You don’t have to be rich | Julian Le Grand
Rather than relying on billionaires why not yoke philanthropy to tax, and nudge us all into giving?
Sir Francis Bacon once said that money is like muck: no use unless it is spread. This is a view presumably taken by the American billionaires who recently proposed giving away half of their fortunes to charity. But these in some ways rather admirable proposals have nonetheless been attacked.
Some have argued that the very rich should pay their taxes instead (or as well) – through not engaging in tax avoidance schemes. It has also been pointed out that even if they were to give away all their money, there are too few of the very rich to make a significant dent in the public sector deficit, or to affect the massive cuts with which we are threatened.
But perhaps the biggest problem with the idea of leaving philanthropy to the billionaires is that it lets the rest of us off the hook. In fact people in Britain are not notably charitable. Overall we give a far lower proportion of income to charity than do people in the US, for instance, although the American figures are inflated by large donations going to well-off churches and universities. This is perhaps because we prefer to redistribute money through the tax system.
But that turns out also to be an unreliable instrument for reducing inequality. Taken together, taxes are broadly proportional to income, with most of the redistributive work of the public finances being done by social security benefits. In fact many of the middle classes say they would pay more in tax – if the system allowed them to do so, if they knew where the money was going to, and if they knew others were doing it too.
So here is one idea that combines these concerns with the recently fashionable “nudge” agenda (after the book Nudge, by Richard Thaler and Cass Sunstein – where the aim is to allow people the freedom to make choices but to change the context in which they make them so as to nudge them in a socially desirable direction).
Suppose in your tax return you were given the option of paying 1% extra income tax on condition that the extra revenue went into a poverty or inequality reduction fund. My personal favourite for this would be a restored child trust fund for low income groups, but others may have their own ideas. Further, this extra payment would happen automatically – unless you ticked a box in your tax return that said no.
This would permit those who say that they would willingly pay more tax than the system allows to do so. They would do so in the knowledge that the money would actually be used in ways that reduce poverty and inequality, and in the expectation that others were being “nudged”, or encouraged by example, to do the same.
The “nudge” would be more powerful if tax returns were publicly accessible, as they are in Sweden. The fact that the decision to tick the refusal box could be public knowledge, and that those who did so would be named and perhaps shamed, might persuade more to contribute. However, even in the absence of overt public pressure of this kind, many middle-class people would find it hard to tick that no box. For that would mean admitting to yourself – and to the taxman – that one’s professed concern for redistribution had an element of hypocrisy in it: a cognitive dissonance that would not be easy to accept.
The “nudge” agenda was originally called libertarian paternalism, a phrase many described as an oxymoron. And the idea of a voluntary tax such as this could also be viewed as oxymoronic (or, by the uncharitable, as plain moronic).
But this yoking together of philanthropy and tax could be fruitful, especially in a time of fiscal austerity. Its introduction would signal a shift in cultural attitudes towards taxation and inequality. And it could actually lead to the ultimate aim that many would happily endorse: a reduction in inequality itself.
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