Tuesday, 31 January 2012
From The Daily Telegraph:
The Department of Health is considering plans for a major drive to reduce the number of people going into care homes and reduce the cost of social care.
The centrepiece of the initiative would be Government-subsidised loans to the elderly to fund home improvements including downstairs bathrooms, stairlifts and other "property improvements" that would allow them to stay in their own houses longer.
Younger people will also be urged to volunteer to spend time with elderly neighbours, helping address the loneliness that helps push some into care homes.
As politicians struggle to overhaul the fragmented social care system, ministers are looking for new ways to reduce the flow of older people into residential care, which is much more expensive than remaining at home.
This is getting beyond satire.
From The Metro:
Teenagers are increasingly the victims of cyber crime, which causes more losses than being stabbed on a bus or at a bus stop, Theresa May said. A new National Crime Agency will help tackle this and make people feel safer, she said.
Mrs May said: "Increasingly, the biggest criminal losses do not come from gangs of feral youths of whatever skin colour who attack and stab members of rival gangs or people of a different race, but from the cyber criminals who say hurtful things online. A teenager can now be at greater risk sat [sic] in their bedroom [sic] on their computer [sic] than waiting for the 'bus.
"That’s why we need a new crime-fighting force that works across different police forces and agencies, defending our borders, coordinating action on economic crime, protecting children and vulnerable people, and active in cyber space."
In a speech on police reform in London, Mrs May outlined plans to offer more protection from antisocial behaviour to stop the ‘horror stories’ of victims being ignored despite making repeat complaints. HM Inspectorate of Constabulary said last week few crimes were recorded from anti-social behaviour cases and the identification of repeat and intimidated victims was ‘poor’.
A police spokesman said: "Look at it this way, if it's a choice between pounding the beat at night to make people feel safe and possibly having to chase after knife wielding maniacs; or simply sitting in the station mucking about on the internet, then it's pretty much a no-brainer. You wouldn't imagine how upset these kids get when even we ignore them, it's hilarious."
You can download the main rates of tax on earned income at the HMRC website. The official basic rate of income tax has come down from 35% to 20% since 1975, but this is completely misleading, as this was merely offset with corresponding increases in every politician's favourite stealth taxes: VAT (currently 20%), Employer's National Insurance (currently 13.8%) and Employee's National Insurance (currently 12%).
You can't just add the rates together, the overall rate is (thankfully) not 20% + 13.8% + 12% + 20% = 65.8%. The more scientific approach is to ask, if you as a consumer spend £1 on the output of a non-monopoly, non-special-interest business, how much does the government take before an average employee can be paid?*
As we see, the overall effective rate has stayed pretty constant at around 50% since shortly after VAT was first introduced, so the benefits of the basic rate income tax reduction are only felt by certain favoured groups or certain favoured sources of income: * For illustration, using this year's rates, for every £1 you spend...
- VAT is not 20% of that, it's one-sixth of that, i.e. 20/120 = 16.7p goes in VAT;
- This leaves 83.3p out of which wages are paid. Employer's NIC is 13.8%, so Employer's NIC is 13.8/113.8 of the 83.3p that's left after VAT = 10.1p goes in Employer's NIC;
- This leaves a maximum of 73.2p to be paid out as wages;
- Employee's NIC is 12% of 73.2p = 8.8p goes in Employee's NIC;
- Basic Rate Income Tax is 20% of 73.2p = 14.6p goes in Basic Rate Income Tax.
Monday, 30 January 2012
There was a late surge in last week's Fun Online Poll, and the final result in the second and final round is as follows:
Which is your preferred option?
Abolish the Scottish Parliament and scrap devolution - 53% (29%)
Full independence for Scotland outside the UK - 47% (41%)
The figures in brackets are the votes for those two options in the first round held the week before. So there was a slight change of heart in the final round, but that is the end of that, the people have spoken.
The government is bleating on about maybe cutting taxes or reducing government debt but is not actually doing either. If we rule out tax increases to eliminate the annual deficit, then the only option is to reduce spending.
The Public Sector Finances Databank (available here, Excel), tells us total government spending and tax receipts back to the 1970s. Forecast total revenues (mainly taxation but also other bits and pieces) for 2012-13 ar £594 billion (Tab C2) and spending is pencilled in at £715 billion (Tab B1), giving us a deficit and increase in total debt of £121 billion, which strikes me as pretty horrific.
