» tax Cambridge University Conservative Association

Posts Tagged ‘tax’

Starve Leviathan

Tagged: choice, debt, deficit, Government Spending, NHS, tax, Transparency

Many theorists believe that the growth of the State is an inevitable feature of governance, curbed only by the occasional revolution. Lord Acton’s famous maxim that power tends to corrupt would lend credence to this fatalistic view.

I disagree. I think that the state can be beaten back, as it was in the 1980s in the West and 1990s in the former Soviet bloc. Let’s discuss a few ways this might be done:

1. A Transparent Tax System

People won’t realise the true costs of the State unless it’s less disguised than it now is. We now have Income Tax, National Insurance (another tax on income), Value Added Tax on consumption, Inheritance Tax, Corporation Tax, et cetera ad nauseam. Under Labour, thousands of stealth taxes and fees add to the price of almost everything. The opacity of the tax system makes us forget that the money Government spends is our money, curbing our outrage at waste.

As an interim measure, I would propose replacing most current taxes with a single Income or Consumption tax in a revenue neutral manner. Suddenly, people would see exactly how much of their money goes to the State, and I doubt many of them would be happy about it. I would expect this to lead to demands for the shrinking of the state and falling tax rates – a good thing.

(I would exclude Pigouvian taxes from this rule, since their purpose is beyond raising revenue)

2. Transparent Spending

The second transparency reform I would enact would be to include an itemised spending overview on tax returns. If someone sees that Government is spending £X,000 of their money on a programme, it is likely to provoke debate as to whether that could be done better on one’s own or, even if Government does do it, whether it could be done less wastefully. Just highlighting the cost of the Welfare State to each of us might revive debate as to whether some aspects could be done better by private charity.

It might also be worth requiring Spending bills to be more detailed about how much is appropriated for particular things. A civil servant might approve tens of thousands of pounds on the Potted Plants budget – an accountable Parliament would not. Similarly, the scandal of over-generous public sector pensions should be admitted by including unfunded liabilities in the National Debt.

On that note -

3. Debt Awareness

The National Debt is far too high. Labour plans to cut the deficit – the rate of increase in debt – but hasn’t got a clue how to deal with the capital.

The first thing we need to do is make it clear what this means to taxpayers. It means that, at some point, the Government will have to take thousands of pounds from you to repay creditors, either in tax or by reducing the value of the pound in your pocket. It means that, no matter how prudent you are with your own finances, you are about £20,000 in the red. I would require HMRC to print the total national debt and each person’s share on tax returns.

The next thing I would do is require that Budgets contain a plan to pay off the National Debt, if only in the extremely long term. We expect that indebted households work out how to get back in the black – why not government?

4. Choice

For Schooling, I would strongly advocate a local pilot scheme whereby the State gives a voucher for a certain amount of funding to each pupil who can then spend it at any school he or she chooses. I would expect that state schools would be forced to improve or lose students. It’s Assisted Places on steroids. I would permit selection on any grounds.

For the NHS, I’d advocate something similar – make it a single payer system with independent hospitals paid per procedure/result. Most of the bureaucracy disappears, and there’s finally competition.

That’s all for now. Feel free to comment on my suggestions or add your own ideas.

The Delusion of Government as the Economy

Tagged: Conservative Party, economics, freedom, Labour, liberty, Silly Lefties, socialism, statism, tax

Yesterday, Alistair Darling and Lord Mandelson (on Today and Sky News respectively) both used the same phrase to explain their opposition to stopping the National Insurance increase. They both said that it would “take money out of the economy”.

Let’s examine that claim.

1. On what planet is giving money back to the people and the productive sector taking money out of the economy? Even Keynesians accept that taxes take money out of the economy. If Labour really believe that fiscal stimulus can “save the world”, why aren’t they applauding this fine action to stop money leaking out of the economy? Economy comes from the Greek οἰκία, meaning house. The economy is simply every household in the country put together. Put another way, the economy is the people.

2. Moreover, National Insurance is at heart an appallingly inefficient tax on jobs. We have very high unemployment in this country, especially once you take into account all the fiddles used to massage the numbers. What Labour proposed was to make it more expensive to hire people and keep people employed. Tory policy will now save and create jobs. Each of those people who wouldn’t have a job under Labour has income, and pays income tax. Each consumes more, and pay VAT. It’s entirely possible that even the Exchequer will benefit from this.

