Dumb tax, bad tax…
September 2005; towards the end of the Blair era, a few months into his third term, long after the thrill of the great millennial project has faded, spavined by a series of shockingly bad decisions. The Labour government, re-elected with a much-reduced majority, is unpopular but, somehow, the Tory opposition is even more unpopular. The Conservative party’s leadership campaign is about to begin. One of the party’s ‘modernisers’, an ally of the ultimate winner David Cameron, baby-faced public-school bully George Osborne, has been appointed shadow Chancellor (he’ll go on to be a ruinously bad actual Chancellor, of course). He gives a speech to a think tank the centrepiece of which is an oddly fashionable fiscal wheeze called the ‘flat tax’.
Most commentators dismissed Osborne’s idea as infantile, not a serious proposal. Just the kind of gimmick new shadow ministers come up with all the time, especially when they’ve never had a proper job and only been in Parliament since the last election. The FT said, bluntly “…the politics of a flat tax is electoral suicide.”
As usual, commentators read this odd intervention as a diagnostic, the kind of idea that gives you a sense of a person’s fitness for office. They weren’t impressed. It was like something from an undergraduate debating society: “this house proposes that the tax regime that supports one of the largest and most sophisticated polities on earth be thrown in the air and replaced with a scheme the millionaires think would be cool.”
Somehow, as you know, Osborne transcended the flat tax (and various other debating society ideas), found his way into an actual government and wound up impoverishing the nation instead.
The tax
…a single-percentage income tax rate applied to all taxpayers regardless of income.
Investopedia
I could burn a couple of paragraphs explaining the flat tax and its history – but it’s honestly so simple I think I’ll just leave you with Investopedia’s definition (there’s a pretty good Wikipedia entry). The reason I’m writing about it at all is that another sophomoric parliamentarian, this time Conservative leader Kemi Badenoch, has rolled it out again. It seems to be a kind of compulsion on the Conservative front bench when in opposition. It might actually be a kind of cathartic necessity for a recently-defeated party to cleave for a while to these bracing extremes. A rite of passage?
In fairness, Badenoch didn’t actually write a speech about it. She just answered a question from the floor at a farmers’ event. But she did express some enthusiasm for the idea, as if she were back in that undergraduate debating society. If we’re to read it as a diagnostic on this occasion, it doesn’t look good. Instead of dismissing the idea, providing a bromide about the Tories’ committment to tax cuts, she actually gave it the time of day: “It’s very attractive, but if we’re going to get to that sort of scenario, there’s a lot of work we will need to do first…”, “We need to make sure we rewire our economy so that we can lighten the burden of tax and of regulation on individuals and on those businesses that are just starting out.” Something caused her to qualify her enthusiasm, though, perhaps she remembered her job title or something: “We cannot afford flat taxes where we are now.”
Others have pointed out that Badenoch, six weeks after her election as leader, still seems to be making speeches to the membership, offering up free-market treats to her loyalists while, apparently, forgetting she’s going to need to win an election with ordinary human beings in four years. But there’s obviously an appetite for this kind of idea among the activists, or at least the commentators. Let’s look at this thing:
The project
First of all, it’s important we’re not mugs and don’t get hung up on the obvious, narrow purpose of a flat tax: redistributing wealth upwards. Almost any flat tax will do that because the rate has to be set at a level that ordinary workers can tolerate. Abolishing the higher rates will produce an absolute torrent of money for the already-wealthy. That’s nice for them but it’s not the actual point of the thing. The larger ideological purpose of a flat tax is to further remove fiscal policy from political control, a core goal of the neoliberal project.
This is one of those supervillain situations. The neoliberal overlords observing all this from a cloaked, orbiting space-station cackle. It’s possible that Badenoch and the other pols advancing this idea, don’t know about the orbiting supervillains. They genuinely might not realise that making the rich richer isn’t the policy’s primary purpose. The supervillains nod appreciatively.
