you lose the lot. No picking out of sentimental heirlooms.

  17. BIG,
    ?
    Does anywhere let heirs take any assets before the debts have been paid? Not really my area. But certainly not in the UK. It sounds a weird idea to me.

  18. The Meissen Bison: “This is fairly repugnant – it means that you have to keep working to generate income to maintain property”

    No it doesn’t, any more that you have to keep working to pay VAT or pay the income tax on your pension.

    “ultimately equates outright ownership with consumption for it’s only when the property no longer exists that you no longer have a tax liability.”

    Which is good, because it removes one of the most significant avenues of parasitism, where people are able to enjoy the benefits of state spending without having to shoulder any of the burden.

    “Why ever save?”

    To be able to pay your tax bill without working, which is something you seem to value highly.

  19. @Luke, not an expert in international probate, but there are places that will let your benefactor’s creditors go after you if they are not satisfied from the estate, and other places that won’t.

  20. Edward Lud,

    Yes. Doesn’t mean you’re wrong. Just Off point. Hayek thought that there was no connection between earnings and moral deserts. I agree.

  21. Luke, channelling Godwin for a mo’, because it can be instructive:

    Imagine you and I are at the Wansee conference, discussing ends and means. I’m mustard for the administrative advantages of trains and 1940s photocopiers.

    Me: that’ll enable us to do this much more efficiently!
    You: but, um, do you really think we should be doing this?
    Me: let’s get back to the point, don’t let us be waylaid by extraneous concerns.

    Now, yes, I know systemised, industrial-scale murder is much worse than theft-with-violence. But they’re both bad. Both wrong. And when you limit yourself to the utilitarian calculus of what works, you lose site of that. Isn’t administrative efficiency another way of talking about the banality of evil?

    That’s why Gamecock was right to write as he did, and why it was relevant that he did so.

    Thats

  22. “Incidentally; I very strongly consider myself a libertarian but in a democratic environment”

    Guess who. Go on. Have a guess. I dare you. Guess.

  23. @ Luke

    See my first comment at the top. IMF say UK is in the highly redistributive catagory which might hurt growth. One would then assume that more redistribution would affect growth more…etc….

  24. The Meissen Bison

    I seem to be expressing myself extremely badly so let me give a concrete example of why I am with Gamecock and Edward Lud in this argument.

    Somewhat unusually, I bought the house I still live in almost 40 years ago. It cost 12 times my then annual salary. During the course of my professional life my salary increased more than thirty-fold.

    Thanks to various governments down the years down to the latest debauching of the currency by the present administration, my house would now cost 16 times my most recent salary. To be taxed on this ‘value’ would be an outrage.

  25. @Meissen Bison,

    I certainly agree with you and am not sure who is advocating taxing you on the unrealised increase in hypothetical price of the property.

    There are a few people who pop up here occasionally arguing for it, but not me. The current system, where you pay some kind of tax weakly linked to the value of the house, and absolutely some few thousandths of its value per year (and for most properties less than the average annual maintenance bill), for the upkeep of local services that make your house liveable in in its current location, seems to be among the least worst options.

    If you don’t like paying taxes per se just say so, rather than pointing to the specific flaws in the current system and concluding that we should therefore have no taxes.

  26. The Meissen Bison

    BiG

    I came onto this thread (yesterday 12:40pm) arguing specifically against repeated taxes upon real property.

    We have local taxes to pay for local services and I don’t object to that. What I do object to is using property value (all property, not just housing) as the basis for general taxation year upon year.

    Forgive me, but I think your third paragraph is a little silly and condescending: I’ve written nothing to invite such a misconstruction of what I have been saying.

  27. My apologies, I didn’t mean to be condescending.

    Unless things have changed radically in the UK since I’ve been gone, the “local taxes to pay for services” and “using property value for general taxation” are one and the same thing for most people – i.e. owner-occupiers or tenants paying council tax. Dunno or care about taxation of business premises.

    The viable alternatives appear to be a poll tax (actjually that turned out not to be so viable) or local income tax.

    There’s merits and demerits in using property value of course, but while your objection, that ” …it means that you have to keep working to generate income to maintain property…”, is like any objection valid at the margin, the cost of the tax relative to the value of the property is very small, a fraction of a percent of value per year, and for most cases will be less than half of the total ongoing costs the property inflicts on its owner. Compared to income taxation, national insurance, VAT and the rest, which impose a deadweight of >50% on anyone who is earning a remotely proper salary, council taxes are pretty benign.

