Equality may lie in higher tax for top earners

The last few weeks we have seen yet more charitable and voluntary bodies being raked over the media-stoked political charcoal regarding their salaries and payments.

A new line seems to be emerging in Government; that those who are in receipt of public funds should have their salary details made public. That makes eminent sense.

Of course, it would be much more credible were it to be actually done. Eamon Gilmore is not powerless in this regard. He is the leader of a minority party without whose support there is no government.

We have seen minister after minister come out and leap on the bandwagon of public concern around salaries. After a few trots round the track, they quietly slip off and hop back into the merc for a bit to recuperate.

It’s also notable that while they have stood back and held the coats while the charity sector gets a licking, they seem to be joyfully powerless to compel details of, say, Nama or NTMA staff, or the staff of bailed-out banks.

Transparency is in general a good thing. If the ministers truly wished to have transparency across the salary pitch they would adopt the Nordic model and make tax returns public.

While that would satisfy the prurient itch in all of us as to what our fellow workers and neighbours earn, it would also act as a powerful signal. That signal would not however be one that any Irish government would wish to send, as it would be a signal of the true state of inequality in Ireland.

The reality is that we are seeing in the world the rise and rise of a plutocracy that would put Marcus Crassus to shame.

At one level this is the reward for disruptive talent. Some inequality is good as it acts as a spur. If people see that talent is rewarded, that hard work pays off and that risk is rewarded, than they will act accordingly.

But the evidence of economics and the feeling of many is that this is very nonlinear.

At higher levels of inequality the situation flips — why work hard, why invest, when the hyper- wealthy have all the power? The oldest golden rule is that he who has the gold, rules. The wonderful book The Spirit Level makes a strong case that it is income inequality within countries (as well as between them but more strongly within) that matters for social outcomes.

Child welfare, crime, social deprivation, social inclusion, interpersonal trust and social mobility, all these are strongly associated with inequality. More inequality is associated with poorer outcomes in these metrics.

In the domestic context, a recent finding suggests strongly that innovation and income inequality are related, strongly and negatively. The less unequal societies are the more innovative it seems they also are.

And innovation, we are told, is a good thing. A practical and chilling example of how the rich will eventually choke on their own money was shown recently. Research indicates that 90% of the growth in consumption in the USA over recent decades came from the top 20% of income earners.

In the end, if there is no mass market for products, then companies will cease innovating.

We will see stagnation in product innovation and in the end in the very engines of growth that have propelled the 1% to power.

Ireland is not an especially unequal society. Inequality in Ireland tends to be a feature of the bottom not the top — we have quite a gap between the lower earners and the average earners, but not as much between the average and the higher earners. Nonetheless, we are by no means an equal society.

Greater equality can arise only by redistribution of wealth. Power and money beget power and money and thus relying blindly on economic growth will not and has not resulted in less inequality. Redistribution implies tax. Nobody likes tax increases, but a higher rate of tax on higher earners would result in, at least in principle, an ability to reduce inequality. The difficulty for politicians is that they cannot persuade people of the need for same and will not.

The issue is also rooted in behavioural economics. Those who do not have sufficient income to be liable for any increased income taxes are unlikely to vote for them in any case.

People like lottery-type payoffs with positive skewness — in other words, they like the chance that they may make it big.

And if they were to make it big, to become the high earner, they would not wish to pay the higher tax.

The difficulty is that the preconditions to achieve high payoffs may require higher taxes to engender them.


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