The inconvenient truth is that in practice the combination of tax, spending, and redistribution undertaken by governments often makes significant numbers of poor people worse off. As Nora Lustig’s Commitment to Equity project highlights, the net result of taxes and benefits in Armenia, Bolivia, Brazil, Ethiopia, Ghana, Guatemala, Honduras, Sri Lanka, and Tanzania is that more people are below the $2.50 poverty line than before. In Indonesia, Mexico, Russia, and Tunisia between one-quarter and two-thirds of the poor have less income as a result of the fiscal system.
‘When Chris Hoy and Andy Sumner ran the same calculation last year they found that, in theory . . . middle income countries . . . could eliminate three quarters of global poverty through tax-and-redistribution.’
Absolutely NOT elimination of poverty.
Poor people with full bellies have not had their poverty lifted.
I love the title: On Inequality, Redistribution and Wishful thinking.
The left is lecturing us on wishful thinking now? In other breaking news pots are calling kettles Afro-Caribbean.
But over the past decade, economic growth has reduced the number of people living in extreme poverty, and increased the numbers who could afford to pay more tax. Rising inequality strengthens both the moral and practical case for redistribution.
Shorter version: Capitalism is working so it is time to tax it into a grinding halt.
Perhaps too many Indonesians move too much money off shore. How will raising their taxes stop this? Might it not, you know, encourage even more of them to move even more money off shore? Just a thought. I love the cute little idea they have that the Indonesian government is capable of doing anything. If they raise taxes, more taxes will be stolen. That will help the politically powerful, some of whom may have been poor in the past. But it won’t help the poor today.
What these sh!tholes need is more economic growth. Not more Fabianism.
There’s a good examination of Oxfam’s claim that taxing the rich in Indonesia could lift ‘X’ number of people out of poverty.
The reality is that ‘X’ number of people turn out to be only 2c a day below the poverty line but ‘tax the rich to give some people 2c a day’ doesn’t have the same emotive pull as ‘lift them out of poverty’
Main lefties don’t seem to realise that the tax regimes and attitudes towards it is very different in some countries realism others
Have they thought of not taxing people so much?
“The reality is that ‘X’ number of people turn out to be only 2c a day below the poverty line but ‘tax the rich to give some people 2c a day’ doesn’t have the same emotive pull as ‘lift them out of poverty’”
I can’t find a reference but IIRC Gordon Brown tried a scam where those just below the relative poverty line were lifted out, thus reducing the total number. The problem was that those still below it got even poorer. I think it was around the 10% tax rate.
No, it was the benefit withdrawal rate. Gordon found a way to drag a lot of people just above the notional “poverty” line, but to pay for it he then made withdrawal of benefits catastrophically high – 90%+ (so you work and get to keep just 10% of your income after NI, tax and withdrawal of benefits). This trapped them just above the poverty line (Gordon really was a stupid idiot).
You can spend a lot and encourage work through a gradual reduction. (low marginal effective tax rate)
You can spend a middling amount and discourage work through the Gordon method
You can spend little and encourage work through not having benefits, which has negative consequences for the poor.
IDS’ plan was to spend more and have a more gradual reduction, but to remove some benefits and coordinate them all better through the Universal credit. Osborne refused him the money, the left wing fake charities shouted about removing benefits and the computer systems for the UC don’t (and never will) work. It’s a pity since the underlying concepts are OK – but the civil service are incompetent and IDS has the management skills of a dead hedgehog.
Dear Mr Worstall
Plainly these folk have not heard of tax poverty. Tax those with a little more to keep them poor, give to the poorer with strings attached to stop them working to lift themselves out of poverty. Job done. Another triumph for
Thanks Ken. I it remember now.
People have less income when the State takes some of their money away?
Who’d a thunk it?