From the FT:
Sir, Robert H. Wade (Letters, January 8*) lays the blame for the current crisis on the market. At a superficial or symptomatic level this may well appear true, but should we not first look at the laws under which the market functions before blaming what to this writer is the messenger, not the author, of the message?
Even a relatively cursory examination of our system of taxation indicates that tax is levied in a way that causes huge distortion to the operation of the market. Income tax on labour, for example, is not a tax on income, it is a tax on employment, as are the misleadingly named "national insurance" contributions. Having been penalised for trying to support themselves, the working taxpayers also pay value added tax, which is not a tax on value; it is a tax on consumers**, who add no value but have to pay the price of their consumption.
Of the three factors of production, both labour and capital bear most of the burden of taxation, but the third, land, is heavily protected from such burden, and thus a highly attractive investment, resulting in a huge amount of finance being made available for its purchase to the detriment of industry and commerce.
The availability of such finance and the resultant boom in land prices is not caused by the market, it is caused by the distortion created by the rules, the creator and sustainer of which is the government. This is fine for the government, as putting the blame on the market enables it to extend the reach of its power by increasing controls on it.
So Prof Wade is rightly concerned about the protection of employees, but is not the real damage being done to them by the government-made rules and not by the market processes specifically encouraged by such rules?
John Read, London, UK.
* Mr Wade was responding to a one of last week's Reader's Letters Of The Day.
** I'd disagree on this point - VAT is actually a turnover tax which drives a wedge between willing sellers and buyers, and is hence a tax on production and on consumption, but hey.
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12 comments:
Or to put it another way - taxation is bad on whomever or wahtever it is levied and massive taxation is massively bad.
I sort of agree, but the point is more fundamental.
High tax = bad, but high tax on some sources of income (A) combined with low taxes on other sources (B) not only depresses the highly taxed source A but shuffles resources from A to B, so that's a treble distortion.
Far better to tax A and B at the same flat rate. Sure, the lower that flat rate the better, but the flatness is just as important as the lowness.
Hence my objection to the idea that interest income be taxed at 0%. Far better to reduces taxes on business and employment by a smidgeon.
"Far better to reduces taxes on business and employment by a smidgeon." ...or a lot.
L, sure, the MW manifesto is reduce the average % burden by about one third, but I would leave interest income taxable at 20% and scrap ISAs and all this nonsense.
Yep, scrap all the prks and plans, but levy a flat tax rate on all income whether savings investment or earned. Keep it simple.
Why Tax Income at all? The government didn't earn it, you did.
What would be the effect of this? Employment would go up as using someone else's time becomes vastly more affordable.
Tax Land not Peoples Time.
AC1, one step at a time, one step at a time!
And maybe 'the government' didn't earn it, but it provides part of the framework that enables you to earn it. I mean, would you rather be in some hellhole in Africa paying 0% tax or in the UK paying 20% or 30% tax? Millions of Africans seem to prefer the latter.
As Milton Friedman said, the next least-bad tax after LVT is a flat tax on all incomes.
MW
"As Milton Friedman said, the next least-bad tax after LVT is a flat tax on all incomes."
Not that I disbelieve you but please tell me where he wrote/said that.
U, he said it here.
U, for what it's worth, Adam Smith said as well, summarised here.
MW
Thanks. I know he favoured flat taxes but had not realised (or had totally forgotten) that he was a fan of LVT. Mea culpa particularly as I attended his lectures at U of Chicago.
Interesting that in your quote MF suggested auctioning off the US gold reserve. Do you think Gordo is a secret admirer? Or maybe this is one of MF's rare mistakes. In MF's defence I would say that he suggested this in the context of ridding the US of a "nationalized industry" in gold holding so I suspect his remarks must have been (partly) tongue in cheek.
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