Monday, 9 November 2009

Scaring us into greater inequality

James Wickham: In a recent article in the Irish Times (4 November) Philip Lane warned that higher levels of income taxation could restrict Ireland's ability ' to attract and retain the highly skilled mobile professionals that are key to future economic growth'. This argument needs some discussion.

We could and probably should talk about whether it's desirable to commit ourselves to a form of economic growth that gives 'highly skilled mobile professionals' a veto over taxation policy. But there are smaller scale more empirical issues that can usefully be discussed.

Research on mobile professionals shows that taxation is only one of the reasons why people choose to live in a country. There is evidence that taxation influences location choice, but other things also matter. Issues here range from personal safety to the quality of life. Indeed there is a whole literature in urban geography associated with Richard Florida's claim that young and mobile professionals (the 'creative class') move to cities that offer social, cultural and intellectual diversity. Slightly facetiously, we could say: forget about taxation, just ensure there's some decent music and good craic...

Of course the point is that much 'quality of life' involves public expenditure. A decent health system, a proper public transport system, public broadcasting, even decent public spaces, do not come free. And interestingly, we do have research that suggests these things can attract people to live or stay in a country, and equally we do know that many young and mobile professionals bemoan the lack of such things in Ireland (e.g. Boyle (2006)).

It's also important to disaggregate these 'highly skilled mobile professionals'. For example, we could differentiate between 'visitors' who have no commitment to the country, and 'settlers' who intend to spend much of their life here; we could differentiate between 'experts' who earn say over than €60k (the current minimum income for the Irish Green Card permit) and 'stars' who receive more than (say) €150k. It's clear that what motivates visiting stars is probably very different to what motivates settler experts. Some people (visitors) do move temporarily to Dubai, but it's not clear whether such people are the same as those needed in Ireland - and do we really want to develop Dubai-type expat zones in Ireland anyway?

It can also be argued that relying on visiting stars has dangerous implications for the labour market - it creates a culture of high reward short termism, otherwise known as greed.

Most fundamentally of all, surely it's time to start discussing the disadvantages of inequality. Work such as Wilkinson & Pickett (The Spirit Level - Why More Equal Socieities almost always do better) has alerted social scientists to the detriminetal effects of inequality on all members of the society. In other words, in an unequal society even the better off do worse. And furthermore, these effects are generated by inequality 'at the top' (gap between the very wealthy and the rest) rather than just by inequality 'at the bottom' (gap between the poor and the rest). Facilitating visting stars, in other words, may actually have very detrimental indirect effects on the whole society.


Proposition Joe said...

"Of course the point is that much 'quality of life' involves public expenditure. A decent health system, a proper public transport system, public broadcasting, even decent public spaces, do not come free."

But of course we're not talking about increasing taxation on these mobile professionals so as to improve, or even to maintain, service levels.

When you strip away the rhetoric, its clear that the main goal of ICTU in this debate is the maintainence of public wage levels above all else. Service levels and even public sector employment levels come a poor second.

Its intructive to consider the experience in California, were the state progressively began breaking the social contract with medium & high earners ... i.e. that their relatively high taxes would be used to fund high quality services. Over the years the quality of service provision has declined while the high taxation burden remained in place. No prizes for guess the demographic impact, people simply voted with their feet and moved elsewhere in the US.

SlĂ­ Eile said...

@James An interesting feature of the debate on high marginal taxes scaring off bright young Madoffs and Fulds from our enterprise hungry shores is how much of it is hunch and not firm empirical data of the random experiment kind.

(interesting and strong comment by another tax-payer on indymedia

The voice of people about to be skinned by shifting taxes to your average tax-paying average income PAYEE).

Marise said...


First: anecdote alert is on. But I fit the comments' demographic discussion well. I was born and lived 30 years in California - my family is still there. I moved here in 2000, and became a citizen this year. I was also made redundant this year.

California's services have been slashed in the recession (and in previous downturns), and periodically the state issues IOUs due to budget deadlock. This year was by no means the first time, nor does it happen only in downturns. CA's biggest spanner is Prop 13, which has made tax policy difficult.

Even so, CA's infrastructure is still fantastic compared to many other places. I left in 1990 because a) it's effin crowded, and b) I couldn't afford a house. I could afford the taxes, and service levels are good. At least I could get a driving test in 3 weeks. And the lovely roads. . .

(The comment about people moving away from CA was amusing to a native like me. We used to pray for all them folk to leave. Did I mention it's crowded?)

I came to Ireland because it had lotsa jobs in the IT sector. It also had better labour protection. And health care. So I love the public sector fighting for their labour rights, because their very existence buoys the private sector. Having come from a country where such rights are mostly eviscerated, I can tell you that my quality of life greatly improved. If I had been laid off in the States, I'd be exhausting my unemployement in a month.

Now, I'll probably have to leave. Not because my taxes might go up;I don't mind paying taxes when my personal return is piece of mind that I will likely not end up homeless and ill. If I leave, it'll be because I can't find a job, and because of FF's pro-cyclical horse-puckey economics making the prospect of jobs unlikely, at least before other places (with, ahem, stimulus) recover.

It's really that simple.

Proposition Joe said...


I based my comments about California on this article:

but of course I bow to your personal knowledge.

Marise said...

@Prop Joe,

In fairness, I should make one major disclaimer on California: I have no children.

On most services for the middle class, CA has held up pretty good -- with the exception of a noticeable deterioration in education. You are correct that this may turn off some of the populace.

For poorer people, services have become more of a crapshoot. Some days you get the services, other days the services get you. You are correct in this also.

And people may be leaving, some of them perhaps for taxes, most probably in disgust at the weird politics. We're not labelled "The Land of Fruits and Nuts" for nothing.

But they'll be back (and I'm not just riffing the Governator here). Lord help me, I almost moved back after being made redundant, if only for the feel of that glorious sun on my face. But were there a job for me here, I would stay. I love this place. I may have to go, because while it's nice to have the social supports, having no prospect of improvement in the next few years is the deciding factor.