The Political Origins and Economic Consequences of Taxing Low Wages
Chapter 1: Introduction
Freedom from taxation bred laziness and lack of ingenuity, declared the Comte’ de Maurepas, 18th century president of the French Navy Board in a letter to the governor of Canada. (Weaver, 1914: 746) But not only would the right to assistance breed laziness among the working classes, so too would it ‘extinguish in the upper classes the sweetest and most fruitful virtue, charity, a good which, transferred into State taxes’. Louis-René Villermé, French eighteenth chronicler of the British poor laws (Smith, 2000: 1010–11) Do excessive welfare states cause crises in labour markets, or do crises in labour markets cause growing welfare states? This ‘hen-and-egg’ question haunts both academic and political debates alike. In academia apologists of the free-market would confront those who uphold the insurance and equity character of the welfare state. Ideologically extreme politicians see in the welfare state either a social ‘hammock’ which lures workers into idleness or a bulwark against capitalist attacks of workers’ real wages. In the turmoil of these battles it is sometimes forgotten that both the welfare state and the labour market depend on each other. In this book I want to follow this idea in a specific domain of the welfare state: labour taxation. In particular, I will argue that the real question in contemporary welfare states is not whether, but how welfare is financed. How does the structure of taxation affect (low-wage) workers, and why does politics in different countries lead to different tax structures? Both questions depend on each other...