Reshaping the narrative on tax and inequality
Over the past few years, the anti-inequality movement has been growing in prominence in the UK. Campaigners like Gary Stevenson and Richard Murphy are gaining political traction and a great deal of coverage in the mainstream media as they seek to highlight the root causes of problems like the housing shortage, the cost-of-living crisis, and the increasingly shocking state of much of Britain’s infrastructure and public services.
I think the anti-inequality movement could provide an opportunity for ‘Georgist’ economic ideas and insights to gain political traction. But I also think that Georgist thinking could make an important contribution to the anti-inequality movement by helping to reshape the narrative in a way that refines and adds economic credibility to the anti-inequality campaign message.
The current narrative revolves too much around the idea that wealth is insufficiently taxed in the UK. Because those at the top end of the income distribution can convert their income to capital gains and avoid inheritance tax by passing on their wealth in the form of trusts, those who own scarce assets accumulate ever more wealth, while the cost of servicing these assets is constantly rising for everyone else. The solution, so it is argued, is to tax wealth much more heavily, while at the same time reducing taxes for those on low and average incomes. Hence the slogan ‘Tax wealth, not work’.
While such analysis is not entirely without merit, it is vulnerable to the (rather obvious) objection that taxing wealth is not necessarily either economically sound or morally justifiable. This somewhat plays into the hands of ‘neoliberal’ commentators like Dave Rubin, Daniel Priestly, or Tom Clougherty and Kristian Niemitz of the Institute of Economic Affairs. Part of the problem is that the distinction between wealth and work doesn’t take account of the fact that wealth is created by work, and that taxing wealth may well (though will not necessarily) cause wealth creators to leave the country.
It is also the case, of course, that although wealth is created by work, not all work creates wealth – or rather, not all work creates value. A great deal of very hard work is performed by people whose main purpose in exerting themselves is to ‘create’ wealth by extracting value (whether for themselves or for their clients) that others have created. For example, patent trolls work hard to acquire portfolios of unused patents so they can file abusive lawsuits against productive businesses; private equity managers work hard to ensure that their investors’ assets are ‘sweated’ as thoroughly as possible; and landlords work hard to acquire property portfolios so that the mortgages needed to finance their acquisitions can be paid off by tenants.
There is, then, a distinction between wealth creation and wealth extraction that the distinction between wealth and work does not map onto. And this is where I think Georgist thinking could help to enhance the credibility of the anti-inequality campaign and turn the tables on the neoliberals.
Since the late 1970s, the privatisation of land rent has been one of the main mechanisms in the UK through which value has been extracted from those who have created it. This extraction of value has been both the most powerful driver of the economic stagnation with which the UK has been afflicted since the Great Financial Crisis and the single most powerful driver of economic inequality and social exclusion since the 1970s. A large and growing proportion of the population have been excluded from most of the gains from the economic growth that has occurred over the past forty years or so, finding themselves with no valuable assets and no access to social housing. The profoundly unfair and inefficient system of property taxation has also constrained growth and development outside of London and the South East, contributing to the problem of regional inequality.
These are problems that stem from the systematic extraction of value through the privatisation of land rent, which is only possible due to the insufficient taxation of land rent. The most effective solution would be to tax land rent more heavily and earnings from productive work and investment less heavily. More generally, income derived from the extraction of value should be penalised by the tax and regulatory systems, while income derived from productive work and investment should be rewarded. The solution to the problem of inequality, we might say, lies in the just predistribution of natural and socially created resources, rather than in the redistribution of income derived from unjustly privatised common resources.
Suitably refined and effectively presented, this reframing of the narrative could strengthen the economic credibility of the anti-inequality movement, while generating political traction for the Georgist movement.