5 September 2018

Justin Welby’s calls for higher taxes are counterproductive and morally dubious


The Archbishop of Canterbury, Justin Welby, has co-authored a report with IPPR calling for wealthy individuals and corporations to pay more tax in order to help the poor. Predictably for a centre-left thinktank, it argues for more government intervention in order to tackle low pay.

In an accompanying article for the Daily Mail, the Archbishop talks of inequality, the unfairness of large corporations not paying their fair share, wealthy individuals avoiding paying inheritance tax, and the need to help the young.

He’s right to be concerned about many of these things. It is important that as a society we are concerned about the poorest people in the country and that we take steps to eradicate poverty. But, as Saint Bernard of Clairvaux wrote in 1150: “the road to hell is paved with good intentions”. Increasing taxes and government intervention, although well-meaning, will exacerbate the problems faced by the worst off in Britain.

Although it might be intuitive to believe that increasing taxes will bring in more money to the Treasury, economic history is littered with examples of this simply not being the case. People and organisations who can move their wealth to other jurisdictions, such as the rich and large corporations, are especially responsive to changes in tax rates. When the tax rate goes up, the Government receives less money, but when the rate is cut then the Treasury receives more revenue.

Take corporation tax. Between the mid-1960s and the mid-1980s, many advanced economies had corporate tax rates of 40 per cent or higher. Governments collected about 2.5 per cent of GDP from corporate taxes during those years. However, once these countries began to cut corporation tax, revenue increased. Conversely, when countries increased corporation tax, revenues fell.

The same is true with taxes aimed at high earners. For example, the 2012 cut to the top rate of UK income tax brought in an extra £8 billion in revenue. In 1979, the top rate of income tax was cut from 83 per cent to 60 per cent which again raised revenue. Receipts rose again after Nigel Lawson cut the top rate from 60 per cent to 40 per cent. The story was the same over in the US. In the 1920s President Coolidge slashed the top rate of tax and revenues almost doubled. Similar moves by JFK and Reagan in the 1960s and 1980s also dramatically increased revenues. However, when President Bush Senior raised the top rate, revenues plummeted. Thankfully Junior had more sense, cut the top rate and revenues increased.

What is more, inheritance taxes have a distortionary impact on economies. For example, those subject to them are more likely to engage in tax planning which can involve moving their wealth offshore, away from the reach of the government. So, even if you’re pro-government intervention, the evidence is clear that higher taxes means less revenue to spend on public services and poverty alleviation.

But the Government getting more involved is really not going to solve much. One of the main reasons why the cost of living in the UK is so high is due to an excess of state intervention in all sorts of areas, not least a convoluted, restrictive planning system that helps keep house prices eyewateringly high. The same goes for childcare. Restrictions imposed by the government regarding training and staff to child ratios increases the cost of childcare for parents.

Government regulations and taxes also increase energy bills, the cost of transport, and our shopping bills. If the Archbishop wants to see the cost of living come down, and the poorest people in the country lifted out of poverty, then he should be calling on ministers to lower taxes and scrap onerous regulations.

Given that these comments have been made by the leader of the Church of England, it also raises questions of morality. The Archbishop has been quick both today, and in previous comments, to equate low taxes with immorality and high taxes with justice. Is he right?

Most people are willing to pay some level of tax in order to receive essential public services. Or, as the Archbishop might put it: “Render to Caesar the things that are Caesar’s…”. And only the most ardent libertarians truly believe that ‘taxation is theft’.

Nonetheless, taxation is still coercive. The government effectively strong-arms us citizens into paying tax through the threat of imprisonment. This is, to say the least, morally ambiguous. What is more, high levels of taxation eclipse personal morality.

We can only judge a person to be ‘good’ or ‘just’ or ‘moral’ based on what they choose to do, as they freely follow their own desires. Money taken from individuals by the State in order to spend it on those who are less fortunate, robs the individual of his choice to help the other person and removes personal agency. How can one ‘Love thy neighbour as themselves’, if the government does it on their behalf?

However, this kind of thing is emblematic of an organisation that is unsure of its purpose and role in society. As the state has grown over the last 100 years it has taken on more and more of the tasks once undertaken by the Church of England, such as education and caring for the sick and the elderly. An engorged state now not only provides essential services, it has found itself acting as both parent and priest, levying taxes and  enforcing prohibitions over what people can eat, drink, smoke and generally what they do with their own bodies. The government has, as the controversial German philosopher Carl Schmitt argued in his Political Theology, replaced the Church in society.

Any call to raise tax rates risks exacerbating this situation further by increasing the power of the state and diminishing the role of individuals and civil society more generally. Surely this is not something which the Archbishop of Canterbury would be keen to encourage?

Justin Welby is right to be concerned about the cost of living crisis and social justice. However, increasing taxes and government regulations would be both counterproductive and morally dubious.

Ben Ramanauskas is a Researcher at the Taxpayers' Alliance