So, what does this episode tell us about Labour?

a) They are arrogant statists who believe that the Government IS the economy. Labour’s massive expansion of the public sector has made them believe that there’s nothing else out there, or that it doesn’t matter. They are no longer New Labour, willing to tolerate economic freedom for the sake of prosperity. They are now hard left Socialists – they extol central planning, compel private companies to go along with the plan (see the banks) and view the free private sector as a non-entity.

b) They don’t trust people to make their own decisions. People make mistakes – that’s the nature of freedom – but the failures of liberty are eclipsed by the failures of government.

c) They think that people are fools, and will be taken in by a claim that makes no sense even under lefty economics

This is why I am Conservative: I believe that the route to prosperity for all who want to attain it is through a largely unencumbered private sector, with government only intervening where an additional cost to wider society exists. I believe that people spend their own money in a way that’s better for the economy than central planning. I believe in liberty. Labour does not.

Alistair Darling, Drag Queen

Tagged: tax, welfare state

Darling, I want to cover you in pepper and sneeze all over you…

In his speech today, the Chancellor neglected to mention that tax allowances would remain stationary at £6 475 pa.

Noting that inflation is currently at around 4%, this means that people are going to be subject to “fiscal drag”: as their earnings rise, more of those earnings become taxable.

This is particularly damaging to the low paid (costing about £48 per basic rate tax payer).

Perhaps more worrying is the fact that the personal allowance is quite so low: for many, going from the dole to a part-time job is rarely worth it, given that tax/NIC combined with reductions in benefits means that they might be working 10 hours/week for only a couple of pounds extra.

Now my advice for those who die –
Declare the pennies on your eyes

Tagged: tax

Tax his land,
Tax his bed,
Tax the table
At which he’s fed.

Tax his tractor,
Tax his mule,
Teach him taxes
Are the rule.

Tax his work,
Tax his pay,
He works for peanuts
Anyway!

Tax his cow,
Tax his goat,
Tax his pants,
Tax his coat.

Tax his ties,
Tax his shirt,
Tax his work,
Tax his dirt.

Tax his tobacco,
Tax his drink,
Tax him if he
Tries to think.

Tax his cigars,
Tax his beers.
If he cries
Tax his tears.

Tax his car,
Tax his gas,
Find other ways
To tax his ass.
Tax all he has
Then let him know
That you won’t be done
Till he has no dough.

When he screams and hollers,
Then tax him some more,
Tax him till
He’s good and sore.

Then tax his coffin,
Tax his grave,
Tax the sod in
Which he’s laid.

Put these words
upon his tomb,
“Taxes drove me to my doom…”

When he’s gone,
Do not relax,
It’s time to apply
The inheritance tax.

List of UK taxes

Income Tax
Value Added Tax
National Insurance
National Insurance Employers Contribution
Corporation Tax
Council Tax
Business Rates
Capital Gains Tax
Stamp Duty Land Tax
Stamp Duty Reserve Tax
Inheritance Tax
Alcohol Duty
Tobacco Duty
Hydrocarbon Oils Duty
Air Passenger Duty
Climate Change Levy
Aggregates Levy
Gambling Duties (Bingo Duty, Gaming Duty, General Betting Duty, Amusement Machine Licence Duty, Pool Betting Duty and Lottery Duty)
Insurance Premium tax
Landfill Tax
Petroleum Revenue Tax
Tonnage Tax
Vehicle Excise Duty
Vehicle First Registration Fee

“Taxes! upon every article which enters the mouth, or covers the back, or is placed under the foot—taxes upon everything which is pleasant to see, hear, feel, smell, or taste—taxes upon warmth, light, and locomotion—taxes on everything on earth and the waters under the earth— on everything that comes from abroad, or is grown at home—taxes on the raw material—taxes on every fresh value that is added to it by the industry of man—taxes on the sauce which pampers man’s appetite, and the drug that restores him to health—on the ermine which decorates the judge, and the rope which hangs the criminal—on the poor man’s salt, and the rich man’s spice—on the brass nails of the coffin, and the ribands of the bride—at bed or board, couchant or levant, we must pay.—The schoolboy whips his taxed top—the beardless youth manages his taxed horse, with a taxed bridle on a taxed road: —and the dying Englishman, pouring his medicine, which has paid 7 per cent., into a spoon that has paid 15 per cent.,—flings himself upon his chintz bed, which has paid 22 per cent.,—and expires in the arms of an apothecary who has paid a license of a hundred pounds for the privilege of putting him to death. His whole property is then immediately taxed from 2 to 10 per cent. Besides the probate, large fees are demanded for burying him in the chancel; his virtues are handed down to posterity on taxed marble; and he is then gathered to his fathers, —to be taxed no more.”
(Sydney Smith, Edinburgh Review, 1820)

