Thoughts on the unpopularity of different approaches to tax rises

 

Rachel Reeves will almost certainly have to raise taxes in the next budget. That budget is too far away to get into specific tax proposals, but there has already been discussion about how these tax increases should be approached. There seem to be three main options:

1. Raise various specific taxes that it can be argued do not contradict Labour’s pledge not to raise taxes on working people. This was the approach the Chancellor took in the last budget.

2. Break that pledge, and raise one of the main taxes Labour pledged not to increase

3. Embark on a process of general tax reform, modernising and simplifying the tax system and raising overall taxes at the same time. This reform could be designed to appear not to break the pledge.
   
   

Economists have long argued that (3) is overdue. Having a series of Chancellors from Osborne onwards who are more interested in politics than having an efficient tax system has ensured that the UK tax regime is in a bit of a mess, and inefficiency can be an important negative for output and growth. Two recent advocates of (3) are Will Dunn and Martin Sandbu, but the IFS among other experts has consistently argued for changes that move towards (3).

Two aspects of the UK tax system stand out as being in drastic need of reform. The first is council taxes. Council taxes are based on valuations made in 1991, when houses in the North and Midlands were relatively more valuable compared to London and the South than they are today. With revaluation, those tax payers in the North and Midlands would gain, while those in London, the South East and a few areas in the South and East Anglia would lose out.

In addition, council tax is regressive in the sense that it is a much higher percentage of a property's value for low value houses than higher value houses. Making council tax proportionate to the value of a house while keeping revenue unchanged would help low to middle income earners while those at the top of the income distribution would lose out.

The second major anachronism of the UK’s tax system is that we have two forms of income tax: what is called income tax, which is paid by anyone with an income, and personal national insurance contributions (NICs), which are paid by those in work but not by pensioners or landlords, for example. The reason we have the two systems is because of the idea that workers contribute to their pensions. But this is a fiction. Today’s pensions are paid for by today’s taxpayers, not by pensioners when they were working. Our state pension is an unfunded scheme, meaning there is no pension pot which those paying NICs contribute to, and which then pays out as their state pension.

We can see this is a fiction because there is no linkage between what pensioners receive and what employees pay in NICs. The last government cut NICs, but they didn’t cut current or future pensions. Under the last Labour and Conservative governments NICs were raised to pay for more funding for the NHS, not higher pensions

The obvious reform is therefore to abolish personal NICs and raise income tax. However the political reason why this hasn’t happened yet is obvious: a revenue neutral reform would mean those working would generally pay less, but pensioners would pay significantly more than they are currently. Problems like this generate a kind of received wisdom regarding major tax reforms, which is that they are only possible to do when the government has ‘money to give away’ which it can use to compensate losers. According to this received wisdom it is not something you do when the government needs to raise money (or, for MMTers, when the government doesn't want to encourage the Bank of England to keep rates higher).

However Martin Sandbu argues the opposite. He writes

“Every tax tweak produces winners and losers. With the incremental changes pursued by Labour so far, the losers (comfortable pensioners, rich farmland owners, and the disabled poor) have been loud and identifiable interest groups, while the winners (taxpayers and the economy at large) were neither. So the squeaky wheel gets the political grease.

In a comprehensive overhaul, in contrast, most people would gain from some changes and lose from others. If well designed, the gains should be larger than the losses. That would make it much harder to mount targeted, single-issue political resistance of the kind that has made the government back down before.”

In other words, (3) is easier to get away with than (1). I read this as a version of the ‘common pool’ problem. When a farmer loses their tax break on inheritance tax, for example, this matters a great deal to them, but the benefits to every other tax payer is so small and so widely spread they are hardly noticed. I’ve argued a similar problem exists with high pay. With wholesale tax reform there are clear winners and losers, and so the tax change has a clear group of people fighting for it as well as a clear group of people fighting against it.

These two examples of tax reform discussed above illustrate the merits or otherwise of Sandbu’s argument quite well. A Labour government might be prepared to see a redistribution of council tax that favoured the North relative to the South, and the poor relative to the rich. However no government would be happy landing pensioners with higher income tax, by an amount that would in financial terms make the winter fuel payment look like peanuts. The two obvious reasons are that pensioners are more likely to vote than other age groups, and pensioners predominantly read newspapers that produce anti-Labour pro-populist propaganda.

There is a common problem with both approaches (1) and (3). They make any public debate about fairness. With (1) it is why should this particular and generally small group get hit, with as I noted here the focus in the media on the most sympathetic hardship cases. Sandbu is right to point out that the question ‘who should pay higher taxes instead’ is rarely raised. With (3) and in the absence of expensive compensation large groups of people will be worse off, and almost everyone in those groups will think that is unfair and will think any beneficiaries of the reform don’t deserve to be better off.

The big advantage of (2) is that pain is more evenly spread, so the focus of the discussion moves from fairness to become a question of do we want to pay for better public services. I’ve argued before, following the experience of Brown’s NIC increase under the last Labour government, that this is a debate Labour can win. But the case has to be made, otherwise the media will just talk about higher taxes required to fill black holes which pleases no one.

While reforming council tax would be both economically desirable and politically possible, I suspect Labour will avoid any major tax reform. This Prime Minister and Chancellor just don’t seem like the kind of politicians who would undertake politically risky major changes of this kind. They have also missed two good opportunities to break their pre-election tax pledges, so it seems unlikely they will do so now unless they run out of other options. So I suspect we will see a repeat of last year’s budget (1 above), with specific taxes raised on ‘non-working people’. That makes it all the more likely that the budget will be seen as more fiscal firefighting to fill black holes rather than a budget about expanding public services, and so is unlikely to be any more successful politically than what has gone before.