If we assume average price/wage inflation of 3% a year, it is easy to go back and identify the last year in which government spending was no more than £594 billion in real terms, which happens to be 2003-04. Spending in that year was £456 billion, using Excel, 456*(1.03^9)=594, so in real terms it was £594 billion.*
So that's this week's Fun Online Poll. Vote here or use the widget in the sidebar.
* If you are happy to return us to The Dark Ages of the 1997-2001 Labour government, then spending would be about £500 billion a year and there'd be scope for pretty hefty tax cuts as well, we'll deal with that possibility later on.
Sunday, 29 January 2012
1. I have mused on this topic before, see e.g. Inefficient Markets Hypothesis, The multi-billion Chinese investment in Thames Water was no such thing and Beyond The Corporation, part 1, part 2.
2. Please note, I am not talking about the respective merits of banks or building societies, this is about having a system which has the benefits of public limited companies without the drawbacks and applies to all types of businesses (not just banks/building societies).
3. It is claimed that the big benefit of being able to switch your investments between different types of business, by selling shares in one and buying shares in another is that this leads to an efficient allocation of capital. If you do it properly and you are lucky, then yes, this leads to an efficient allocation of your own money, but there is a complete disconnect between what you are investing in (the shares) and the real underlying investment in productive capital (which is carried out by the companies whose shares are bought and sold). So whatever signals the secondary market in shares is sending, there is little or no link between that and what businesses are actually doing.
4. People are unfamiliar with Limited Liability Partnerships (which are a far better corporate structure than a limited company for small and medium sized businesses), so let's talk about how things would work on the scale of large plc's if their share capital/reserves side were structured in the same way as building societies. In other words, instead of a company having assets of (say) £1 million and share/capital reserves with a balance sheet value of £1 million, but whose shares might be worth a multiple of that, the company would just have 'members' deposits' with a balance sheet value of £1 million.
5. The gimmick being, that you cannot 'sell your shares' in a building society to a third party on the secondary market, if you want your money, you just withdraw it and somebody else invests in your place. Unlike with companies limited by shares, there is no distinction between the 'primary market', i.e. shares being issued (where an investor gives the company cash for shares) and the 'secondary market' where the first investor sells those shares to a third party, who can sell them on to a fourth etc.
6. If quoted plc's were like building societies, then at the end of every profit period (a year, a month, a quarter, it does not matter), the company would draw up a new balance sheet and allocate the increase in value (the profit) pro rata to all members' deposits, instead of paying out part of the profits as dividends on shares.
7. At any time, some members will want to withdraw some of their profits or their deposits and others will want to invest in that business, so the company will end up running simplified deposit accounts for all members (which is perfectly do-able - banks and building societies manage). The company might have to limit the amount which members can withdraw or limit the amount of new deposits which it can accept, so there might have to be some sort of waiting list approach or a cap on withdrawals/new investments. Withdrawals and new investments are to a large extent equal and opposite, so if a company accepts cash deposits it doesn't really need it will have spare cash to repay those who want to cash in immediately - which is how it works with banks and building societies.
8. So this would save investors the bother of doing two quite separate analyses: the first being an analysis of the health of the underlying business and the second being an analysis of how the share price is doing and what future dividend payouts are likely to be. Instead, you would just look at the list of public traded companies in the financial pages, and for each one it would say:
- what the profit share in the last profit period was as a percentage of deposits (the higher the better as far as investors are concerned;
- how long the waiting list is to invest in that company (if there is one), and
- whether there is a restriction on withdrawals, i.e. because the company is making losses, because it plans to expand in future and/or because not enough new investors want to put their money in.
9. To make a comparison between the two:
- Let's say that a quoted plc started the year with total assets £1 million, made profits of £200,000 (so now has £1.2 million total assets) and intends to pay out £120,000 as dividends (keeping £80,000 for future expansion). Dividend yields are currently 4%, so all things being equal, the shares in that company are worth £3 million. £1.2 million of that £3 million is real wealth (the real net assets of the business) and £1.8 million is pure speculative value; it's a nice capital gain for the original investors but a potential capital loss for future investors.
- Using the building society funding model, the total assets are also £1.2 million, and 20% is added to members deposits b/f of £1 million, and the directors announce that members may withdraw up to a tenth of the face value of their deposits (i.e. up to £120,000). If the directors know that there is a long waiting list of potential new investors, then the one-tenth figure will be increased of course, that's just details.
