{"id":13939,"date":"2019-10-03T15:02:39","date_gmt":"2019-10-03T14:02:39","guid":{"rendered":"https:\/\/ounews.co\/?p=13939"},"modified":"2019-10-03T15:02:39","modified_gmt":"2019-10-03T14:02:39","slug":"if-politicians-are-serious-about-tackling-inequality-they-need-to-properly-overhaul-the-tax-system-heres-how","status":"publish","type":"post","link":"https:\/\/www.open.ac.uk\/blogs\/news\/arts-social-sciences\/society-politics\/if-politicians-are-serious-about-tackling-inequality-they-need-to-properly-overhaul-the-tax-system-heres-how\/","title":{"rendered":"If politicians are serious about tackling inequality they need to properly overhaul the tax system \u2013 here\u2019s how"},"content":{"rendered":"

Dr Hanna Szymborska<\/a>, Lecturer in Economics at The Open University writes for The Conversation<\/a> about inequality in the UK’s tax system.\u00a0<\/span><\/p>\n

Inequality has shot to the top of the agenda\u00a0across the political spectrum<\/a>. Politicians, activists, and even\u00a0billionaires<\/a>\u00a0increasingly call for more radical measures to tackle the problem.<\/p>\n

Britain\u2019s Conservative government proclaimed the end to austerity in\u00a0its September spending review<\/a>. Its party conference also discussed\u00a0providing more equal access<\/a>\u00a0to education and social services, along with plans to increase the minimum wage.<\/p>\n

Meanwhile, the\u00a0Labour party<\/a>\u00a0vouched to raise taxes on corporate profits, incomes of the richest earners, and\u00a0transactions in the financial sector<\/a>. At its recent party conference, it announced\u00a0an expansive programme of free public services<\/a>.<\/p>\n

Until recently, the opposite kind of measures\u00a0were a priority<\/a>. Lowering taxes for both business and the wealthy, and\u00a0rolling back public spending<\/a>\u00a0in favour of free market competition were seen as a lasting legacy of Ronald Reagan and Margaret Thatcher.<\/p>\n

Some argue<\/a>\u00a0that inequality is necessary to give people incentives to compete and innovate, ultimately making the economic pie bigger for everyone. Thatcher halved\u00a0the tax rate on highest incomes in the UK<\/a>\u00a0from 80% to 40%, where it has hovered since. And\u00a0public spending as a proportion of UK GDP fell<\/a>\u00a0from nearly 50% in the mid-1970s to less than 40% in the early 2000s.<\/p>\n

But at the same time inequality levels have become untenable. In the UK,\u00a0the richest 1% owned<\/a>\u00a020% of all personal wealth in 2012 and earned nearly 12% of pre-tax national income in 2016. The numbers are even higher\u00a0in the US<\/a>, and are also increasing globally, including in\u00a0India<\/a>\u00a0and\u00a0China<\/a>.<\/p>\n

Average economic growth may be ticking upwards but there are too many visible disparities in societies where\u00a0record levels of homelessness<\/a>\u00a0co-exist with a high and rising number of empty homes.<\/p>\n

Addressing the problem<\/h2>\n

More information on the scale of inequality \u2013 and its\u00a0consequences<\/a>\u00a0\u2013 has put pressure on politicians to address the problem. In fact, elements of both the Labour and Conservative parties\u2019 proposals are needed. Complementing tax increases with higher public spending has more potential to successfully reduce inequality in the long-run than either of these policies alone.<\/p>\n

Advocates of higher taxes<\/a>\u00a0note that resources accumulated by the rich are largely saved and invested in personal assets such as luxury houses or yachts rather than reinvested in innovation and jobs. Similarly, an increasing portion of corporate profits is not spent on production:\u00a0productive investment has withered<\/a>\u00a0despite corporations building up\u00a0record cash reserves<\/a>.<\/p>\n

The poorest earners\u00a0bear a greater tax burden<\/a>\u00a0than the rich. So there is merit \u2013 and\u00a0scope<\/a>\u00a0\u2013 to increase rates on the highest earners to redistribute economic resources more fairly.<\/p>\n

