The Robin Hood state: taxes are getting more progressive

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0:30

The economist.

1:31

Hello and welcome to the Intelligence from the Economist. I'm your host, Rosie Blore.

1:38

And I'm Jason Palmer. Every weekday we provide a fresh perspective on the events shaping your world.

1:43

You've probably. You've probably heard about the armies of mercenaries fighting in conflict zones around the world. Many of them come from a single country in Latin America.

1:53

And there are nearly as many people who speak Spanish in America as there are in Spain. Spanish language podcasts and books and Oscar nominees all point to a boom, but in fact, Spanish may be reaching its peak in the country. First up though, Pretty much everybody agrees that income inequality is bad and nobody is a particularly big fan of paying taxes. Governments have to do a lesser of the evils balancing act here with progressive tax systems taking a bit more from the rich than from the poor or a lot more from the rich. You might call that wealth redistribution or chalk it up to means tested entitlements, or you could just call it the welfare state. Even if in lots of places that phrase comes with lots of stigma. In an era when the richest of the rich have an even greater share of wealth than back in the robber baron days. You might think the welfare balancing act is out of balance, but if you dig into the numbers, it seems that on average, tax systems are getting more progressive, not less.

2:04

Across the world, the welfare state has turned into what you might call a Robin Hood state.

3:26

Callum Williams is our senior economics writer.

3:33

There is more redistribution than ever from the rich to the poor. And the scale of redistribution, in fact, is such that it has managed to outweigh in many cases the increase in inequality that we've seen in recent decades.

3:36

So what do you mean about this Robinhood state, the redistribution? What are you seeing in the data?

3:51

Okay, so you can analyse this in a number of ways. One simple measure involves comparing the income distribution of a country both before the welfare state and after the welfare state. And what typically happens is that the pre welfare state inequality goes down when you get the welfare state involved. And so by this meas, America redistributes from rich to poor about twice as much as it used to in the 1960s. Germany, Japan, Canada, Britain, they all redistribute much more than they used to. And in fact, if you look Globally, roughly 7 out of 10 countries today have more progressive welfare states than they did in 1990. And of the minority that have become less progressive, they tend to be very dysfunctional countries, or they were extraordinarily progressive to start with. The upshot is quite simple really. There was a big rise in pre tax inequality across the rich world that began in the 1980s. But what you've actually seen since then is that governments have become much more interested in alleviating these inequalities through the welfare state. And what that means is that in many countries, post tax inequality, so post welfare state inequality is actually no higher than it was in the 1990s.

3:56

So that's the sort of aggregate picture. But surely in different jurisdictions, the degree of that redistribution has been changing differently through the years.

5:05

Absolutely. So if you start, say with the U.S. yes, the welfare state has become a lot more progressive. So inequality of post tax incomes in the US is probably about flat, going up a little bit relative to the 1970s, 1980s. The picture elsewhere is much clearer. So say, for example, if you look at Britain, you look at France, you look at Japan and you compare the very rich with the bottom 50%. So the median person and below the 1% in recent decades. So say, for example, since the 2000s have actually done pretty badly in all three of those countries. At the same time, the bottom 50% have seen pretty strong real income growth. In Britain France and Japan. When you dig into the history of this, what becomes very clear is that, yes, you had very high marginal tax rates in the 1950s, 1960s and 1970s, but if you were rich in practice, it was very, very easy to get around those rates. And there were all these schemes that people took advantage of if you were rich. So if you were Don Draper or Roger Sterling in Mad Men, you would just put as much as you possibly could on your expense account. So you put your food on the expense account, you'd put your car on the expense account, you might even put your house on the expense account. And so that wouldn't count as income, so you wouldn't be taxed on it. So what you find actually is that back then the rich paid a lot less tax than they do today, and the poor paid a lot more tax back then than they do today.

5:15

So how much of this story then is a change in tax policy at the government level, and how much of it is just simply tightening up really leaky tax systems?