Ancestry and Immigration in the US and UK

 

The United States is now being run as a dictatorship. That this would happen was pretty clear the moment Trump won his second term, and the Republicans won majorities in both the Senate and House. There are essentially three reasons for this. First, Trump and the Republicans have taken control of the Supreme Court, and that Court is in the process of neutering attempts by lower courts to stop Trump exceeding his authority as President. To do this they are making some very strange legal judgments: essentially the law is being rewritten to legalise a dictatorship. Second, Congress and particularly the House under the Republicans have made no attempt to oppose Trump, even when that involved Trump taking powers away from Congress. Third, Trump is much better organised than he was during his first term, both in terms of being able to place yes men or women in key positions, and also because he now has an organised movement, MAGA, behind him.

The US now has many of the ingredients of a fascist state. Large sections of the population are at risk of being kidnapped by the state, imprisoned and deported to a random country (sometimes to another prison) without due process. Tourists risk being detained for long periods. The Immigration and Customs Enforcement agency is set to become the highest-funded law enforcement agency in the federal government. The Trump administration is seeking ideological control of US universities, and has already largely tamed what was once called the independent media. Opposition politicians are assassinated and Republican politicians use the occasion to score political points. The government supplies Israel with the weapons and almost complete political backing to what more and more people are describing as a genocide against the Palestinian people, and sanctions international judges and agencies that call this out.

An earlier version of this post was entitled ‘US democracy is now in Trump’s hands’. It was intended to convey not only the extent of Trump’s ability to end US democracy, but also that democracy could still survive because of his obvious incompetence. I now think that is a little too pessimistic. If the Democrats can win back the House in 2026 (winning back the Senate is much less likely) by a sufficient majority, then it could become the centre of an effective resistance to Trump. For that reason, as those elections approach we will see more attempts by Republicans to ensure that they are not fair. These attempts have already begun, and merely represent a scaling up of long standing Republican gerrymandering.

What I wanted to do in this post was highlight one particular current on the US far right (i.e. the Republican party), and link it with developments on the far right in the UK (i.e. Reform and the Conservatives). Part of MAGA thinking is straight political and economic nationalism: a wish to enhance America’s military and economic power. The latter has a strong nostalgic element to it: a fondness for manufacturing jobs, and when there was more economic self-sufficiency and less globalisation. Another key element in MAGA is what some call a return to ‘traditional values’ and which I will call social conservatism.

Part of this can be simple racism, but it is more general than that. It involves antagonism to minorities based on sexual orientation as well as race, nationality or religion, and returning to more traditional gender roles, for example. It involves returning to the social values of the past, sometimes quite distant past. However social conservatism has psychological foundations that go beyond nostalgia for past social values, and are related to wanting conformity (disliking ambiguity) and having a closed rather than open outlook.

This tends to make social conservatives identify with a particular group within society, and feel threatened or uncomfortable with those outside that group. That makes them not just nationalistic, but also antagonistic to nationals who are not like them. They are attracted to right wing populists not just because they like authoritarian figures, but also because those figures talk about, for example, ‘real Americans’ rather than ‘all Americans’. The more far right politicians can focus public discourse on these minorities as outsiders, and portaying them as a threat (calling them criminals etc) the more successful they will become at attracting the votes of social conservatives.

As John Ganz points out, this viewpoint is very different from words set out in the preamble to the US Declaration of Independence, whatever meaning they might have had at the time they were written.

“We hold these truths to be self-evident, that all men are created equal”

To be very simplistic, I suspect most social liberals believe in that statement even though they don’t always act as if they do, while many social conservatives do not believe in it at all.

But how to define ‘real Americans’. Race is an obvious way, religion may be another, particularly for evangelicals. Geography may be another, with small town agricultural America eulogized and large cities feared. What I find interesting about some in the US government and MAGA leadership is that they are promoting ancestry as the key to defining who ‘real Americans’ are, and crucially who are not real Americans.

Vice President J.D.Vance has for some time pushed the view that it is ancestry that defines true Americans. He talks of past generations being buried in US soil, and of a feeling of homeland felt ‘in their bones’. This sounds very similar to Matt Goodwin in the UK, who sees being English as about being able to trace your roots back generations to people who lived here. For both, a piece of paper giving citizenship is not going to suffice in defining nationality. For other right wing politicians expressing similar sentiments, see Ben Ansell here, or Sam Freedman here

Is this just code for skin colour? I’m not sure it is. After all, Goodwin himself and the far right press in the UK seem happy to talk about the dangers of white people becoming a minority in the UK at some date in the future. The days when racist sentiments like this could not be expressed openly have long gone. Instead the focus on ancestry can be seen as representing a ‘blood and soil’ type of nationalism that has a long and often terrible history. It fits with seeing the rural as representing the nation and cities as more alien. Crucially, it is exactly the kind of thinking that fits with an obsession with immigration.

If nationality is all about ancestry, then immigrants by definition can never become true nationals. They automatically become outsiders for those with socially conservative views. As immigration is increasingly viewed as inherently bad in so much public discourse in the broadcast media, this plays into the hands of those who would promote an ethnic type definition of nationality. This dehumanisation has already been achieved for asylum seekers, where the manufactured term ‘illegal’ has provided an additional way of ostracising them, and where the broadcast media showed little inclination to resist using that term.

