One of the most insidious of the economic arguments that are part of the Neoliberal economic package that we are seeing is the use of “competitive” tax rates between countries to justify increased income inequality in the advanced capitalist world. The use of “beggar thy neighbour” income and corporate tax policies have lead to rising deficits due to the loss of government revenue (these deficits are already high due to the bailing out of the finance and banking sector caused by the crisis). Combine these taxation policies with the attack on the state sector, decreased government investment and privatisation and we have not only the introduction of questionable economic policies, but a full-scale war on the poor, working and middle class. Invariably, it is the poor, working and middle classes that have felt the brunt of austerity measures being introduced to deal with rising public debt and deficits, while the wealthy have not only been protected but rising income inequality has been a point of unity amongst governments employing neoliberal economic regimes.
The so-called debate on the 50% tax rate that was introduced by New Labour towards the end of its term (April 2010) is the latest in an attempt by the Tories in the UK to further extend benefits towards the wealthiest at the expense of the poorest (for a discussion of UK taxation see: http://en.wikipedia.org/...). Yesterday, 20 “eminent” economists called for the abandonment of the 50% tax rate in the Financial Times (http://www.ft.com/...) on the basis that it is threatening growth in the UK supposedly because firms will not come to the UK and qualified high earners would not come here justifies the beggar thy neighbour tax policies that have undercut most progressive tax policy in Europe.
In this context, we are concerned that Britain’s 50p income tax is doing lasting damage to the UK economy. It gives the UK one of the highest personal tax regimes in the industrialised world, making it less competitive internationally and making us less attractive as a destination for both foreign investment and talented workers.
The UK has already slipped from second to fourth place as a destination for inward investment. It punishes wealth creation by imposing on entrepreneurs and business people a marginal tax rate in excess of 50 per cent once national insurance contributions are added in. This is particularly damaging when the UK needs to create new businesses in new industries and promote growth by small companies, which can grow fast. It applies to just 1 per cent of taxpayers, who already pay 24 per cent of all income taxes (http://www.ft.com/...).
The absurdity of this argument and its blatant upper class apologism supporting increases in income inequality is justified using neoliberal fallacies that economic growth and investment are supply-side determined with limited, or no, demand side analysis. Low growth is not being caused by the 50% tax rate on those earning over £150,000, instead it is the economic policies that are strangling wages and income for the poor and working class that is playing a large role, it is the loss of employment opportunities for the majority due to the destruction of the industrial and manufacturing base of the country, it is the fact that investment and employment creation in the private sector does not occur without evidence of sufficient and sustained expected effective demand. Rather than consider job creation for those on lower incomes, these so-called eminent economists are concerned with mobile high-wage earners; rather than raise the question that growth is being stifled due to attacks on the incomes of the poor and working class people, these people seem to be blaming the 50% tax rate for lack of investment and economic growth. Without a doubt, this is one of the most apologist arguments that I have read in justifying increased income inequality. Moreover, it exposes clearly the class bias in neoliberal economic analysis and the denial of the reality that these policies do not lead to increased growth and employment, but are simply justifications for increased income inequality.
Income Inequality and Attacks on the Social Welfare State
In the wake of the worst attack on the poor and the working class in the UK since Margaret Thatcher’s reign, the Tory Chancellor of the Exchequer, George Osborne, has called for an end to the 50% tax rate levelled on those earning over £150,000. Given that that the average individual income in the UK is £26,000, average household income is £33,000, mean income is £22,000 and the median income is £18,500 (based on figures from 2007-8) (http://en.wikipedia.org/... see also http://www.ifs.org.uk/...for discussions of poverty and income inequality in the UK) it is almost comical that these politicians and economists are arguing that only additional economic inequality can enable economic growth. Add to that the severe inequality between wealth in the UK and we have a rather dismal picture of a country with massive inequalities in wealth and income (http://en.wikipedia.org/..., see also http://www.ifs.org.uk/...).
In terms of income changes, the Institute for Fiscal Studies is pessimistic simply from looking at the impact of the economic crisis on median income, and that does not even take into account the full impact of the ConDem regressive economic policies.