6:46

I think probably the biggest effect has been to tighten up the loopholes. It's now much more difficult if you're very rich, to avoid paying tax than it was. But on the other hand, there have been more recent moves, particularly in Europe, to increase the headline rates that the rich pay. So it's a bit of both. But I think the clamping down on tax avoidance is definitely a big part of the story.

6:56

What you were saying there seems to run counter to a lot of the stories we have heard as certain billionaires are revealed to pay very little or zero tax at all. Like the very, very rich are still getting away with it, aren't they?

7:17

Very, very wealthy people have a lot of potential ways of getting around paying high income taxes. One is that they might take income as profits rather than labor income. And that means you might pay corporation tax instead of income tax, and corporation tax tend to be lower. Some rich people borrow against their assets to fund their consumption. This buy, borrow, die, wheeze. So there's lots of belief that people do this. The evidence, I would say, is mixed. It's actually really hard to know exactly how the super super rich are doing.

7:30

But what about the other end of the spectrum? If the idea here is to reduce inequality, what's going on at the far lower end of the income SC here?

8:01

The story, I would say, is much simpler. Two big things have happened. One is that people who are sort of middle income and below pay a lot less tax now than they did in the past. That is Very clear. That's clear in the uk, that's very, very clear in the us. And the second thing is that the amount of redistribution of benefits or transfer, so whatever you want to call it, welfare, is a lot higher than it was.

8:09

What about a sort of assessment on whether all of this amounts to good policy, the degree to which is sustainable and sensible and efficient and a good way to run things so that the greatest number of people are happy and participating in the system following the rules?

8:37

Yes. So there's a trade off, I guess, between equality and efficiency. It doesn't seem unreasonable that as pre tax inequality went up, governments decided that they wanted to redistribute more from rich to poor. The question then becomes at what point do efforts to redistribute compromise efficiency? Now you are starting to see some evidence that governments are perhaps pushing things a little bit too far. So you look at the billionaires tax that is proposed currently in California. The bottom line is that you have already seen some very wealthy people move business out of the state. That probably is not great. You are also starting to see some evidence in the UK that extra taxes on the rich are encouraging people to move. Now some people say good riddance to those people, but I think there are potential costs to getting people like that to leave. On the whole though, I think it's fair to say that the sort of behavioral impacts that a few economists might have predicted from putting super high taxes on the rich have not really come to pass. And so what you're seeing now actually is a lot of politicians basically saying we can push this a lot further than we thought we could in the past. So I would say the direction of travel on balance is towards even higher taxes on the rich rather than lighter ones.

8:53

So that then speaks to broadly, on average, a reduction in inequality, which was the point of all of these progressive tax systems in the first place.

10:18

Absolutely. And if pre tax inequality rises or continues to rise, depending on where you are, then yes, I suspect that the welfare state will become ever more Robin Hoodie and the rich will face ever higher marginal tax rates.

10:27

Thanks very much for joining us, Callum.

10:44

Thanks, Jason.

10:46

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11:35

TikTok is filled with videos of Colombian soldiers recruiting other Colombians to fight in the war in Ukraine.

12:43

Carla Subirana works on the Economist's news desk.

12:50

And in them you can see men dressed in military uniform who talk about the huge amount of money they're making, the sense of camaraderie, and the sense of purpose they get fighting for freedom and justice. The market for mercenaries is booming, and Colombias are one of the nationalities that are most in demand. Some academics estimate that as many as 10,000 are fighting in foreign conflicts. And this is becoming a huge problem for the Colombian government.

12:55

Conformia allo de echos internationales no somo.

13:22

Mercenarios no somos soldado.

13:25

Carla, I find this mind blowing to hear about Colombian mercenaries going all over the world. What kind of work are they doing?