Is Goodwin and Jenrick’s focus on ancestry just another example of the UK far right copying their US counterparts? Maybe, but it certainly involves a focus on ethnicity that only a few years ago would have been considered beyond the pale to a Conservative party led by Rishi Sunak. Moving the definition of outsiders away from just race or religion towards ancestry may have advantages for far right politicians, for two reasons. First, most people in the UK do not see race or religion alone as barriers to citizenship or being English. Second, a key part of Brexit was about excluding Europeans, who could be very white and Christian. [1]

Increasingly the Trump administration in the US is seen as a template by the two major far right parties in the UK, and much of the UK press. Newly elected Reform councillors attempt to end diversity roles even where none exist. Reform tries to mimic Musk’s DOGE. Both parties have become anti-science with their antagonism to achieving net zero. The Conservatives want to increase deportations.The converse of this, which no one should be shy of pointing out, is that this amounts to copying the policies of a fascist administration.

There is a good reason why Reform don’t like being called a far right party. It is the same reason that Trump denies he is a fascist. In both cases the labels convey much of what these politicians are really about, but which they would rather hide from public scrutiny. With their adoption of blood and soil descriptions of what it means to be English or American, we have one more parallel between them and past dictatorships that they really don’t like being compared to.

[1] In contrast, for a country like the UK, those from ex-colonies who can trace their ancestry back to the mother country can still be regarded as English or British.

Everyone knows Labour has made mistakes. What is more worrying is why those mistakes were made.

 

Every political journalist has been writing their one year assessment of the Labour government. The general view is that Labour is in crisis, “has started to unravel at a frightening pace”, and we should prepare for Farage as Prime Minister. It seems our over excited political commentariat has not yet adjusted to there not being a Conservative government where ministers and even Prime Ministers had a short shelf life, and politics resembled a Line of Duty script. The reality is that Labour will be in power for another four years, and Starmer will almost certainly be Prime Minister for another four years.

Which means this Labour government and its leadership have plenty of time to learn from their mistakes. But they can only learn if they understand not only what the key mistakes were but also why they were made. If you look at the reasons for those mistakes, then it is hard to be confident that they will be fixed.

The first major mistake, as no one who regularly reads what I write will be surprised to learn, is tax. More and more commentators have realised that the tax increases announced in the last budget, although large, were also inadequate. The most recent is Will Dunn in the New Statesman. For what it is worth, the scale of tax increases that were actually required in October were obvious to anyone who did the sums. While few among the political commentariat do sums, the Chancellor certainly should have done so.

The standard explanation for this failure is Labour’s determination to win the election, and avoid anything that could put that at risk. But if that was all there was to it, then once in power you would expect the Chancellor to grab any opportunity to row back on pre-election pledges. Those opportunities did arise, but they were not taken. It does look as if Labour believed that tax rises just to prevent the spending cuts pencilled in by Hunt was all they needed to do.

How is that possible, when crunching the numbers showed that this meant keeping levels of public service provision well below those achieved at the end of the last Labour government? One possible explanation is that Reeves wanted to copy the path trodden by that last Labour government, spending its first term demonstrating financial credibility, and only increasing spending after winning a second election. However that seems unlikely, if only because Labour wlll be under even more pressure to make pledges on tax at the next election. (I discussed here why repeating the path followed by the last Labour government will not work in electoral terms.)

A more plausible explanation is that Labour thought, and continues to think, that it can bring about sufficient improvements in public service provision by just not being a dysfunctional Conservative government. It is certainly true that the Conservative government that started in 2019 was unusually incompetent: predictably so as it was led by someone who should never have been allowed near No.10. But it was never realistic to think that better management could bring Western European levels of public service provision with substantially lower than Western European levels of tax.

A more likely explanation for why Labour didn’t think it had to raise taxes by much more than it did in October was that they accepted that George Osborne was correct: the size of the state under New Labour was too large, and he was essentially right to shrink it. This meant Labour in government would be a more competent version of a post-Osborne Conservative government. It would, for example, carry on not raising fuel duty just as every Conservative Chancellor since 2010 had done. If, partly as a result, events meant that fiscal rules might not hold, Labour would do what a Conservative government would do, and trim spending.

At which point many on the left will be saying I told you so. But this misunderstands everything I have written for well over a year, and also makes the same mistake that this government has made. The key point is not that this government holds an ideological view that the left (and even New Labour) disagrees with [1], but that it holds a view that is not sustainable in political terms. What we saw, thankfully, with the revolt over the disability cuts was precisely this. What we are seeing with Labour’s dreadful performance in the polls is precisely this. Osborne’s vision of a smaller state was never one that could be sustained politically, which is why he had to lie about cuts being all about reducing the budget deficit.

The second key mistake the government has made is to ape Reform on immigration. As with tax, this mistake is increasingly understood by more thoughtful political commentators. Just look at the result of Labour’s strategy to sound tough on immigration, which essentially just means sounding like Nigel Farage. It has meant that immigration is now viewed by voters as the most important issue facing the country. It has meant Farage leading the polls, and Labour’s already low poll share falling even further.

Starmer says he regrets one particular part of his recent speech on immigration. But the whole speech, presumably put together by his advisors in No.10, was terrible. It not only sounded like something Farage could give, it also included the straight lies that Farage typically makes. Voters will think that immigration is the most important issue if they believe that the poor levels of public service provision is due to high immigration, which is the lie Farage and the Conservatives tell. In that speech Labour repeated the same lie.

The speech did offer a glimmer of hope for a better policy. If Labour wants to accept that immigration has to be lower, it needs to pursue an intelligent approach to getting it lower, which is to focus on the causes of high immigration. The speech talked about UK firms preferring to hire overseas rather than offering training and apprenticeships. I have no idea if that is true, but if it is it represents the kind of approach to reducing immigration that might work without severely damaging sectors of the economy.

However if that glimmer of hope is to become a proper strategy, then those advising Starmer need to experience a sea-change in their approach, or go. I’m not a political journalist, so I only know what I read from those who are. The supposed success that McSweeney has had in the past fighting right wing populists seems to be typical mythmaking by political journalists happy to flatter egos for access. In my view Labour did need to largely follow the socially conservative playbook in opposition, but it was hardly rocket science to understand that, which is why I said so back in 2021. More generally, playing safe by triangulating as far as you can towards a very unpopular government is hardly a new strategy.

