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March 06, 2005

THE LIB-DEM DANGER (OR, RICH PEOPLE GOOD, OLD PEOPLE BAD)

Last week the Liberal Democrats unveiled their "alternative budget", in the process showing why they should never be elected to power -- and why they will grow at the polls in the next few years.

I am not willing to say that it was all bad. They are the only party with the nerve to suggest cutting subsidies and abolishing the Department of Trade and Industry. For that, they deserve some credit -- and big-C Conservatives should be paying attention. However, the two big items (raising the upper income tax bracket to 50% and free personal care for the elderly) are incredibly flimsy. They do not hold up under scrutiny.

It is tempting for politicians to engage in class-warfare rhetoric about "the rich". Facts are rarely allowed to get in the way when they do. For example, there is a tendency to regard the rich as an inexhaustible resource. A leading Lib-Dem admitted on Newsnight that the budget did not take into account that raising taxes on the rich might lead to less taxes being collected. It should be obvious to anyone with an IQ above room temperature that such a tax increase will lead to more tax evasion, and even rich people moving out of the country. That a whole bunch of intelligent people could write a budget and not even consider this is a pretty stunning thing. At best, one wonders if there were plenty of solvents in the air. At best, one wonders whether the alternative budget is merely a fig leaf intended to give their policies an air of respectability -- policies which are exactly the kind of fiscally irresponsible politicking the Lib-Dems accuse their foes of engaging in.

The moral arguments for higher taxation on higher incomes is that the rich should "pay their share", or that increased "equity" makes it all worthwhile. Both these arguments were made, implicitly or explicitly, at the unveiling of the alternative budget. The first argument is obviously false. The rich (or at least the ones that have not gotten rich off of public money) do not typically use a disproportionate share of hospitals, police, or roads, so they should not be made to pay disproportionately for them.

The second argument can't be entirely refuted by facts, but the moral counter-argument is stronger: It's wrong to take money from people if they have things they would rather spend it on, therefore we should not take more money than is strictly necessary, even from the rich. This is even stronger when one realises that the reason most people get rich is because they have gotten a good education and worked hard to supply a good or serviice that people are willing to pay a lot of money for. Even Victoria & David Beckham, the stereotypical "idle rich" couple (whom, admittedly, I would love to see crushed with a steamroller, not taxed) have only become rich because of their dubious talents. They are in no wise representative of most £100k+ earners. In that group are many accountants, lawyers, doctors, business owners, and many other people essential to society -- certainly, not people the government should be punishing in the name of "equity".

The main item in their planned spending spree -- free personal care for the elderly -- is indicative of both the Lib-Dems' irresponsibility and their political foresight.

Is giving free stuff to the elderly economically sustainable? No it isn't; the population is growing older as life expectancy goes up and the birth rate goes down. What is "only" £10-15 billion today is, therefore, going to be much more than that a few decades down the line -- and there will be fewer workers to pay for it. Fiscal reality says we should be cutting benefits to the old and/or increasing the age at which entitlement starts.

Yet, the flip-side to this is that as the population ages, the elderly vote is becoming more and more important -- and God knows the only way politicians know how to compete these days is by giving strategic hand-outs to politically powerful groups. This is the political foresight the Lib-Dems have. By positioning themselves as the Party of the Old, they are setting themselves up for dominance in future.

Of course, the social strife that will be caused by politicians taking an ever-larger amount from the young and giving it to the idle old will be immense. But can we expect politicians to care about that?

Posted by Lewis at March 6, 2005 10:45 PM