Taxes in this country are too high and too complicated. Gordon Brown claimed that “the UK is best placed to weather the economic climate”, and that the recession will be over by Christmas. But in fact the UK economy is still in recession, unlike the US where the economy is now growing. (The Mirror’s ludicrous take on this is “Gordon Brown will be pleased Britain helped US out of recession”.) Japan, China, Germany and France are already growing again. Britain is now the world’s sixth largest economy. It used to be the fifth, but has been overtaken by Italy. They are still in recession too, which does not bode well for us. In 2000 the UK economy was 35 per cent larger than Italy’s. Under Labour, the UK economy has been suffering slow sclerotisation. Growth has been lower than it could have been, and as a result we are falling behind.

Yesterday I identified one factor contributing to slow growth: regulation.

Taxes are another.

Taxes disincentivise work. If you tax income, people will start to value leisure time more than work, and will work less. If you tax production (VAT), there will be less production. If you tax jobs (National Insurance), there will be fewer jobs. The left are happy to admit that taxes on tobacco and alcohol reduce their consumption, but for some reason they have difficulty accepting that this principle also applies to work, production and jobs.

Taxes make work more difficult. Taxes are a form of regulation, and have all the problems of regulations explained yesterday. You have to know them: you have to know what they are and how they work. They are fiendishly complicated. You have to navigate through a dense thicket of taxes and tax law before you can start a business. Or you have to hire expensive accountants and lawyers. All this has immense costs to the UK economy.

KPMG carried out an audit of the UK tax system in 2006. They found that its complication places immense burdens on UK businesses. “Some businesses commented that they are actually discouraged from conducting international trade because of the challenges faced by complying with Customs requirements.”; “This is a complex form (with over 54 boxes covering the different uses of the declaration; businesses only need to complete the boxes relevant to the shipment in question).”; “some businesses do unnecessary work believing that it is required.”; “government is constrained by the fact that 80% of the VAT burden is derived from EU legislation with no domestic discretion.”; “the large number of notifications and information retention requirements”; “the very complex range of schemes for particular types of business”; “the high degree of complexity in relation to the number of schemes that HMRC have made available in an attempt to make the VAT requirements simpler for small business. Small businesses must still familiarise themselves with a lot of information in order to make a decision on the best approach. Interview feedback indicates that they will often make that decision on the basis of what means least tax to pay, rather than an administrative saving”; “complexity (perceived or actual) of the various returns and supplementary pages, Income Tax returns [for businesses] are often outsourced and hence there are very high external costs”.

According to LexisNexis, publishers of Tolley’s Yellow Tax Handbook, the UK now has the longest tax code in the world. The 1997 handbook was 4,998 pages in two volumes. The 2009 handbook is 11,520 pages long over four volumes. It would have been five volumes and many more pages if they had not reduced the font size. Even the experts at Tolley’s find tax law “bewildering”.

Again, as detailed yesterday, burdens are greatest on small businesses. And we mustn’t forget the monetary burden as well as the administrative burden. Taxation reduces the profitability of ventures, so some ventures never get started in the first place.

Taxes are too complicated and too high for ordinary people, too — not just for businesses. The tax credits system creates marginal tax rates in some cases as high as over 100%. Someone with no job and a marginal tax rate of over 100% is never going to start a job even if they wanted to. It is not worth working 40 hours a week if it will reduce your income! Who would work 40 hours at a negative wage per hour? Marginal tax rates of 70% or more on the poor are common. Clearly, this disincentivises work, keeping people in poverty. So does the low level at which taxation kicks in. Even someone working only 20 hours per week, on minimum wage, still pays tax. It seems rather odd, given that the minimum wage is supposed to lift people out of poverty, that the state then taxes them back into poverty.

We can tell taxes are too high because they are not maximising revenue. As taxation increases, each additional increase raises proportionally less revenue. Once taxation gets beyond a certain point, each additional increase actually reduces revenue. The government’s proposal to raise the top rate of income tax to 50% will do this. (In fact, because of the withdrawal of the personal allowance, the marginal rate of tax is 60%.) The Institute of Fiscal Studies reckons the move will lose the government about £1 billion in revenue, even on optimistic projections. The total decrease in revenue could well be greater than that.

