Last summer, an idea that first sprang from the wild fringes of the right managed to burst on to the comment pages of most broadsheets, and eventually led to a commission by the shadow chancellor, due to report in January. We can mock the flat tax, but we have to admire how it dominated the debate. Its premise – a single tax rate for all incomes over a threshold, making a funeral pyre of existing allowances and exemptions – may be deeply unfair, and would not achieve the public savings it claims. But as a case study in communications and strategy, it is inspiring.
An idea with such apparent popular appeal should be assessed carefully before it is dismissed, but the closer the flat tax is examined the more obvious its faults become. First, it is inherently unfair: a progressive income tax is needed to compensate for other unfair taxes. In the current tax system, the poorest fifth of the population already pay a higher share of their income in tax (38 per cent) than any other group. The richest fifth pay only 35 per cent. Even leading proponents of the flat tax, such as Tim Lai from the Adam Smith Institute, concede that a flat tax which preserves the total tax-take would disadvantage all but the richest quarter of the population.
In order to avoid hitting the poor hard, some flat-tax proposals suggest a large increase in the tax-free allowance. Under the main ASI proposals, the allowance would be increased to £12,000, with a 22 per cent rate thereafter. But this leaves a £50bn hole in the public finances, equivalent to five per cent of national income. The spending cuts that would be needed to pay for this would deliver an even harder blow to those on low incomes. Public services are most important for those on the lowest incomes, and they are an irreplaceable catalyst to social mobility. Looking at people in the bottom 40 per cent of incomes, the total value of government spending per person is twice that of the top 20 per cent.
However, if the allowance is increased without reducing the total take, the tax rate would have to go up to 37 per cent – a politically impossible proposition. The right-wing response is to pull out the ‘trickle-down effect’ and voodoo economics: tax cuts improve incentives, so the state takes a smaller proportion of a bigger pie. Like other clichés from the 1980s, such as shoulder pads and perms, these ideas should be clearly labelled ‘do not resuscitate’.
The supposed ‘trickle-down effects’ of the flat tax do not exist. Cutting taxes for most people has a negligible effect on work incentives. Economic theory tells us that there are two competing effects of tax cuts, and only evidence can say which is more important. This is because tax cuts do increase hourly pay, making work more attractive compared to leisure. Crucially, however, tax cuts also increase total pay, which means each extra pound is worth less. Therefore, leisure becomes more attractive compared to work.
In Estonia, celebrated widely as a flat-tax success story, income taxes as a share of GDP have actually fallen since the flat tax was introduced. In Russia, the only detailed study of working hours showed that the flat tax had no discernible effect. Tax receipts did rise with its introduction, but this was timed with other reforms to collection, and was in the context of a highly inefficient state bureaucracy.
So the flat tax is unavoidably unfair, and won’t deliver the GDP boost that is claimed. Does it, at least, provide the promised benefit of simplicity? According to its fans, the flat tax’s great advantage is that it is simple to understand and to administer. In reality, however, most of the complexity would remain with the rules designed to prevent tax avoidance, and much of what is removed would have to be recreated in the benefits system. Rather than attack the real complexities of the tax system, a flat tax removes those which are crucial to fairness. Yes, simplicity is an important goal – but not at any price.
While sensible policy wonks are rolling their eyes at this simplistic nonsense, however, the spin doctors should be admiring the way the flat tax was handled as a political issue. Because, although the policy lessons are minimal, the way that the idea dominated the news and put right-wing views back in debate, shows the power of a well-presented proposition. It was a case study in framing, in picking fights that strengthen core values, and the use of outriders. The progressive left can learn from this.
‘Framing’ is the art of defining a problem and setting the language in which it is discussed, thereby predetermining the answer. If you convince people about the nature of the problem, you will convince them about your solution. Even though many commentators realised that the numbers behind the flat tax didn’t add up, most responded by asking what progressives would do instead – accepting that complexity was the main problem with the tax system. Progressives must frame debate differently. Yes, we believe in simplicity, but the main priority for tax reform should be finding a fair way of securing high-quality public services. Also, fairness should be evaluated over the tax system as a whole, which currently falls disproportionately on the poor.
This is a more complex story than the one we are arguing against, and it highlights a problem: what cognitive scientists call hypocognition, or the lack of a simple and established frame. Being able to name your arguments, and achieve an instant understanding in the minds of the public, means the case can be made efficiently: a few words to evoke a meaningful frame of reference. When a flat-tax enthusiast says it can be paid for by ‘trickle-down’, it takes a paragraph to explain why they are wrong.
George Lakoff, a cognitive scientist from the University of California, Berkley, explained in his book, Don’t Think of an Elephant, how the American right has been building and strengthening frames for 30 years. Triangulation, and adopting the rhetoric of the right, has meant that many of the left’s frames are underdeveloped in the minds of the public. Too often, the left is then on the defensive. And in public debate, if you are explaining, you are losing.
The second lesson the left can take from the flat tax is about being strategic in picking fights: making sure that when battle is joined it is on matters of principle. If the left had lost the substantive argument against a flat tax, the door would have been opened for a slashing of tax and spending, all justified on the same moth-eaten arguments. Even though the policy is unlikely to be adopted, the anti-state principles behind it may have been strengthened. Progressives, too, need to pick fights that address their core values. Fighting on values, not technicalities, means that objections to the flat tax must not just point out that it is designed to benefit the rich; they must take the extra step to explain why that is unfair. More generally, policies need to be linked to the progressive framework, explicitly linking, for example, public health interventions to a unifying story of equal opportunity.
Finally, the left should notice how outriders on the right pushed the flat-tax idea. Public, radical thinkers can push back the boundaries of politics, shifting the commonsense of the age. Progressive thinking is more creative and diverse – where are the right-wing equivalents of membership organisations like Progress, Compass, and the Fabian Society, to say nothing of the thinktanks? But the left could be more explicit in making public what it is trying to achieve, and articulating its goals in ways that resonate with public conceptions of fairness. Different organisations have different roles, from formulating costed and evidence-based proposals to producing think-pieces that extend debate, but all could benefit from being more challenging and creative.
Also, focusing its energies on renewal and pushing back the boundaries of debate, would be far more useful than the role that many on the left have adopted of tarring the government with broad brushstrokes and spraying general accusations of betrayal. While there are legitimate grievances, these should not be allowed to undermine progressive arguments. There would also be value in giving backbench MPs more encouragement to float policy ideas; even those that are initially impractical and unpopular could be useful if they keep progressive principles in public debate.
The flat tax is the antithesis of what progressives stand for. But the story of the flat tax is not just a tale of doom and gloom. Yes, the right got worryingly far with a threadbare policy proposal and misleading arguments about its effects. But, if we take some of the lessons from this story on framing and strategy, ground them in progressive values that are tied to peoples’ intuitive sense of fairness, then good, evidence-based policy could take us even further.