TCS Daily


The Money Is In the Long Tail

By Tim Worstall - February 17, 2005 12:00 AM

Ed Driscoll recently pointed to Chris Anderson's article "The Long Tail" and discussed the implications for the blogosphere, just as Anderson's original Wired magazine article pointed out the implications for retailing. Given the way in which such memes are used to explain everything in those moments before they become cliches let me leap in to apply the idea to a political / economic conundrum.

It might surprise you to know that two of the cherished objectives of leftist types are actually in conflict with each other. They are, at extremes, mutually exclusive. And the long tail is the reason. In this brief interregnum before this meme is used to explain why the sky is blue and the sun rises in the east, let me explain it for you.

I realize that this is a fairly broad brush generalization but there are two things which I generally note in the attitudes of left wing types towards the State and taxation. The first is that they want the Government -- that all, caring all sharing democratic enforcer of the people's will -- to actually provide more, do more. Depending upon the virulence with which they have caught the bug this might range from a roughly RINO (Republican In Name Only) position that it is that very government that should provide food, housing and medical care to the poor and something like Social Security for the old age of everyone, to, say, the complete barking moonbat position whereby the State should own all productive assets and be responsible for the entire functioning of the economy (whatever is left when it has done so, of course).

The second is that the taxation system should be progressive...the further left one goes the more insistent the pressure for not just the rich to pay more in tax, but them to pay higher rates of tax and that extra money to be redistributed to the poor. Again, at that near insane end of the debate we get those who think that all wealth should be confiscated and shared out equally.

Having set up (and agreeing that it is a slightly straw man one) this argument let me point out how the two conflict. For the fact is that the rich don't have enough money to pay for all of the things that are being demanded from the State. We can see this quite clearly in the US in the way that things like Social Security and Medicare are funded. They are not paid for out of general tax revenues, not funded by the rich paying more than the poor. Quite the contrary, the poor pay more as a portion of their income for them than do the very rich...I doubt whether Bill Gates even notices his FICA deductions while someone on $10 an hour most definitely does, especially as it's the only tax he is paying.

(One of the things about the current Social Security debate that mystifies me is why so many defenders of the present system -- well, I'm surprised that anyone defends it as it is -- want to keep it funded by this highly regressive form of taxation. Why aren't they arguing that it should simply be folded into the general revenue?)

More precise figures for the UK are provided by Chris Dillow at his blog, Stumbling and Mumbling. (In the British blogosphere he is affectionately known as Mr S&M):

        These figures from the Inland Revenue illustrate the point. They show that the 
        1.8 million people earning over £50,000 will pay £55.6bn in income 
        tax this year. That's 43.7 per cent of all income tax.

        But it's only 12.2 per cent of the £454.7bn the government will raise this 
        year (
table C8 here).

        This means that even if the government could double income tax receipts 
        from people earning £50,000 or more -- which might not be possible 
        -- the rest of the population would still have to pay three-quarters 
        of the money raised by government.

As he goes on to point out, both here and elsewhere, these desires -- for both a big state and for redistribution of incomes -- are in conflict. If people on the left (and Dillow is one of them) really wanted to have more redistribution then they would be arguing for a smaller state, so that taxation could be abolished for the poor. To put it in the short hand of our new meme, we can't pay for all the things demanded from the state simply by taxing the rich, for the money is in the long tail, or as he quotes from Gosta Esping-Anderson in Politics Against Markets in 1985:

        As the incidence of taxation grows...the tax system automatically loses its 
        potential for progressive redistribution. Under conditions of heavy expenditure, 
        the bulk of taxes must be collected among the largest income brackets, 
        and that happens to be workers and middle-level white collar employees.

Just as an example of quite how far down the long tail the UK Government has to go to get its money, someone working 29 hours a week on the minimum wage faces a marginal tax rate of 33% even while he would also be collecting various welfare benefits.

Dillow has also refined his argument a little here but the basic point shines through, to me at least. Those who are committed to these leftish values of both a statist economy and a redistributive tax system need to make a choice, which of those do you actually want? From my personal viewpoint I would put up with roughly the current level of taxation on the rich, while lowering taxation for the poor and middle classes, if that meant getting government out of many of the areas where it currently intrudes so ineffectively. Your mileage may differ on this of course, but look at the figures above again. If we can shrink the state back to controlling only 12.2% of GDP (down from the current UK figure of 39% or so) then we can pay for it all from taxing the incomes of only those on more than twice median income, the poor and middle income groups living entirely tax free.

The increase in equality, in what is currently referred to as social justice, well, it isn't a priority aim of mine but I'll gladly welcome it if it means we achieve that as a side effect of shrinking the Government by 70% or so.

The author is a frequent TCS contributor. More of his writing can be found at http://www.timworstall.com


 

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