High taxes not only reduce the absolute amount of tax paid by the rich. They also reduce the percentage of government revenues from the rich. In the US, lower taxes have increased the percentage paid by the rich as well as the amount. The US has a more progressive tax system than the UK. Revenue will increase if UK taxes are cut. It will decrease further if they are raised.

Taxation doesn’t just reduce revenue. It also reduces work. Read these stunning letters — so many of them — about people deciding to scale back their work because of high tax rates. Doctors deciding to treat fewer patients, for example.

Many firms are leaving the UK because of high personal taxation and high regulation. Gradual tax reductions to a flat tax of 20% with a high personal allowance could attract them back and more. Countries like Georgia and Dubai deliberately have very low tax rates to attract business. They know they will raise more revenue in the long run. Whereas the UK both encourages firms to leave the country or to spend lots of money hiring accountants and lawyers to examine whether they should leave the country.

It’s not enough to cut taxes. On its own, that would just increase the amount the government borrows. They are already borrowing over £10 billion per month, and this will probably never be paid off.

Spending must be cut too. Even if “the rich” were taxed 100%, it would still raise nowhere near enough to fund the current expenditures of the British state.

Leftism is inherently short term. They want high spending now, even if this requires huge amounts of debt and reduced long-term prosperity. Lower taxes would cause massive wealth creation and increase prosperity for a variety of reasons. And in the long run there would be more wealth for the government to tax.

If we want a dynamic economy, taxes must be cut. If we want to stop taxing the poor, spending must be cut.

Let me tell you how it will be,
There’s one for you, nineteen for me.
Should five per cent appear too small,
Be thankful I don’t take it all.
Don’t ask me what I want it for,
If you don’t want to pay some more.

(If you drive a car) I’ll tax the street;
(If you try to sit) I’ll tax your seat;
(If you get too cold) I’ll tax the heat;
(If you take a walk) I’ll tax your feet.

‘Cos I’m the Taxman,
Yeah yeah, I’m the Taxman,
And you’re working for no one but me.

Completing devolution

Tagged: Conservative Party, growth, Labour, tax, UK, wealth, welfare state

Tony Blair’s “Clause 4 moment” was when he amended the Labour Party’s constitution to abolish their formal committment to nationalisation. A similarly significant moment for the Conservative and Unionist Party could be our renaming to just the Conservative Party.

There is just one Conservative MP in a Scottish constituency, out of 59. There are just three Conservative MPs out of the 40 MPs for Welsh constituencies.

Repealing the Union Act would significantly reduce Labour’s majority, significantly increase the forthcoming Conservative majority, and prevent Labour from governing England ever again. It would cause the centre-ground of politics to shift back to the Right.

Furthermore, Scotland, Wales and Northern Ireland have more tax money spent on them than they pay in taxes. England would be better off not having to subsidise them. But Scotland, Wales and Northern Ireland may well end up better off themselves. For example, half of all the money spent in Scotland is spent by the State, and one in four Scots are employed by the State. Independence could be the spur Scotland needs to become vibrant and productive again. It would also create tax competition, which would be beneficial for all. If they wanted, the Scotch could position themselves as a low-tax, low-regulation country and out-compete England.

The Scotch, Welsh and Northern Irish could be given the choice of whether to keep the Queen as monarch. Scotland could keep what’s left of the North Sea oil.

The principle is localism — that decisions should be taken as close as possible to the people they affect. Devolution is localist, but current devolution has not gone far enough, and has created problems like Scottish MPs voting on matters that affect only England. This is wrong. Furthermore, at the moment, the Scottish Parliament can spend money without electoral consequence. True devolution must put tax raising powers in the hands of those who spend the money, in order to make them truly accountable. Taxes should be raised locally. True devolution must give them complete control of their budgets and taxes. It should even give them control of the laws of the area.

And for it to really be effective over the long-term, it must not be reversible. The Westminster Parliament must not merely devolve these powers to the nations. Future Parliaments would always be tempted to overrule national decision-making about various things until, gradually, all decision-making had returned to Westminster. We’d end up back where we started. For localism to work, Westminster must give up the powers completely and irrevocably. Scotland, Wales, Northern Ireland and England must become independent, and the Westminster Parliament should become the English Parliament.

That would be true localism, as if we meant it.

Independence for England would not make us weaker. How could it, when in the absence of the other nations’ draining the taxpayer, we could spend more on our armed forces?

Independence would make England stronger. It would also make Scotland, Wales and Northern Ireland stronger. The Conservative Party should embrace it.

« Back to Home