13:28

Yeah, I was very surprised when I found out too. So their work falls into three categories. So the first would be security work, which would be guarding compounds abroad or oil rigs. This is quite low paid, low risk security work. Then there is another category which is higher paid, higher risk, which would be joining criminal organizations. And then the third category would be fighting in foreign conflicts like in the war in Ukraine. And it's really hard to know how many of those men are out there because the Colombian government doesn't have an official tally, but around 3,000 are thought to have fought in the war in Ukraine since it started. There have also been accounts of Colombian soldiers fighting in Sudan civil war and also in Mexico's cartel violence.

13:34

So there's a growing body of international mercenaries. Why are so many from Colombia?

14:24

So part of it is because supply is growing. Colombia has One of Latin America's biggest army. And their forces expanded a lot during the worst parts of the campaign against guerrilla groups during the early 2000s. And that cohort is cycling out of uniform now. And the military's rules are sort of accelerating the exit because soldiers are typically forced to retire when they turn 45 years old or when they've been in service for 20 years. And those who are passed over for promotion are required to leave altogether. So the result is sort of a steady stream of soldiers leaving the forces at a relatively young age. And those people are in high demand. Colombia has a long tradition of cooperating with the United States armed forces. And so they're very familiar with NATO standard weapons. They have a lot of experience on the field because they've actually fought a war which a lot of NATO trained soldiers haven't. I spoke to Elizabeth Dickinson from the International Crisis Group, and she told me that those soldiers are in really big demand.

14:29

See, wow. Colombians are actually really cheap and really qualified. Let's, you know, let's, let's activate this market ourselves.

15:40

That makes them very easy to deploy.

15:47

It's dangerous work though, going to fight in conflict zones around the world. Why do these former soldiers want to keep on with it?

15:49

Well, the main reason is that Colombia doesn't have a comprehensive veterans policy to support soldiers that leave the armed forces. So when you exit the armed forces, you normally lose all of your institutional support. You lose healthcare, insurance, housing. And there are few jobs that reward military skill. And there isn't really a policy of retraining. And of course the Colombian economy is not doing great. So even if they get a job, salaries are very, very low. So basically you have a lot of young former soldiers who are unemployed and who have very, very low pensions. And Elizabeth was telling me about the modest pensions that those soldiers receive.

15:57

I was recently with a friend who was retired military and he showed me an advertisement that was circulating. He said, look, my pension as a retired colonel is about $450 a month. But in Ukraine, for an entry level fighter, they're offering $10,000 a month. So, you know, you just can't compete with sort of.

16:38

There are some other factors that are pushing them abroad as well. One of them would be politics. So relationships between the military and Gustavo Petro, the president, have been shaky since he came to power because he was a former guerrilla. So the military has always been very wary of his intention. Early in his term, he implemented the so called total Peace Policy. He decided to negotiate with all armed groups simultaneously and scale back operations on the field. And these really frustrated commanders, around 13,000 soldiers are thought to have left the armed forces voluntarily since he took power.

16:59

So how does the Colombian government respond to all of this?

17:36

Well, this is a really big problem for the government, not least because a lot of its citizens are dying in foreign wars, and a lot of them are being deceived. A lot of the recruitment is done through social media, so claims about pay and insurance are often exaggerated. Then another problem for the government is the diplomatic fallout. So Colombian citizens have been implicated in very serious crimes abroad. So, for example, in 2021, some Colombians were linked to the assassination of Haiti's president. And also Colombians are thought to be fighting with the RSF in Sudan civil war. So the Colombian government was forced to apologize to Sudan's government last year. And allegedly Colombian networks have been training child soldiers in the conflict. So this is a really big problem diplomatically. And a final concern is that some Colombians are sent to Ukraine to pick up skills such as drone warfare, which are already emerging in the country's gang violence.

17:40

But private armies aren't going away, are they? So there's going to continue to be this flow of mercenaries around the world?