Badenoch is obviously no idiot but it is plausible that she, like other politicians from the free-market right – believes a flat tax really is a simple redistributive measure, tidying up the code, reducing collection costs and moving wealth to the owner class.
But this policy is lifted directly from the programme of Hayek, Friedman et al – the neoliberal economists – to shrink the political state in every dimension. In this case to reduce government to a powerless ‘administrator of things‘, collector of a single, tightly-constrained stream of income.
Democracy is the target
Everyone interested in democracy should oppose this – especially populists and popular sovereignty fans. I mean, seriously, It’s a dystopian, technocratic nightmare that capital wants to overlay on democracy, to neuter it. Kind of a final victory.
The flat tax is a weirdly popular idea and, intriguingly, not really a partisan issue. Parties from far-right to centre-left, even third-way types, have bought in (in the US it’s been part of platforms from Dems, GOP and libertarians). The nations that have adopted it are on a pretty broad spectrum too. Here. we learn that, while George Osborne was getting excited about the flat tax, the Treasury under Gordon Brown was quietly researching it. Coalition cabinet member Vince Cable thought the idea of a flat tax had strong public appeal, and, paradoxically, hoped to come up with a version that was also progressive. Classic LibDem. Tony Blair never embraced the idea but was, in his pomp, as he tipped over from political opportunist into weary, messianic world saviour, rather fond of its kooky cousin the Laffer Curve.
Those supervillains
Logically, this establishment blindness to the actual purpose of a flat tax probably has something to do with the fact that the people promoting it literally never mention it. You’ll find hundreds of documents like this one from the Cato Institute on the think-tank web, all focused on the supposed improvements to efficiency and fairness:
The core principles were to tax income at one low rate, to eliminate double taxation of saving and investment, and to wipe out the special preferences, credits, exemptions, deductions, and other loopholes that caused complexity, distortions, and corruption.
In Britain, the Adam Smith Institute supports a flat tax, obvs, although Adam Smith didn’t. It’s entertaining that this paper promoting it, from the Institute named for him, quotes the Adam Smith Institute but not Smith himself, who wrote:
Subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.
Adam Smith, The Wealth of Nations, Book 5
Smith’s understanding of the purpose of a progressive system is of its time, of course. Most of us no longer feel that we pay tax in acknowledgement of the protection we’re granted by the state (do we?). The flat tax sets this aside all together, though, deleting the reciprocal relation of state and subject and reducing taxation to a simple penalty for being. No wonder we resent it. So the flat tax is a device intended to kneecap the social state, to diminish the public realm, sever the subject’s connection with institutions and to limit government’s room for manoeuvre.
- Countries that currently operate a flat tax: Abkhazia (10%), Armenia (20%), Belize (25%), Bolivia (13%), Bosnia and Herzegovina (10%), Bulgaria (10%), East Timor (10%), Estonia (20%), Georgia (20%), Guernsey (20%), Hungary (15%), Jersey (20%), Kazakhstan (10%), Kurdistan (5%), Kyrgyzstan (10%), Moldova (12%), Nauru (20%), North Macedonia (10%), Romania (10%), South Ossetia (12%), Tajikistan (12%), Transnistria (15%), Turkmenistan (10%), Ukraine (19.5%), Uzbekistan (12%). The largest economy on the list is Romania, with a GDP of about a tenth of the UK’s. There’s a preponderence of former Soviet republics and Warsaw Pact nations here because the most favourable circumstance for the introduction of a flat tax is when you’re starting from scratch. The other obvious category is tax havens.
- Of course, it’s interesting that the flat tax – the kind of thing the most irritating, free-market bore in a gillet will bang on about for hours in the pub – came up at a farmers’ inheritance tax ‘summit’. Further evidence that the protests are not quite the grass-roots movement they’d like us to believe they are?
- The Telegraph, instinctively in the flat tax camp, presumably, in a follow-up explainer, is remarkably level-headed about the risks as well as the apparent benefits. Still no mention of the underlying purpose, though.