Predistribute and redistribute.

By Mary Murphy.

The OECD groups Ireland with other English-speaking countries as having relatively high levels of income inequality. TASC has shown that since 1975, while incomes in Ireland doubled overall, incomes tripled for the top 10%, and increased by a multiple of five for the top 1%. While there were reversals for those on high incomes at the onset of the economic crisis, it is clear that since 2011 these have been reversed and income inequality is again rising. Recent work by the OECD shows a significant increase in the share of income going to the top 1% in Ireland. Claiming Our Future is developing campaigns to take on this issue.
When it comes to addressing income inequality we can look to predistribution and redistribution. Predistribution involves reducing the share of income that people at the top end of the earnings spectrum derive from the market (wages, shares, bonuses, dividends, rent and  profit). Redistribution involves taxes and income transfers to redirect income from those on higher incomes to those on lower incomes.
Predistribution could be achieved by regulating or in some way influencing the maximum a person can be paid. This type of intervention can be done at the bottom of the earning spectrum through minimum wages and living wages. It can also be done at the top end of the earning spectrum to determine maximum wages. Pay-ratio strategies are one example of predistribution. These ratios seek to cap the gap between the highest and lowest wages in any firm.
These ideas are not new. More than 100 years ago JP Morgan, the powerful US business financier, argued that executives should earn no more than twenty times the pay of the lowest paid company employee. US President Franklin D Roosevelt championed the idea of pay ratios, as did George Orwell and JK Galbraith. Direct wage ratios of as low as 3:1 have been implemented, most famously in the Mondragon cooperative network in the Basque region of Spain, and perhaps less famously by Medecins Sans Frontieres.
These ideas are gaining purchase.  A 2013 Swiss Referendum for a 12:1 pay ratio was defeated. However, it garnered the support of 35% of the electorate. A Toronto-based Canadian ‘wage mark’ campaign for an 8:1 ratio is gaining popular support. Maximum wages have been the subject of public discussion in Ireland. During the crisis various pay caps were introduced in both the public sector (civil servants and hospital consultants) and the private sector (banking salary caps and pay scales in charity organisations).


 

A more progressive approach

1.    Increase the corporate tax rate or adopt a minimum effective corporate tax rate.
2.    Increase the corporate tax base by removing exemptions and avoidance incentives.
3.    Adopt a tax on financial transactions as is currently proposed and agreed by a group of EU Member States.
4.    Apply a further and higher FTT on speculative financial transactions. Taxing high incomes is central to a redistributive approach to income equality. Tax avoidance and evasion strategies limit national wealth taxation strategies and serve to widen the gap between top earners and lower earners.
5.    Increase the tax rate on higher earnings above specific pay ratio (apply a ten times rule).
6.    Increase effective tax rates by reducing and capping income tax reliefs and exemptions that disproportionately benefit top earners.
7.    Increase Capital Gains Taxes.
8.    Increase Capital Acquisition Taxes.
9.    Tax consumer advertising activity and profits
10.    Reduce VAT while increasing consumption taxes on luxury goods (especially those with negative ecological impacts).


 

 

In the UK 20 years ago the typical chief executive of a FTSE 100 company earned some 25 times the pay of the average worker. Today the ratio is close to 120 times. We do not know the typical Irish pay ratio but data from the Survey of Income and Living Conditions show that, compared to other EU countries, Ireland has very high levels of market inequality. Claiming Our Future has commissioned research to establish the wage ratios in different sectors of the Irish economy to build awareness about levels of income inequality in Irish firms. We plan to campaign for legislation that would require firms to publicly report their pay ratios as a pre-condition for eligibility to compete for Government contracts.

The rising inequality of recent times is the product of a cultural and political shift. We used to operate within a series of implicit ‘social norms` about what was acceptable behaviour. These worked to impose a kind of natural cutoff. We now defer too easily to wealth and power.  Transparency and public awareness about pay ratios in Irish firms would be a powerful tool to reactivate a ‘shame gene` that once worked to prevent excessive abuse by the economically powerful.
Looking to redistribution, various campaigns have called for a progressive income tax on income above ten times the minimum wage. This Ten Times Rule still allows plenty of room for market incentives but restrains winner-take-all markets where the winners get extraordinary largesse. This is not because of the value these people contribute but simply because of the power they exert in the market. The OECD argues that the rich have got richer partly because of a dramatic reduction in the higher marginal-income-tax rates and reduced wealth or capital gains taxes.
The mainstream Irish taxation discourse is still focused on a ‘low tax and limited public services’ model perpetuated in Michael Noonan’s anodyne Budget 2015. The counter argument is for not only maintaining but also increasing tax revenues in order to invest in social services. Multipliers from public investments work better than tax cuts as a stimulus to economic growth and are a longer-term investment in a more sustainable recovery. Higher taxes on excessively high incomes and wealth can also promote greater income equality.
Research by Tasc, NERI and Social Justice Ireland stresses the regressive nature of the income-tax-reduction options now being proposed for the next two budgets. Lower-income households see no benefits from a wider standard band or a reduction in the higher rate.  Lower-paid workers see some benefit from reductions in lower rates and widening the personal tax credit. However, these measures offer maximum benefit to those on higher incomes.  Reductions in the USC rate benefit everyone paying the USC, but benefit those on higher incomes more.  The only tax reduction that would benefit the lower-income household more than the higher-income household is a reduction in VAT.
Claiming Our Future argues against the general thrust of Budget 2015 which promoted tax reductions, and asserts instead that we need to retain tax revenues to invest in public services, while also pursuing tax options that redistribute excessive incomes of the very rich. We have identified ten income and wealth taxes that would impact on income inequality.
Corporate tax is an important potential source of revenue now with the recent OECD focus on the need to address glaring tax loopholes in jthe treatment of multinational corporations. There is extensive scope for Ireland to reform its corporate tax regime. The Government could increase the rate, adopt  a minimum effective rate, and increase the tax base by removing exemptions and avoidance incentives.
A Financial Transactions Tax (FTT) would allow States to more adequately monitor the financial sector. They would provide additional taxation revenue, and reduce the volume of high-risk financial transactions. Ireland could adopt a FFT on financial transactions and apply a further FTT on speculative financial transactions.
Capital Gains Taxes have capacity to dampen speculative investment in property. Gifts and inheritances are a significant source of embedded inequality. Capital Acquisitions Tax should be a particular focus in this regard.
High levels of income inequality are linked to  excessive status-related and luxury consumption. This consumption impacts negatively on environmental sustainability. Ecological taxes on the consumption of environmentally damaging goods can dampen demand as could high taxes on commercial advertising profits.
The concept of tax justice or using tax policy to achieve ecological and social justice goals can be dismissed as utopian. However, this is to dismiss the growing social power behind demands for tax justice.  Pay ratios and tax justice have potential to generate the type of cross-class and cross-sector alliances necessary to challenge power and achieve transformation for a more equal society. •

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