Taxing wealth not income<\/h2>\n

But this is only part of the solution. Many economists, inspired by Thomas Piketty\u2019s\u00a0seminal work Capital<\/a>, argue for explicit taxes on wealth.\u00a0As the billionaire Bill Gates has pointed out<\/a>, most resources of the rich are contained in their assets rather than in their income streams, and so taxing wealth directly would be more effective in curbing inequality.<\/p>\n

It is also vital to tighten the screws on the way transfers of wealth are taxed. For instance, inheritance taxes are in desperate need of reform, as they currently raise\u00a0notoriously low amounts of revenue<\/a>.<\/p>\n

Another proposal for taxing wealth transfers targets the financial sector. Short-term speculative trading between financial institutions\u00a0was responsible for triggering the 2007-08 financial crisis<\/a>. Taxing financial transactions could reduce the instability that results from risky financial activity by\u00a0increasing the costs of speculation<\/a>. This kind of tax could also lower inequality by making risky financial instruments less desirable and decreasing the potential gains available to financial elites.<\/p>\n

Preventing inequality from the get-go<\/h2>\n

Tax reform is much needed. But even with strong political will,\u00a0taxes tend to be avoided and evaded<\/a>\u00a0through legal and illegal means respectively. A more comprehensive strategy is required, focused on \u201cpredistribution\u201d \u2013 this means preventing inequalities from developing in the first place.<\/p>\n

Current proposals<\/a>\u00a0for predistribution policies rightly target housing \u2013 one of the biggest financial concerns for people. Home ownership gives a boost to household wealth, but it may also make it more unstable if backed by large mortgage debt.<\/p>\n

The 2007-08 crisis showed the pitfalls of relying on private markets to supply housing, with many families experiencing big losses as\u00a0house prices plummeted<\/a>. Even programmes such as Help to Buy \u2013 which makes it cheaper for first-time buyers to put down a deposit on a home \u2013 relies on private developers to supply housing and has been widely\u00a0criticised for fuelling inequality<\/a>.<\/p>\n

In a recent paper<\/a>, I found that people do not benefit equally from holding assets such as housing supplied by private providers. Women, people of colour, millennials and low-income families experience lower improvements in their financial well-being from holding wealth compared to others. This is because they are more financially vulnerable and their access to wealth, as well as the way that the value of this wealth changes over time, is not just down to individual decisions but is largely influenced by economic policy and the way in which financial markets operate. So a careful strategy of public provision of key assets is needed to support more vulnerable people and reduce inequality.<\/p>\n

Politicians have started to notice the importance of these types of policies. The Labour party has committed to\u00a0build a million new homes<\/a>\u00a0and\u00a0regulate the private rental market<\/a>\u00a0if elected. In the US, Bernie Sanders, a 2020 US presidential election hopeful, is promising \u201chousing for all\u201d, and similar initiatives\u00a0have been mentioned by other candidates<\/a>.<\/p>\n

One initiative alone won\u2019t fix inequality \u2013 a large overhaul is needed. A successful strategy should be comprehensive, complementing tax reform with predistribution policies. There are many potential difficulties to consider, but with political will in place, the time is ripe for systemic change.<\/p>\n

This article is republished from\u00a0The Conversation<\/a>\u00a0under a Creative Commons license. Read the\u00a0original article<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Dr Hanna Szymborska, Lecturer in Economics at The Open University writes for The Conversation about inequality in the UK’s tax system.\u00a0 Inequality has shot to the top of the agenda\u00a0across the political spectrum. Politicians, activists, and even\u00a0billionaires\u00a0increasingly call for more radical measures to tackle the problem. Britain\u2019s Conservative government proclaimed the end to austerity in\u00a0its […]<\/p>\n","protected":false},"author":19,"featured_media":13941,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15],"tags":[869,1138,1525,1747,2065,2171],"class_list":["post-13939","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-society-politics","tag-fass","tag-inequality","tag-news-home","tag-politics","tag-society","tag-tax"],"_links":{"self":[{"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/posts\/13939","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/users\/19"}],"replies":[{"embeddable":true,"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/comments?post=13939"}],"version-history":[{"count":0,"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/posts\/13939\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/media\/13941"}],"wp:attachment":[{"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/media?parent=13939"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/categories?post=13939"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/tags?post=13939"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}