But it is equally obvious to anyone who thinks about it for a second that strategies that work for oppositions often don’t work for governments, because voters understandably judge governments on their record. Again ‘I told you so’s from the left about the inability of Labour in government to adopt a distinct strategy from Labour in opposition miss the point. The point is that strategies in the two situations can be different, and in my view have to be different if Labour is to survive against the right wing populist threat.

What that strategy needs to be on immigration requires a separate post, but what it has to do is easier to set out. It cannot be Farage lite or like, because Labour’s record in office on immigration or asylum will never satisfy the media, and so socially conservative voters will choose Farage if everyone’s rhetoric is the same. Labour’s only hope is to convince voters that on immigration, like Brexit or fiscal policy, what right wing populists offer is fool’s gold. This should be possible, because it happens to be true. Labour can quite plausibly argue that while everyone is promising lower immigration, only they are doing so in a way that doesn’t damage the economy. But at the moment neither their policies or rhetoric do that.

The final big mistake Labour are making is not being honest about Brexit. There is a legitimate argument to be had about how fast the UK should try to harmonise with the EU to boost trade, and in particular whether and when to rejoin the EU’s customs union and single market. Maybe Labour’s current red lines on these two make political sense (or maybe not), even though they represent a self-imposed, politically harmful brake on growth and living standards. But Labour should not as a result of these red lines avoid being truthful about the economic costs of Brexit, for two obvious reasons.

The first is that Brexit is going to get more and more unpopular over time, and so if Labour is to get a second term continuing with its red lines it will become harder for voters to understand why. The second is that Brexit is Labour’s most effective weapon against Farage [2], because even many of those who support Brexit recognise that the Leave side promised a rosy future that hasn’t materialised. In political terms Farage is Brexit, and the failure of Brexit should sink Farage, but only if government politicians are prepared to label Brexit a failure.

Calling Brexit a failure does not require that we immediately rejoin the EU. There is a perfectly respectable political argument that small steps are best. But the reason why Labour are not being honest about the costs of Brexit is the same reason they are not being honest on immigration, and that is a naive political strategy that doesn’t recognise the difference between being in opposition and government.

There is little sign that the government understands this, so there is also little hope that it will change anytime soon. It will raise taxes, but probably by only enough to put out the current fires, leaving it vulnerable to all the new fires that will emerge over the next few years. Unless it is lucky, Labour’s fiscal policy will continue to dance on a razor’s edge. On immigration it will continue to ape Farage, and that strategy will be as successful as it has been so far. By not being honest about Brexit, Labour will be forsaking its strongest weapon against the populists.

[1] To be clear, this is a view about the size of the state. Arguably this government is more left wing than New Labour in some other areas.

[2] Another great weapon against Farage is Trump, and the consequences for his actions on the US and global economy. While the attraction of UK ministers flattering Trump is obvious, that should not hold Labour back from pointing out the chaos of his rule, and the similarities in policy between Reform and Trump. A third weapon is action to reduce climate change, where the populist right have - like Trump - become not only climate change deniers but also prefer what is now more expensive energy. This is one area where the Labour government has something to cheer about, and it says a lot about the operation inside No. 10 that Ed Miliband is constantly receiving negative briefing.

Other countries' wars and the media

 

According to this article in the New York Times, Trump’s decision to bomb Iran was taken in part because Israel’s attacks were playing so well on Fox News.

“The president was closely monitoring Fox News, which was airing wall-to-wall praise of Israel’s military operation and featuring guests urging Mr. Trump to get more involved. Several Trump advisers lamented the fact that Mr. Carlson was no longer on Fox, which meant that Mr. Trump was not hearing much of the other side of the debate.”

It should not be surprising that populist figures like Trump, and earlier Johnson in the UK, should pay a great deal of attention to coverage by their favoured media organisations. They are both creatures of the media: Johnson as a journalist, Trump as a TV celebrity. As a result it is perfectly plausible that a war pursued by an ally playing well in the media should make someone like Trump want to join in on their side.

Many associate the word ‘propaganda’ with state control of the media, but there is no reason beyond ideology why its use should be limited in this way. A standard definition of propaganda is selective or biased information that is spread in order to influence people’s opinions in a particular way. It is clear that any media organisation can produce propaganda. That propaganda can be aimed at a general audience, or it could potentially be aimed at just an elected elite or indeed just one particular leader.

The ideal most media organisations say they try to live up to is to present all the relevant facts to their audience so that the audience can make up their own minds. Of course no media organisation can ever present all the potentially relevant facts and arguments, so selection is always required. The key distinction is whether selection takes place according to criteria like importance or relevance, or whether selection is based on the impression that this will leave with the audience. I can imagine how Israel’s strikes on Iran were portrayed on Fox News: plenty of favourable adjectives (‘successful’, ‘daring’), exaggeration of the threat ‘eliminated’, ignoring civilian casualties and so on. Here is a more detailed account.

In a post written during the Covid pandemic I labelled media like Fox News, or most of the right wing press in the UK, the ‘direct propaganda media (DP media)’. My reason for doing so was because so much of the media class prefers to pretend that these organisations are just like the rest of the news media except they have a more pronounced political stance. They are not. [1] The DP-media don’t produce news in the same way as the rest of the media do most of the time, but instead they produce propaganda. They select what information they provide in order to influence or flatter the opinion of their audience. Whether they do this because that is what their audience wants or because they want to alter what their audience thinks is another matter (I’m sure both are involved), but for whatever reason they try to avoid providing information that might challenge the views of their audience or the media’s owners.