18:39

Yes. Mercenarism is expected to continue to increase, which is why the government is very worried about this. And they've actually started to adopt some measures to try to stem the flow of their own citizens abroad. So last year, they ratified the UN Anti Mercenary Convention, which aligns Colombia with norms that criminalize those who recruit and hire mercenaries. But this will probably have little impact because most countries that hire mercenaries have not ratified the convention, which means that Colombia can do little beyond its own borders. And then a lot of the international groups that hire mercenaries, they actually hide it by labeling the work as training or security. The single biggest thing that the government could do should be to support its veterans. Better to avoid them continue to be pulled abroad, because without it, the incentives will continue to be there, and foreign conflicts will continue to offer what Colombia doesn't offer them, which is work, pay, and a sense of purpose.

18:45

Carla, thank you so much for talking to me.

19:51

Thank you, Rosie.

19:53

It's easy to think that the Spanish language is rising unstoppably in America. Or I should say, es FA sil pensar que lidioma espanol est accresiendo de forma imparable en estados Nidos.

20:12

Lane Greene is a senior digital editor at the Economist and is our local language guru.

20:24

Bad Bunny has seemingly helped the language's cause, winning at the Grammys for an album entirely in Spanish and then performing primarily in Spanish at the super bowl halftime show. It sounds like good times for the language in the United States, but we could be seeing the peak of the language in America, not its rise. More than 40 million Spanish speakers live in the United States, which makes it the world's fifth biggest Spanish speaking country. Interest in learning Spanish is up a lot among non native speakers, according to Babbel, which makes language learning software. Spanish podcasts are gaining listeners, Spanish speaking artists are getting more Oscar and Grammy nominations, and Spanish speaking books are being checked out more from libraries. This all sharpens a decades old fear of America becoming a bilingual country, fundamentally one different from one most Americans new. That fear though, is unlikely to be realized. The number of Spanish speakers in America will probably plateau and then eventually go into reverse. One reason is obvious. Immigration policy. The flow of immigrants across the southern border from Latin America under Donald Trump has become a trickle. Another trend is less visible in the headlines, but just as important, the longer that Latino families stay in America, the less Spanish they speak. Polls suggest that around 2/3 of second generation Latino immigrants, that is to say, the first generation born in America speak Spanish and that drops to just over 1/3 for the generation after that. That means that overall about 57% of American born Latinos speak Spanish. This shouldn't be too surprising. After all, the decay of languages in America across the generations has happened to other immigrant groups before. Spanish speakers fret about the fate of their language in America. So called no sabo kids are those who speak Spanish badly, if they speak it at all. No sabo is a sort of spanglish mangling of the phrase for I don't know the irregular phrase which is supposed to be no se in proper Spanish. A majority of non Spanish speaking Latinos in America admit that they've been shamed by other Latinos for not speaking Spanish. But nearly 9/10 of American born Latinos say that speaking Spanish is not necessary for them to be considered Latino. Meanwhile, America is changing Spanish as much as Spanish is changing America. Borrowings from English are extremely common. In Spanish spoken in the United States, words like building and high school for building in high school pop up all over the place. American Latinos are even borrowing grammatical structures from English when they speak Spanish, saying things like es la chica que hable con meaning that's the girl I was talking with. This is bad traditional Spanish, which would require something more like that's the girl with whom I was talking. I started learning Spanish myself in high school when a growing number of Mexican immigrants in my hometown of Atlanta seemed to make it the language of the future. In a certain way, America's assimilation machine has turned waves of Germans and Italians and Poles and Greeks into monoglot Americans. Once upon a time, thanks to bilingual schools, Spanish television and radio, it looked for a while that Latinos might be the exception to that old pattern of assimilation. It turns out they're not. Donald Trump won nearly half of the Latino vote in 2024. More than 1 third of Latinos support making English America's official language. In fact, it seems that Spanish is the language under the threat now in America, and certainly not English.

20:31

That's all for this episode of the Intelligence. We'll see you back here tomorrow.

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