Reeves, Mill and income tax
I posted earlier on the new Demos book, The Liberal Republic, by Richard Reeves and Philip Collins. One point I took issue with was their treatment of tax. While calling for higher taxation of unearned wealth, Reeves and Collins argue that there is nothing liberal in principle about progressive income tax. Many leading liberal thinkers, such as Leonard Hobhouse, John Rawls, and Ronald Dworkin, would disagree. But 'liberalism' is a big tent of an ideology. What do other major liberal philosophers think?
As liberal philosophers go they don't come more canonical that John Stuart Mill. And we know that Richard Reeves, Director of Demos, strongly admires Mill from his excellent biography of him. So it's interesting to ask: Where does Mill stand on the income tax question? Is he with Reeves or against him?
Pro-Reeves? The Principles of Political Economy
The first place one naturally looks for an answer is in Mill's Principles of Political Economy. He has a chapter on income tax where he tells us what principles should govern the design of such a tax. These principles are:
(1) '...incomes below a certain amount should be altogether exempted.'
(2) '...incomes above the limit should be taxed only in proportion to the surplus by which they exceed the limit.'
(3) '...all sums saved from incomes and invested, should be exempted from the tax.'
This apparently supports the Reeves/Collins position. Although a proportionate tax on income over a tax exempt allowance will in effect be progressive (the higher the income, the higher the proportion of your income you will pay in tax), it is striking that Mill does not here endorse the idea that the rate of tax should increase as incomes rise: as I read him, Mill is proposing a flat-rate of x% on all income over a threshold, subject to a further exemption for all income that is saved and invested. This is, I think, contrary to what we ordinarly understand by 'progressivity'.
Against Reeves? The Autobiography
So far, then, so Reevesian. However, there is more evidence we need to consider. In particular, it is important to look at Mill's Autobiography. After guiding us through his incredible childhood as a human guinea-pig for his father's theories of educational psychology, his ensuing nervous breakdown, his recovery while reading Wordsworth's poetry, and his controversial love affair with (and eventual marriage to) Harriet Taylor, Mill offers some thoughts on what he terms his 'third period' of intellectual development following his marriage.
He tells us:
'While we repudiated with the greatest of energy that tyranny of society over the individual which most Socialistic systems are supposed to involve, we yet looked forward to a time...when the division of the produce of labour, instead of depending, as in so great a degree it now does, on the accident of birth, will be made by concert, on acknowledged principle of justice; and when it will no longer either be, or be thought to be, impossible for human beings to exert themselves strenuously in procuring benefits which are not to be exclusively their own, but to be shared with the society they belong to. The social problem of the future we considered to be, how to unite the greatest individual liberty of action, with a common ownership in the raw material of the globe, and an equal participation of all in the benefits of combined labour.' (Italics added.)
What is striking about this passage is its explicit and radical egalitarianism concerning how the fruits of labour are to be justly distributed. Mill does not think it will be easy to get to this egalitarian state of affairs. But he clearly thinks that it is right in principle: 'the equal participation of all in the benefits of combined labour'.
Do people who can earn more because their talents are in greater demand deserve higher income? No: because the distribution of marketable talent depends on the distribution of underlying natural ability over which people have no control. This is arguably part of what Mill is getting at in his reference to 'accident of birth' (though he is also referring to inequalities in inherited wealth, of course).
Is it just to give some people more income as an incentive? It might be prudent in a society like our own, but it is not right in principle. As Mill explains in the above passage, in principle we should be willing to work hard and share the results with society.
Now it doesn't necessarily follow from this that Mill is committed to a highly progressive income tax. He tells us in the Autobiography that he and Harriet were agnostic on the question of just how, institutionally, this state of income equality would be achieved. But what this passage does show is that Mill was at one with liberals like Rawls and Dworkin in regarding the unequal rewards of the marketplace as largely morally arbitrary and unjust. Thus, if a progressive income tax does turn out to be one effective policy, amongst others, for reducing such inequality, Mill would seem logically committed to it.
In short, the resigned attitude to income inequality we see in the Reeves/Collins book is quite at odds with Mill's position, which is a radically egalitarian one.
Was Mill just confused?
Does Mill, then, just contradict himself, saying one thing about income tax in one place and then implying something else in another? Did his views simply change?
The answer, I think, is that Mill is actually addressing two quite different questions in the two texts, so there is no reason to expect that the answers will be the same.
In the Principles of Political Economy, Mill is, I suggest, tackling the problem of what has come to be called 'tax justice'. The problem of tax justice is as follows: Assume the government has a legitimate need for a certain amount of revenue (e.g., to build roads). What is the fairest way for it to raise this revenue from private incomes? Note that in posing this question, there is one huge implicit assumption: the justice of the background distribution of income and wealth is taken as given. The issue at stake is not how to use tax to achieve distributive justice; but to determine what tax is fair given a background of just distribution but a need for public revenue. It is in answering this question, I think, that Mill comes out in favour of a version of a flat-rate income tax.
In the Autobiography, by contrast, Mill is explicitly addressing the issue of social or distributive justice. He comes out clearly and, indeed, enthusiastically, in favour of a radically egalitarian distribution of income as just in principle. If we now ask how we are ever likely to approximate that distribution, then we are surely going to have look to progressive income taxation.
Mill's work actually offers less support than one might think for the Reeves/Collins position on income tax. This is for the simple reason that he viewed income inequality as largely morally arbitrary and unjust and favoured, as a matter of principle, a radically egalitarian income distribution.