Fox News knows how much Trump watches them, and that they therefore have considerable influence on him. Whether they slanted their coverage of Israel’s attacks on Iran with this in mind I have no idea, but the possibility shows why confining propaganda to something the state does is so misleading. In many of the advanced economies currently run by or containing right wing populists, the media that supports those leaders are run by independent agents (they are part of the dominant plutocracy), and they will attempt to influence the leader’s decisions just as the leader’s advisors or donors do.

Populist leaders are well aware of the power the media has to influence public opinion. That influence is often publicly downplayed or denied by those in the media and elsewhere, but I have written extensively in the past about the accumulating evidence of its power (e.g. here for the US. For something more recent on Fox see here). The power is far from absolute, but it is significant enough for any populist to want to do what they can to get this media onside. This may involve granting favours to media outlets that support them and penalising those that do not, as Trump obviously does but which Netanyahu did for Channel 14, a television organisation accused by lawyers within Israel of letting pundits and guests call for war crimes, including genocide, against Palestinians.

While the behaviour of the DP-media in war time is similar to its behaviour pretty much all of the time, the behaviour of the rest of the media covering other countries’ wars can seem quite different to its normal behaviour. While it is often called the ‘non-partisan’ media, during the conflict between Israel and the Palestinian people this media has been anything but non-partisan, particularly in the US but also in the UK [2].

Analysis of coverage in the first six weeks of the current Gaza conflict in three leading US newspapers indicated a “gross imbalance in the way Israelis and pro-Israel figures are covered versus Palestinians and pro-Palestinian voices”. On US television Sunday talk shows, guests were far more likely to be pro-Israel than pro-Palestinian. Evidence suggests this bias comes primarily from the media companies rather than the views of the journalists who work in them.[3]

This is why in that earlier post I called the media that wasn’t involved in producing propaganda the ‘manufacturing consent media (MC-media)’. I argued that both the MC-media and DP-media were involved in selecting information. Where the DP-media selected information in favour of a particular viewpoint within an economic, social and political system, the MC-media selected in favour of that existing economic, social and political system. [4]

Of course any categorisation of this kind is inexact, but I felt these descriptions made more sense than references to some media being non-partisan, when clearly the non-partisan media is quite capable of being pretty partisan on some issues. In particular, given the US political elite’s support for Israel and its extensive supply of arms and money, such bias would be the natural outcome of a media in the business of manufacturing consent. Anti-Palestinian bias in the US media is after all quite longstanding.

That foreign policy, and particularly wars, is an area where the MC-media feels it needs to encourage consent is hardly surprising considering that media’s coverage of the Iraq war. As Paul Krugman notes, anyone willing to face the facts could see that the US government was lying about the war, but the media overwhelmingly backed the government rather than exposing the lies.

According to Pew in April this year a majority of Americans had a negative view of Israel. (For a survey for some Western European countries, see here.) Does this indicate a failure by the media to manufacture consent? It certainly shows that the power of media bias is limited, particularly when set against views of death and destruction in Gaza, which are readily available on social media. What it cannot tell us, of course, is what this polling would have shown if US coverage of the conflict had been more balanced. However, looking at manufacturing consent as only about public opinion may be too narrow. It may also function as a means of harmonising elite opinion.

As the alleged influence of Fox coverage on Trump shows, media coverage can influence the opinions of the political elite just as the political elite can influence the media. Once we see those who run the media as independent agents rather than just enforcers of some status quo, then biased media coverage can not only reflect the position of the political elite, but it can also contribute to political elite views.

While for issues involving wars and some other areas the differences between the MC-media and DP-media may seem to be small, there remains a huge difference elsewhere between the two groups. Take Trump’s claims after the 2020 election that he had really won. The MC-media treated those claims on their merits, merits which increasingly tended towards the non-existent. Newsmax, by contrast, saturated its coverage with election denialism. We now know, thanks to the Dominion Voting Systems’ lawsuit, that Fox News then panicked, and started slanting its coverage to what it thought its Trump supporting audience wanted to hear. It could do that, in a way the MC-media cannot, because it is in the business of producing propaganda rather than news. 

[1] The pretense, at least in the UK, that the DP-media are news organisations helps the DP-media to often dictate what the rest of the media does, particularly through confected outrage. How else, for example, can what a rapper said at Glastonbury dominate news headlines for two days while there is no end in sight for daily starvaton and slaughter in Gaza?

[2] In the UK, for example, compare and contrast a headline in an Israeli newspaper with one from the BBC here.  

[3] In the UK BBC staff have also complained about its coverage.

[4] One way of describing this is that the MC-media controls the Overton window of views that are considered acceptable or unacceptable.

A minimum tax on billionaires

 

Most people would agree that taxes, taken as a whole, should be progressive. When you add up all the taxes that an individual pays, the percentage that tax is of their income should be positively related to how their income is relative to others. The poor should pay a lower percentage of their income in tax than the rich. The political argument is generally about how progressive taxes as a whole should be.

In most economies taxes are roughly progressive until we reach very high incomes. The chart below comes from a recentlecture by Gabriel Zucman.

In all four countries taxes are mildly progressive (although the progression is far from smooth) until we get to the very rich. Billionaires, in particular, seem to pay significantly less in tax as a percentage of their income than most other people.

This is hardly fair, but it is perhaps not that surprising. Specifically much of the income of the very wealthy comes from capital gains on the assets they hold, and generally these will only be taxed when those assets are sold. More generally those with a lot of money can afford to pay people to help them avoid tax, and those with a great deal of money have the power to influence whether politicians or those that collect tax try to stop that avoidance.

