Dealing with the deficit, broadening the mind

In 1927 the American Jurist Oliver Wendell Holmes stated that “Taxes are what we pay for civilized society”. That is sometimes rendered slightly more catchily as “Taxes are the price we pay for civilization”.

This observation seems entirely apposite in the context of current debates over how to deal with the UK’s structural deficit. The coalition is clear that the only plausible means of dealing with the deficit is to place the emphasis upon cutting spending rather than raising taxes.

Yet, the parameters of the current tax regime are hardly set in stone. A key contributor to the country’s current structural deficit is reductions in the tax burden made during the 2000s. And the UK is not a country of especially high taxation by international standards. Nonetheless,we all know that tax changes are asymmetrical: cuts are easy and popular with the public, increases difficult and electorally challenging. The political classes and the mainstream media have managed to construct the issue in a way that means any suggestion that taxation – particularly direct income tax – should be increased is heralded as a direct route to the end of civilization as we know it. And that is treated by many people largely as common sense. In that respect the coalition may be right. Given this broader socio-cultural context, spending reductions may well be the most politically feasible way forward.

Yet, seeking to deal with the deficit primarily through spending cuts is likely to lead to a degradation of the public realm, the further impoverishment of the already poor, and a rolling back of a range of public services that we had come to think of as indicative of social progress. And that is to say nothing of the economic argument that the approach will be self-defeating because it will suck demand out of the economy, resulting in a downward multiplier on economic activity and, as a consequence, employment.

Unless the socio-cultural context is challenged and changes, this de-civilization process may gather pace. We need to rediscover a sense of social solidarity – that we genuinely are “all in this together” – in order to shift the mindset. Insights such as those offered by Wilkinson and Pickett in The Spirit Level may be valuable in changing thinking: greater inequality is bad for everyone, including the relatively rich. It is in everyone’s interests to build a more equal society. There is more than one way to do so, but more progressive taxation can make a contribution.

Perhaps the debate might be loosen up by broadening our horizons. We need greater recognition of quite where the UK sits in relation to the range of approaches to balancing spending and taxation that are in use outside our borders. It might open up some of the narrower thinking to a wider range of possibilities and workable alternatives. Contrary to coalition wisdom, there is an alternative. In fact, though countries across the globe are currently infected with the virus of fiscal consolidation, there are still many ways to approach it. And some of them represent more civilised routes forward in dealing with the problems we face. At a time of pressing political need, I can’t think of a clearer argument for the importance of studying comparative social policy.

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