In Defence of Liberty

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The Taxes of Fools

The British government has proposed that housing benefit should be reformed, reducing the payment made to tenants living in council housing and accommodation provided by housing associations. From April 2013, families in receipt of housing benefit will be assessed on ‘size criteria’, which will determine how many rooms a family ‘needs’; housing benefit will be cut to those families deemed to be under-occupying their homes. Put aside whether this policy would be a positive change, and consider the language being employed to debate this policy.

Bedroom and Mummy Taxes

Labour has dubbed this reform the ‘bedroom tax’, and according to the BBC, this name has “stuck”. However, the ‘bedroom tax’ is nothing of the sort: it’s a reduction in a transfer if a benefit-receiving renter has a spare bedroom. You may think that it is a good idea, or a terrible idea, but one thing that this reform is not a tax. A tax is defined as a:

Compulsory financial contribution imposed by a government to raise revenue, levied on the income or property of persons or organizations, on the production costs or sales prices of goods and services, etc.

Precisely, a tax is the coerced acquisition of financial property from an individual or group to the state.

Taxes are regularly on top of the political agenda, thanks to the Robin Hood Tax campaign and organisations such as UK Uncut. (Photo thanks to Robin Hood Tax, found here: http://www.flickr.com/photos/robinhoodtax/6856825242/sizes/l/in/photostream/)

Taxes are regularly on top of the political agenda, thanks to the Robin Hood Tax campaign and organisations such as UK Uncut. (Photo thanks to Robin Hood Tax, found here: http://www.flickr.com/photos/robinhoodtax/6856825242/sizes/l/in/photostream/)

Housing benefit is a transfer from the state, funded by taxation, to an individual or family to assist in the payment of rents. Describing the reform as a ‘bedroom tax’ implicitly means that the speaker believes that a person has an inalienable right to a transfer, that the transfer is their property before it is even made, and so any attempt to cut it below this ‘natural’ rate is a ‘tax’. During their time in opposition, changes to benefits are persistently being described as ‘taxes’ by the Labour Party, including the ‘mummy tax’ and the ‘strivers’ tax’.

A Cheque for Millionaires

Tax cuts have been characterised by Labour leader Ed Miliband as giving a “cheque” to people. Again, this terminology assumes that there is a ‘natural’ rate of tax, the rate before the adjustment, and so the government must be “writing a cheque” when they reduce tax rates. Prime Minister David Cameron attacked this characterisation during his 2012 Conservative Conference speech:

Did you hear what Ed Miliband said last week about taxes? He described a tax cut as the government writing people a cheque.

Ed… Let me explain to you how it works. When people earn money, it’s their money. Not the government’s money: their money.

Then, the government takes some of it away in tax. So, if we cut taxes, we’re not giving them money – we’re taking less of it away. OK?

This casuistry over taxation and benefits is not limited to the Labour Party. It is a feature of the modern welfare state that when a person’s income rises over a certain amount, benefits and state subventions are withdrawn. The effect is that when a person’s employment income increases, the removal of benefits means that they have less money in their account than they otherwise would have. This process has been described as an effective marginal tax rate, when in reality; it is the coagulation between different benefits and taxable income. When the change to child benefit was proposed, the Institute for Fiscal Studies claimed that middle earners faced a 65% tax rate. The withdrawal of benefits at certain income levels presents a major problem, as people may not feel much better off working than they are on benefits, but this terminology does not enlighten the issue. However, it is heartening to know that there are some levels of taxation that can get people infuriated.

This sophistry from the Labour Party is thanks to a party that supports high taxes realising that new taxes, especially those seen as ‘unfair’, tend to be unpopular, so every reform to direct transfers is called a ‘tax’. It could be considered the cynical manipulation of language for political gain, or a demonstration of ignorance on the difference between taxes and benefits. In either case, the flagrant misuse of language obfuscates the debate, and fosters distrust of politicians amongst the public.

Thomas Hobbes, the 17th century English philosopher, once said:

Words are wise men’s counters, they do but reckon by them; but they are the money of fools.

With the debate over changes and reforms to the gargantuan Department for Work and Pensions budget becoming increasing fraught and heated, reforms will stop being the counters of politicians, but the taxes of fools.

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One comment on “The Taxes of Fools

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This entry was posted on February 7, 2013 by in Economics and tagged , , , , , , .
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