One way to try and rectify this unfairness, and also to raise a not insignificant amount of revenue, is to try and change specific tax laws to prevent avoidance or tax capital gains. While eminently sensible, this approach suffers from two political problems. First, such proposals are often highly technical, and so rarely attract widespread popular support. Second, the very rich are also very skilled at finding individual cases or circumstances where such changes in tax codes seem unfair.

Proposals for wealth taxes, for example, are often countered by invoking the widow who lives in a large expensive house but has relatively little income. There are ways around such problems, like deferring tax, but as those that own the media also tend to be very rich those work arounds can easily get lost in public debate. Another example became apparent in the UK recently, after the government changed the law to allow farmers to pay some inheritance tax. It was quickly claimed that doing this would prevent farmers passing on their farm to their children, demonstrations were organised and newspapers campaigned, featuring wealthy celebrities some of whom had bought farms just to avoid inheritance tax.

An alternative approach is to only look at the total taxes paid by the extremely wealthy, and set some minimum level of their wealth that these individuals should pay each year. If they already pay that minimum then fine, but if they pay less than that minimum they will be required to pay an additional tax to reach that minimum. This is the idea pioneered by Gabriel Zucman, an economist at the Paris School of Economics and former pupil of Thomas Piketty. [1] Specifically he suggests billionaires, or those with wealth above 100 million, should pay total taxes each year worth a minimum of 2% of their wealth.

The great advantage of this approach is that it is harder to obstruct politically. As the tax applies only to the extremely wealthy, it is much more difficult to evoke public sympathy for any of the individuals involved. As the wealth of the very rich can easily increase by more than 5% a year, paying just 2% in tax will hardly cause hardship.

The breakthrough for this proposal came at the G20 summit last year, when hosts Brazil asked Zucman to present his proposal, and managed to get countries to agree: “With full respect to tax sovereignty, we will seek to engage cooperatively to ensure that ultra-high-net-worth individuals are effectively taxed.” The “Zucman tax” was adopted by the French parliament (the far right abstained), but was rejected by the Senate.

A standard objection to taxing the very wealthy is mobility. If you try to tax billionaires more they will move to a country that taxes them less, and you will lose all their tax. Again we saw an example of this in the UK last year, with a report claiming a wealth exodus from the UK caused by proposed tax changes. However the reality is rather different to the rhetoric. In his detailed proposal for the G20 Zucman notes that recent studies suggest that such billionaire flight is modest, and that the number of billionaires who live in a country different from their country of citizenship is still below 10%. Last year’s UK study, although it got widespread publicity at the time, was always of dubious status and has since been debunked. [2] To reduce even this modest possibility of billionaire flight, countries could charge an exit tax, or could continue to tax individuals wherever their companies do business.

Because Zucman’s proposal sets a minimum tax of 2% of wealth, it is not in competition with other proposals to change the tax system designed to make it less regressive at the very top. In some ways it could be seen as a means of making other measures easier to implement. For example, if billionaires are paying a minimum tax anyway, proposals to reduce forms of avoidance on other taxes will receive less opposition from the very wealthy because any additional tax they will pay will just mean they pay less to reach the 2% threshold.

Zucman’s proposal is incredibly modest. It would just stop the richest in society paying less tax as a proportion of their income than everyone else. It is highly unlikely to stop the wealth of the richest from increasing. Many would like to go further, but the great advantage of his proposal is that it will be seen as fair by virtually everyone. We know that monied interests have the power to persuade governments that taxing them fairly will lead to all kinds of imagined horrors, or to persuade politicians that taxing them would not be in their personal interests. The French government opposed the Zucman tax. The only realistic chance we have of taxing the very rich fairly is to oppose such lobbying with mass support. Only democratic pressure can fight a plutocracy.

[1] Something similar was suggested by Warren Buffet more than ten years ago, when he noted that his secretary worked just as hard as he did, but paid twice as much of her income in taxes. His proposal was adopted by President Obama, but was rejected by Congress.

[2] Arun Advani and colleagues look at the impact of past changes in the taxation of non-doms here.

Is the decline of democracy inevitable?

 

    From 2025 V-DEM report

In global terms autocracies are on the rise, and democracies are declining. According to the V-Dem Institute, for the first time in more than 20 years, the world has fewer democracies than autocracies. Other estimates point to the same trend. At a global level there are obviously many reasons why this is happening, but in Western countries one stands out: the rise of right wing populism.

In many of the major economies, the main political divide is increasingly between one or more right wing populist parties and more mainstream parties of the centre or left. Of course from year to year political popularity can be volatile, but the trend is also unmistakable. This is happening either because of the growing popularity of an insurgent populist party (Rassemblement National and Reconquête in France, AFD in Germany, Fratelli d'Italia in Italy and Reform in the UK) or the transition of a mainstream party of the right into a populist party (the Republican party in the US and the Conservatives in the UK).

Of course democracy can survive the election of a right wing populist party into government. There are plenty of examples of where it has (Trump’s first term as POTUS, Poland and the UK, for example). But the nature of right wing populism also means that there is a significant chance it may not. Populism is about a political party proclaiming that it alone represents ‘the people’, and that other parties or institutions represent ‘elites’ that work against the people. As a result, populist right wing governments tend to dismantle the key elements of a pluralistic democracy, such as an independent media, judiciary and civil service. They are autocratic, usually placing an unprecedented amount of power in one individual’s hands. In those circumstances, elections can easily cease to be fair, such that a democracy is effectively replaced with an autocracy.

If the key electoral contest in most major countries is between right wing populism and more mainstream parties, then right wing populists are likely to win at least some of these contests. If that sometimes leads to the end of democracy, or steadily erodes the possibility of fair elections, then unless autocracies collapse into democracies at an equal rate the number of democracies will steadily decline and the number of autocratic governments will increase. This process will be accelerated if autocracies intervene in other democracies to support right wing populism, as Russia has been doing and as Trump has started to do.