Looking ahead to future years of income data, however, we see many reasons for pessimism. Recent IFS research forecasts a total real-terms fall of 2.2% in median income between 2008–09 and 2010–11. Since we observe a 0.9% rise in median incomes in 2009–10, median incomes would need to fall by 3.1% in 2010–11 for this forecast to be correct. In the first 11 months of 2010–11, earnings (the largest source of household income) fell by 3.8% in real terms and there was little change in the rate of employment. Moreover, rising inflation meant that the real value of most benefits and tax credits fell substantially in 2010–11, reflecting the fact that the real-terms value of benefits can fluctuate from year to year when inflation is volatile. A fall of 3% or more in median income in 2010–11 thus seems entirely possible. Such a fall would represent the largest fall in median incomes since 1981 and would leave median income very close to that last seen in 2004–05. The OBR also forecasts a fall in household disposable income in 2010, though this is somewhat smaller at 0.7%.
The years from 2011 onwards will see various cuts to benefits and tax credits that have been announced by the coalition government, which are likely to reduce household incomes still further. Overall, the relatively robust income growth seen during the recent recession looks very unlikely to continue in the post-recession period (http://www.ifs.org.uk/...).
The attacks on the social welfare state and decreased income resulting from limits being placed on housing and disability (incapacity) benefits means that the poorest are taking the strongest hits on their income. For this government to argue that the those earning over £150,000 should not be paying 50% taxes sharply slams home the message that the dealing with the budget deficit will be falling on the backs of the poor and the working class whom are already facing lower real incomes due to the increase in the VAT, increasing inflation, and rising food prices (due to futures market speculation and inflation).
Ignoring the impact of decreased effective demand for the majority of the population while bolstering the wealthiest is not only bad economic policy, it is deliberately regressive forcing the victims of the international economic crisis (see increased unemployment and hence rising poverty and income inequality) to not only bail out the banks and financial system, but also cutting off avenues for economic growth that have been historically demonstrated to be effective, i.e., increased incomes for the poor and working class providing the effective demand to create increased production and employment, and hence further investment. So while the poor and working class are taking hits, the small number of wealthy people in this country will actually be paying less in taxes. Moreover, the obvious increased budget deficits arising from the abandonment of the 50% tax rate will then most probably be used to further impoverish the poor and working class.
Ideological Economic Policy and Theory
Even in the context of mainstream economic analysis, this is incompetent economic policy which will do nothing but enable further increases in wealth and income inequality and rising profitability while wages decline both relatively and absolutely. Ideologically, an economic theory which has proven to be disastrously deleterious for the majority living under the system is chosen in favour of one that has proven to be effective in enabling economic growth in the context of the capitalist system. The fact that some economists (including Bob Rowthorn whom has clearly abandoned his analytical Marxist roots) support this position means nothing except that the political and ideological underpinnings of neoliberal economic theory are apparent. It is not surprising that the Tories have chosen this route as it is completely consistent with the manner in which they have undertaken economic decisions since coming to power. While Clegg and Danny Alexander whinge that this is politically unsound, that they need to increase the level for those that are not taxed to £10,000 and raised the question of increasing wealth tax (http://www.ft.com/...) it is evident that the Lib Dems are simply blowing smoke. Their so-called influence on coalition economic policy is minimal and we have seen that even when cherished Lib Dem policies (e.g., civil liberties, university fees, income taxes) are abandoned and attacked they will not leave this coalition knowing that their existence as coherent party will be short lived. So since they pose no credible threat
to the Tories, it is evident that even when they disagree with Tory policy, their criticisms carry no power whatsoever.
Given that the consolidation of neoliberal economic agendas is happening throughout the advanced capitalist world, one cannot help wondering from where they think the demand for the goods and services produced by the system will be coming? Perhaps they think that China can make up for the lost demand in the advanced capitalist world, but given that incomes for the vast majority of Chinese have not risen sufficiently (given China’s export orientation) to substitute for the demand of the advanced capitalist world, there is no doubt that these policies will lead to further economic and political instability in the system. Perhaps the doyens of the system are counting on the weakness of the organs of the working class and poor (which they have worked very hard to destroy and weaken deliberately), perhaps they are counting on the fact that the left is weak and divided and that this will mean that the political response to their policies will be minimal, but there is no question that the majority whose incomes, livelihoods and benefits will not sit by idly. Already we see responses throughout Europe in countries in which austerity measures have been introduced; it is only a matter of time that this spreads to other countries when the global economy contracts and destabilises due to these economic policies. Will these responses be enough to stop the further impoverishment of the poor and working class? That depends on the ability to mobilise the various groups facing an onslaught, it will require unity and it will require international cooperation between the working classes of both the centre and periphery of the capitalist system. Without unity, we will fail, without organisation, there is no hope.