  28. Glendorran

    I know, it’s as I’ve said before- Murphy Richards could soon find himself out of a job as the reality is simply beyond parody…..

  29. Edward Lud,

    I’ll grant you that particular Godwinism is useful, and concede that you’re not being irrelevant. But if you going to introduce ethics, you can’t just take for granted that (what I assume is) your view is right or universally held. You have to get involved in ethical debate about equality, taxes, redistribution and property.

    It’s not enough (or at least not very helpful) just to say: “I shouldn’t have to pay taxes for redistribution. Because reasons.”

  30. Luke, for sure.

    One of the things I like about this blog is that it takes the statists and communitarians at their word and shows it for what, in its own terms, is the uselessness that it so often is. For e.g. – the minimum wage. A trope of lefties, who like to think they’re doing something for the poor by introducing it. In reality, theyre insulating those in work against those out of it. But there’s also a problem with this approach, which concedes that a minimum wage is implicitly conceded – and sometimes, I think we should remind ourselves of that.

  31. EL, we are in danger of violently agreeing. But just as the left should be challenged on their own terms, so should the right. That’s both on utilitarian and ethical grounds.

    So yes, the minimum wage might have unintended consequences. But you might need a dose of egalitarianism to push through some sound liberal policies (see Chris Dillow today).

    Same issues on ethics – FWIW I think the moralistic right get a bit of a free ride here. Why does someone born clever and hardworking *deserve* more than someone born a thick slob? It’s rarely asked.

  32. “Why does someone born clever and hardworking *deserve* more than someone born a thick slob? It’s rarely asked.”

    It is both asked and answered. They don’t.

    However, we reward those who are hardworking, or lucky, in the right place at the right time, not because they deserve it. But because of the wealth that we all gain from people who succeed, perhaps by random, perhaps by being hard working, at making us all richer. It ain’t “just deserts”. It’s an incentive to the next generation.

  33. @Luke – why does a clever hard-working person deserve more than a thick slob?

    The best answer I saw is to ask why does the thick slob deserve to benefit from living a world containing clever hard-working people who create consumer surplus for said thick slob…

    The recipients of the polio vaccine have benefitted far more than the inventor and producers of it ever did.

  34. Tim, I agree entirely. Except I don’t think it is “asked and answered” very much. By neo liberal and unapologetic capitalist running dogs like yourself (meant as a compliment) yes, but not generally.

  35. I’m in danger of violently agreeing. I don’t really care about whether people *deserve* to earn what they do, and I’m not that bothered whether they *deserve* to pay the taxes they do. But what politician says to voters ” I don’t give a shit whether the taxes you pay or the amount you earn are ” fair”?

    Does Edward Lud say that? He’s who I was responding to.

  36. Luke, the unapologetic neoliberal capitalist running-dog thing is pure utilitarianism. Y’know, the difference between liberals and libertarians – that we accept some encroachment of state compulsion, redistribution even, for improved outcomes in the here and now when the benefit exceeds the cost. If that sometimes gets lost in translation, it’s because we are already well beyond the break-even point in terms of state encroachment on personal liberty and desirable outcomes therefrom.

    If you have a better system to offer your average unapologetic neoliberal capitalist running dog (empiricist utilitarian liberal branch) will likely jump on it, or at least welcome the opportunity for it to try itself out in the great experiment of the world and see what happens. Until it starts killing innocent people or imprisoning its opponents, which to date is where alternatives to free market liberal capitalism tend to end up. In the present example, making the thick slob as wealthy as the quick grafter turns out to cost more (mainly by turning potential quick grafters into slobs because it’s no longer worth the graft) than you gain in having a wealthier and hence happier thick slob.

    If there is groupthink here it’s grounded in the fact that it is damn near impossible to have a reality-based discussion with leftists and a regression to merely parliamentary standards of discourse is therefore warranted. Even neoliberal bastards need to let off steam now and again. Beyond that, no groupthink. That, for example, our host and myself are diametrically opposed on issues such as the EU has never stopped us having civilised chats about the issue, or at least to know that the expletive-ridden mudslinging is not personal but merely part of the exchange of ideas that is essential to the progress of our civilization, even if it fails to convince the individual idiot who’s in the wrong.

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