Why are right wing populist parties growing in popularity? This is an issue that I have discussed many times, most recently here. I think it is helpful to make a distinction between what some (not just economists) describe as the demand and supply sides. The supply side relates to politicians, the media and money: why for example mainstream politicians may choose to adopt populist policies, or why billionaires may fund populist politicians or parties. In the past I have talked about why right wing parties wanting to push unpopular neoliberal ideas might choose to focus on more social issues like immigration. The demand side is about why right wing populism is increasingly attractive to some voters. It is the latter I want to focus on in this post.

It is familiar territory that the politics of class, that used to be the central divide in most major economies, has and perhaps still is being gradually replaced by divisions between social liberals and social conservatives. Of course economic issues remain very important in elections, but increasingly the settled patterns in voting behaviour are not related to class but rather to age and education. Socially conservative voters tend to be older, and socially liberal voters are more likely to have been to university. A central issue that divides liberals from conservatives and which is becoming more and more important in elections is immigration.

To look at why this is happening we can focus on either the declining importance of class-based economic issues, or the growing importance of predominantly social issues like immigration. On the first, the decline in manufacturing employment in most major economies and its replacement by service sector jobs is part of the story. [1] This is one reason for the declining influence of trade unions. In the UK I think the triumph of Thatcherism and the end of incomes policies was more important. You can also add into the mix the decline in the Soviet Union as an alternative to capitalism.

Immigration has become more important as an issue in part because there is more of it. Immigration has been on the rise in all regions, and pretty well all countries within any region. However it is far too crude to suggest that higher numbers automatically generate higher concern. Worries about immigration are often greatest in areas where immigration is relatively low and vice versa: London relative to other areas in the UK is an obvious example. A much more important determinant of attitudes to immigration is where people are situated on the social liberalism/conservatism spectrum (e.g. here).

Key determinants of where people are on this spectrum are age and education. Two general trends in most societies have amplified these divisions. First, over the last fifty years more people have received a university education, and this increases the extent of socially liberal views. As graduates tend to form most of the political and broadcast media elites, this may be one reason why social attitudes have become increasingly liberal in most countries since WWII, although with the rise in right wing populism this trend may be ending or even reversing. .

Second, the number of older people has been steadily rising because of medical and other advances. A crude measure of this is the old age dependency ratio, which divides the number of people 65 or older by the number of people of roughly working age (20-64). In 1960, the dependency ratio for the OECD as a whole was 16%, but by 2020 it had doubled to 30%. By 2075 this ratio is expected to be nearly 60%. This means that a growing proportion of voters are no longer in work, so work-based economic issues will have less salience, although this effect is moderated to a minor degree by any increases in the retirement age. In addition, older people are more likely to vote. All this creates a growing pool of socially conservative voters which politicians can appeal to.

While these trends may help explain the growing importance of social and cultural issues in elections, we need an additional step to explain why political parties that aim to attract socially conservative voters are also likely to be populist and autocratic. Socially conservative views tend to go with authoritarian opinions: social scientists often refer to the social conservative/liberal axis as the authoritarian/liberal axis. Authoritarian views will generate an impatience with independent sources of power (or indeed democracy itself). It also means that socially conservative voters are more likely to be attracted by ‘strong’ (charismatic) leaders, of a type that generally lead populist parties.

All this is a very broad brush account, and please tell me of any important demand side factors I have ignored. But to the extent that it is valid, it suggests that the factors that have created a growing demand for socially conservative populism, and further down the line the trend away from democracy, are unlikely to be reversed anytime soon. 

[1] An alternative story about the rise in populism focuses on those ‘left behind’ by this and other aspects of globalisation. This economic mechanism appears very different from the social/cultural discussion that I focus on. These two alternative perspectives regularly compete when right wing populism triumphs. When Trump was first elected, for example, there was plenty of debate between those who wanted to essentially blame racist attitudes among the white majority and those who wanted to look at the left behind in once prosperous industrial states. Brexit saw similar discussions. Exactly the same tension can be seen in discussions about Poland’s recent presidential election.

I have taken a similar line to Dani Rodrick on this, which is that this tension can be at least partially resolved by distinguishing between levels and changes. Social/cultural issues provide the bedrock of support for right wing populists, but it is often economic issues that can tip the balance between these populists winning or losing electoral races. As this post is about the steady rise in right wing populism, rather than why right wing populists sometimes win, I naturally focus on social/cultural explanations.

Why following the path of the last Labour government will not work this time

 

The Blair/Brown government waited until they had won a second general election before raising taxes ‘on working people’ to accompany a significant increase in the proportion of GDP spent on public services. In the initial years after becoming Chancellor Brown stuck to Tory spending plans, which together with unexpectedly buoyant tax receipts meant debt to GDP fell substantially. This was despite eighteen years of Conservative government leaving public services in a very poor state. Many argue the reason why the last Labour did this was because they felt they needed to demonstrate prudence to the media and markets.

Are Starmer and Reeves following a similar path? In one sense not: Reeves increased tax significantly in her first budget and was therefore able to substantially increase public spending relative to the previous government’s plans. In terms of aggregate numbers rather than previous plans total current public expenditure fell from 33% of GDP to 32% in the first two years under Brown, whereas under Reeves it is projected to be slightly better than roughly flat.

Unfortunately keeping public spending roughly flat as a share of GDP when starting from a position which is awful (and arguably considerably worse than the one Brown inherited) is not going to please anyone. Does Reeves, like Brown, feel constrained because she worries that more substantial increases in public spending and taxes will upset the media and markets?

