Unlike some laissez-faire capitalists, I do not oppose ‘progressive’ taxation just for the sake of it. Indeed, the fact that UKIP has switched from a flat-tax policy to a progressive one is not a reason for me to criticise him. A libertarian can, as it happens, advocate a set of progressive tax rates without contradicting himself.
Let’s consider the following situation. The Republic of Triangleland elects its first libertarian leader and his first job is to sort out the budget. The income tax system he inherited was one of a flat 75% rate on all people, with no personal allowance. The new leader sees this as profoundly un-libertarian and decides to change the rates to the following: 25, 35, 45, 55% on each new tax ‘bracket’. His deputy fundamentally disagrees and claims that this is more fascist than the previous situation as different laws are being applied to different human beings. If I was the hypothetical leader, I would have sacked that hypothetical deputy on the spot.
Clearly then, my attitude is that any system of taxation is preferable to one where the public, or at least the bulk of it, are paying more. Progressive taxation, then, is excusable if, and only if, overall taxation is – and hopefully tax revenues are – reduced. (My argument for cutting taxes is not that ‘tax revenues will increase’ - according to the Laffer curve. Milton Friedman was correct when he said that if you cut taxes and revenues increase, then you haven’t cut taxes.) Therefore, it does not follow that I would support changing a 20% flat tax rate to four rates of 18%, 22%, 24% and 26%. Even though the bottom rate is lower, all other rates are higher. Not only this, but such a change seems like it would be enacted in order to boost revenues.
UKIP had previously advocated a 31% flat tax rate. This would have meant that all rates, except the bottom one, would have been reduced – as this would have included national insurance. Yet, on Question Time, Mr Farage instead said that ‘people in the audience’ would end up paying, under UKIP, about 25-30% and that the rich would pay about 40%, ‘or something like that’. His ambiguity and inconsistency aside, this change is not satisfactory for me as a libertarian.
First of all, ’25-30%’ includes 25, 26, 27, 28, 29 and 30% and so there is a chance that he only intends to have a rate that is 1% lower for the poor than his planned flat rate. If this is the case, which it probably is, then he wants to increase his planned rate on higher earners by 9% in order to cut it by just 1% for a lower bracket. Is this a libertarian move compared to his original plan? Mr Farage could make up for this with a large personal allowance increase, so there is still a chance for him to redeem himself. But, as it stands, he is not only inconsistent and vague but he is suggesting that he thinks that in order to cut taxes by 1% for the poor, one must balance it out with a 9% increase for the rich.