Tax cuts for the rich - enough to make you sick

Yet again government is making noises about cutting the taxes of the rich. This is against the background of a seemingly “intellectual debate” about tax policy, disincentives to work as a result of high taxes, questions of whether poverty in Australia is growing or decreasing and whether or not inequality matters.

There has in particular been much huffing and puffing of late about the measurement of poverty and inequality and whether these phenomena, in some sense or other, “matter” - the Saunders (pdf file 477KB) of the Centre for Independent Studies (CIS) versus the Saunders not of the CIS, the CIS versus St Vincent de Paul and Christopher Pearson in support of the CIS.

And just last week, Sinclair Davidson (pdf file 689KB) of the CIS (with foreword by Peter Saunders of the CIS) asked the supposedly rhetorical question, “Are there any good arguments against cutting income taxes?”

The CIS, funded as it is by big business (pdf file 192KB), is in the business of promoting and peddling the neo-liberal market. Anyone who is vaguely to the left of their point of view (and that means a lot of people and with many different views) gets labelled “socialist”.

Apart from any other consideration, while those who write for the CIS often seem to be well educated in a formal sense, their frequent misuse of the term “socialist” indicates they are either poorly read or are using it as a term of abuse. See for example Saunders on Davidson (pdf file 689KB) and Hughes and Warin (pdf file 431KB) on Aboriginal policy, where they manage to mention it no less than ten times.

It comes as no surprise therefore that the CIS are very much in favour of lower taxes, especially for the “poor old” rich. Small government and low taxes are central to neo-liberal philosophy.

There are however - and despite the rhetoric from Saunders and Davidson - many good reasons for not cutting income taxes. Most are dependent on appeals to ideals such as altruism, social solidarity, compassion, building the social fabric, developing a civilised society, or to social justice or a social responsibility to take care of the vulnerable in society. But these are not arguments that will appeal to neo-liberals.

The neo-liberal market place is based on the values of individualism and on maximising first, individual freedom, and second, individual utility (that catch-all of neo-classical economists which allows them to avoid defining a social good).

The closest they get to defining or even considering the social good is in the aggregation of individual freedoms and of whatever it is that each individual seeks to maximise. They also take the distribution of income as a given so that in any social cost-benefit study it is irrelevant whether it is the rich or the poor who benefit. Just add ‘em all up and never mind the distribution!

In the foreword to Davidson’s paper, Saunders rehearses many of the arguments for cutting taxes. He writes

The only way to achieve proportional “fairness” whenever taxes go up or down would be through a flat tax (where everyone pays the same percentage of their income in taxes).

The only way? Well, no. We could have equal amounts per capita, or as Saunders is dealing with “fairness”, we could have a “fair” tax which might well be progressive. But why in any case do we want taxes to be proportionally fair? Where did this idea come from? Fair yes: but proportionally fair?

Saunders manages to conclude:

Next time you hear a socialist [sic] economist arguing that the rich gain unfairly from tax cuts, that cutting taxes does nothing to improve work incentives, that we cannot afford to cut taxes because it would destroy government services, or that tax cuts pander to selfishness, refer them to [Davidson’s] paper.

Well, actually I don’t think the paper will persuade many, at least not in the direction Saunders suggests. It is however there to be read and I encourage anyone interested in these issues (whether socialist economist or not) to have a look. If these carefully selected issues to put their case for cutting taxes are the best that the CIS and its allies, such as Pearson, can muster, then rational beings will quickly see through the arguments.

I do not want to pursue that however. Instead in this article I want to put my eggs in a different basket: the effects of inequality on health. While the inequality debate “rages” in Australia, a most significant book on inequality has been published by a true intellectual, Richard Wilkinson, the eminent epidemiologist, called The impact of inequality. How to make sick societies healthier.

There has been a genuine debate genuinely raging for some time now in the health literature on a very important issue in the so-called social determinants of health (see for example Wilkinson and Marmot Social determinants of health: the solid facts [Second edition] (pdf file 474KB)). It is widely recognised, and has been for many years, that poverty is bad for people’s health. Now Wilkinson has provided the definitive text to show that additionally inequality is bad for health.

Wilkinson quotes study after study to prove his point. For example, in more equal societies “homicide rates and levels of violence are consistently lower” (p33). Wilkinson also makes the point:

… if health inequalities were the other way around, we might expect analyses of whether the economy could withstand the cost of losing an average of five to ten years of life expectancy among its brightest and best captains of industry (p58).

He states very clearly (p143), “redistributing income from rich to poor improves health no matter the mechanisms”.

What comes through again and again in Wilkinson’s book is the positive impact on health of a sense of community - not something that is normally viewed in a favourable light by the supporters of the individualism of the neo-liberal market place. He writes, for example, of the Indian state of Kerala, which “has long been known as India’s most egalitarian state”, (p231) that “co-operatives make up a substantial part of every sector of the economy”.

Kerala also “has many of the characteristics associated with high social capital” (p231). Most crucially:

… despite levels of income that until recently were lower than the Indian average, “it has outstandingly good levels of life expectancy ... only three or four years less than the United States (p232).

There is strong evidence in this book that inequality is bad for our health. In this context and that more directly of taxation policy, Wilkinson suggests, “Using more progressive taxation to pay for more generous social security benefits may be the most direct way of influencing income distribution”.

He also sees a need to look at different forms of institutional structures that may reduce inequality and provide people with more control over their lives, putting forward the Mondragon Corporation in the Basque country as an example.

The conclusion to his book includes the following (p318):

… rather than appearing to pursue greater equity because of some abstract commitment to a principle to be imposed on the population, we must make sure it is widely understood that the evidence shows that this is the road to a healthier, less stressful society, with higher levels of involvement in community life, increased social capital, and lower levels of violence.

There is a price to be paid for cutting the taxes of the rich, and it is to be measured in terms of a loss of health to the Australian population.

Are there any good arguments against cutting income taxes? Yes there are. Such cuts, by increasing income inequality, are most likely to lead to increased mortality and morbidity in the Australian population.

Before the government swallows the arguments of the CIS on this front and cuts the taxes of the rich, can we have a health impact assessment please?