Time to throw taxes and taxmen overboard?

Press, 24 June 1978, Page 14

Time to throw taxes and taxmen overboard?

From the “Economist,” London

The revolt against taxes is in its infancy. It will grow to a rude universal manhood if two things do not quickly happen in the Western freeenterprise world. The tax revolt will spread, first, if the growth in personal income and wellbeing does not begin to outstrip again the remorseless growth in taxation to pay for public services.

And it will spread, rowdily, if the growth in the tax-take itself does not diminish; then halt; then, very soon, go into reverse.

The lesson sent out by the voters of California on June 6 was much more about the long-run history of taxation, past and future, than it was about the present.

The history of taxation is simply that for most people in Western Europe, though less in America, tax has grown from virtually nothing a century ago to the point where it takes, in varying forms, up to a quarter of total personal earnings and between a third and a half of gross domestic product today. Its impact is uneven within countries and between them.

In some places it has become confiscatory for upper income-earners even where, as in Britain, those upper income-earners earn very little by most other standards. Virtually everywhere in Europe inflation has caused income taxes designed as “progressive” to bite into the incomes of middle

income-earners they were never designed to catch.

But it is in more prosperous, less patient America, interestingly, where the share of income handed over to the taxman to pay for the public realm is significantly less than in Europe, that the most vivid protest has now, the Lord be praised, erupted. Not that California’s referendum vote against property taxes, which have over 10 years increased at twice the ~ rate of inflation, was entirely new: a sizable losing anti-tax vote was notched up weeks earlier in Switzerland; a 44-year Government fell in Sweden in 1976 largely over the taxation issue; propertytax ratepayers’ strikes are no longer seen as a criminal rarity, even in Britain; evasion and avoidance by decent people have become standard.

California’s vote, like most things Californian, was just bolder, better, more innovative, in short a harbinger of things to come. Unless, that is, governments learn in time the lesson that the tax-take cannot just steadily grow over a 200-year period from 0 per cent of personal income to 100 per cent. Somewhere the process has to stop . . . ordinary people, not the newspapers or the economists, will say where. The point is one that sensible social democrats will or should take as readily as do conservatives or extreme

centrists like the “Economist.”

Public services require money. Many public services in many places could, and some should, be improved. Where, as in California, the voters elect to cut the money available for public spending, those services — schools, public swimming baths, street-sweeping, police — far from being improved will immediately come under the axe.

Social democrats, more than conservatives, therefore have now to achieve several things if they are to avoid that axe. They have to find a way of promoting an inflation-free growth in real income to finance their plans for social justice and wellbeing: which will depend, pretty clearly, on their rediscovering and promoting the sense of less fettered private adventure and profit in the private sector that has

made the West so strikingly better off than the collectivist East.

They have, then, to define more closely what they really want to do socially: they cannot, when voters are for the first time imposing tax ceilings, simply spend, spend on everything at once And they have, lastly, to find ways to provide more public service than is so lamentably provided now for each tax-thaler, tax-dollar or tax-pound. There has been a huge loss of productivity in every service provided by bureaucrats. We suspect that over the dead bodies of public-service trade unions and cartels, there will be an increasing trend towards “privatising” social and other services, that is. putting them out to tender by private suppliers working to stringent, publicly imposed standards.

What will be the alternative to such voter-imposed commonsense? It will be twofold: a long, embittering public battle between entrenched tax-spending government and the private man, manifesting itself eventually — say, inside 20 years — in violence.

Second, a growth in the private guerrilla warfare of tax avoidance which is corrupting decent folk, and the long-standing norms of a decent society, not just in naughty old continental Europe but nowadays in upright Britain and America as well. In Britain what was once

an almost ehdearing Latin maladj, tax avoidance, has become a widespread epidemic. It is not just business executives who seek to be paid every morsel of extra income they can in kind, or the middle-class professional men, from journalists to lawyers, who welcome payment for freelance in cases of wine. British blue-collar man, with his wife and his girlfriend, is kicking the habits of honesty fast working en noir at least partly in cash; diving into plumbing or babysitting or housework where the price tendered for cash payment is so much lower than that tendered for payment by cheque. The only innocent in this play is the taxman himself, sometimes, it is true, a narky’ fellow, but usually forced into the honest task of dividing a nation on the dictates of politicians' ambitions and the incompetence of a public sector empowered to spend other people’s money. It is easy, in a single article such as this, to overdramatise a single event in a single far-off state in America. We doubt we overdramatise, for the precursors of California’s vote have been there for many to see Its sequels will be just as obvious. The present, or coming, tax revolt will not be aimed like the Boston tea partv at unrepresentative colonial or foreign government. It will be aimed at the efficiency of allegedly representative government at home.