The Rock and Roll politics podcasts of Steve Richards are always worth listening to, and recently he suggested an alternative Labour government that we could compare today’s to. Not Harold Wilson’s, but that of MacDonald (PM) and Snowden (Chancellor) of 1929-31. He is not predicting the Labour party will split in the same way it did back then. Instead he points out that the 1929-31 Labour government, in the face of an economic crisis, chose to stick to economic orthodoxy because it wanted to appear ‘economically responsible’, even though it had promised voters change. This was despite a clear but radical (at the time) alternative path available, and in retrospect one far superior, which was the Keynesian path that the New Deal in the US eventually took.

He suggests that Starmer and Reeves also hunger to appear economically responsible by following orthodoxy, and that this is preventing them fulfilling their promise to voters of change, just as it did for MacDonald and Snowden. Once again economic ‘respectability’ defeats real ambitions for change.

It is a very provocative comparison, but one that loses some of its appeal once it is examined in more detail. Reeves is indeed insistent that her fiscal rules are not negotiable, just as Snowden insisted on a balanced budget, but today we do not have a global recession caused by inadequate aggregate demand. A balanced budget made no sense in the 1930s depression, just as Reeves’ golden fiscal rule wouldn’t, but we are not in or close to that kind of recession today. The golden fiscal rule does make sense in the situation the UK is in today where demand is strong and inflation is above target. In other words it was George Osborne, not Rachel Reeves, that was making the mistake that MacDonald and Snowden made.

Perhaps this is taking the comparison too literally. The current UK economic crisis is a dual one of crumbling public services and stagnant growth, and a key mistake the Labour government is making is keeping taxes too low. But is their reluctance to raise taxes primarily due to a hunger for economic respectability? It seems to me it is more about a hunger for electability, and thinking (incorrectly in my view [1]) that higher taxes will lose them votes because it will add to the current cost of living crisis.

Perhaps a better way to make the comparison work is not to think about particular types of economic issues, but think instead about radical change versus incremental change. Here orthodoxy means incremental, slow and hardly noticeable change, of the kind that the MacDonald government did do. Change that will not upset the horses of the establishment media and the markets. That might include one-off but not so great tax increases, of the kind that Reeves made in her October budget. It is also consistent with modifying the dreadful falling debt to GDP supplementary fiscal rule rather than abolishing it completely, as she should have done.

Where I do agree with Steve Richards is that incremental change is not what most people want. Voters recognise the huge hole the UK is in, both in terms of living standards (past and prospective growth) and public services, and they are impatient to see a government leading the way out of that hole, rather than just ensuring the hole doesn’t get any bigger. This is why the Labour government has become so unpopular so quickly, because it has shown no sign of the radical actions that voters were looking for.

But I still think the more relevant comparison is with the last Labour government, because the question those like myself, who want something more radical in terms of tax increases and additional public spending, have to answer is why incremental change worked (in electoral terms) for Blair and Brown but cannot work for Starmer and Reeves. Here Steve Richards makes the key point. In 2001, when Labour won a second term, there were effectively only two alternative parties: the Conservatives and the Liberal Democrats. The continuing problems with public services did cost Labour in the run up to the general election, where they lost many votes to the Liberal Democrats. But they lost far fewer votes to the Conservatives, because the opposition was the same party offering similar policies to the one Labour had replaced, and it made little sense to replace Labour with the party that had run public services down in the first place.

In addition, two other factors meant that in 1997 Labour could get away with keeping to Tory spending plans in the first years of government. The first is that obviously Tony Blair had more charisma and better presentational skills than Starmer, and arguably a better communications team behind him. The second is that Labour’s inheritance on growth and living standards was far better.

Economic growth, and therefore growth in living standards, was steadily rising during Labour’s first term, after stalling in the mid-1990s following the ill-fated ERM entry and subsequent recession. [2] In that context. Blair and Brown’s argument that they were ‘fixing the foundations’ in their first term to prepare for better public services later on made some sense to voters. In contrast Labour’s growth inheritance from Sunak and Hunt has been dire, so they will be very unlikely to replicate what happened in the first term of the last Labour government. Forecasts show very modest growth in living standards over the next four years. [3]

So the key differences between the 1997-2001 Labour government and now is that today Labour’s inheritance on growth is very different, and voters today can vote Reform. [4] This helps explain why, while Labour held its 1997 vote share for the first two or three years in government, Labour today have very quickly lost theirs. While xenophobia may represent the core of Reforms popularity, right wing populism generally only wins when that is combined with economic disenchantment. Incremental change will still leave Labour at the next election defending weak growth in living standards and seriously underfunded public services, and those are the conditions in which right wing populism thrives.

[1] The ‘cannot raise taxes because of the cost of living crisis’ idea is fundamentally flawed because it misunderstands that crisis. The UK savings ratio, the average proportion of income UK consumers are saving, has been steadily rising since mid-2022. That indicates that plenty of consumers are able to buy what they need and still increase their savings. The rising cost of food and energy has created a crisis for those poorer voters who are not able to save. There are plenty of consumers who can easily bear higher taxes, while still avoiding increasing taxes on those who cannot.

[2] GDP per capita growth exceeded 2% in every year from 1993 to 1996, following the large devaluation and lower interest rates as we left the ERM. Initially the devaluation hit living standards because of the higher cost of imported goods, but this effect was largely over by 1997.

[3] The first term of the last Labour government also saw a concerted effort to reduce poverty, but that didn’t really start until 1999.

[4] The threat on the left is probably not very different. It is true that the Greens are now a more feasible choice for those on the economic left, while social liberals can still vote Liberal Democrat. However the LibDems in 2001 were more left wing in economic terms than they are now.