10. The two big advantages of the building society funding model are:
- There is no speculative capital gain to be made - either you are happy leaving your money with this business and earning 20% a year in profit share (or interest) or you want to withdraw your money, either to spend it or because you want to invest it in a different company which pays 25%, or which pays less than that but which has a safer business. Now, some people will bemoan this, but one man's capital gain is just another man's capital loss. If you are lucky to get into a successful company right from the word go, then you can sit back and be paid your 20% return each year, withdrawing or reinvesting it as you please, which is a better way of doing things that sitting there waiting for the right moment to sell your shares (i.e. just before the share price collapses).
- Instead of focusing on things not directly related to the actual business (like the share price or the dividend yield), investors will just look at how profitable businesses actually are, i.e. how much interest they pay on deposits. So profitable businesses will find it easy to attract new investment and the directors of not-so-profitable businesses will have to up their game to prevent members wanting to withdraw everything (like a 'bank run', only this would be a 'company run'). In extremis of course, the members would sack the management and either install a new one or just sell off all the assets, shut the company down and take their cash elsewhere. For the investors, this will be a lot less risky than with a plc, because they won't have paid £3 million for their shares, they will not have paid more than £1.2 million (using the same figures as above).
Saturday, 28 January 2012
As widely reported last week, for example in NHS News:
... a study... assessed the brain activity of 104 infants aged 6-10 months as they watched an image of an adult’s face whose eyes moved from looking away from them, to directly at the infant, then away again. Researchers called these eye movements ‘dynamic eye-gaze shifts’.
They then assessed whether differences in brain activity in response to the eye-gaze shifts were related to autism developing in the same children at three years. Children who did not develop autism showed large spikes in brain activity when they saw the ‘gaze shifts’. Much smaller spikes in brain activity were detected in the infants who went on to develop autism, raising the prospect that autism could be identified earlier than is currently clinically possible.
However, this test was not 100% accurate...
Well of course it's not 100% accurate, as autism is not a yes/no condition, there is an infinitum spectrum between 'completely shut off and irresponsive to other humans' and 'completely with it most of the time', but none of this surprises me.
As I have pointed out before*, for some reason intelligent creatures, most noticeably small babies, like staring you straight in the eyes and appreciate it when you reciprocate. Therefore, by reverse logic, there must be something a bit wrong with small babies who don't do this, or more to the point, who don't find it unusual if you don't look them straight in the eyes.
On a related topic, I'm sure that I read a science fiction book as a kid where the aliens/clones control people's minds by looking them in the eye, and the children make their alien/clone teacher's head explode by focussing on a spot six inches to the left of the teacher's face.** My fellow conspirators and I have tried this technique in Pointless Team Meetings and it does genuinely make the speaker very flustered. The technique is certainly up
their there with Bullshit Bingo.***
* As it turns out, my observation that small children don't blink is an accepted fact, explanation here.
** Was that The Midwich Cuckoos? In which case swap round children/teacher.
*** If nobody wants to play, my other fall back is counting all the squares in the carpet, all the tiles in the ceiling or all the panes in the windows - not counting the rows and columns and multiplying, but counting them one by one and starting again if I lose count. When it's finally over, I am usually pleased to establish that I genuinely can't remember a word anybody said and don't have a clue what the meeting was about.
A chap from the Chartered Institute of Housing has had a fine article published in The Guardian. Here's one of the key bits:
Those with no or only small mortgages also benefit from not being taxed on the value of their home (as used to happen through the old schedule A tax). This tax relief is now valued at over £11bn (1). Pooling these benefits and adding back in the stamp duty and inheritance tax of approximately £5bn that owners do pay, the net subsidy received is still a surprising £12bn per year.
Of course it's true that no government is likely to restore schedule A tax, but even disregarding it the outcome is that owners pay no net tax at all (council tax doesn't count as tenants pay it too). As Professor Steve Wilcox points out, the existence of these tax advantages means that house prices are far higher than they might otherwise be, benefitting existing owners at the expense of those struggling to enter the market.(2)
1) Wildly understated, it's more like £40 billion a year, assuming non-cash income from owner-occupation were taxed at the same rates as earned income. The biggest figure which the Home-Owner-Ists can pluck out of the air for the value of the subsidy to social housing is about £7 billion, being the difference between headline rents and 'below market rents', which may or may not be true, but that's the total value of rent savings accruing to four or five million households in social housing (a third of whom are pensioners, you can't possibly get more money out of them).
That £7 billion notional cost benefitting four or five million households pales into insignificance against the £7 billion actual cash cost of Housing Benefit paid to to a few hundred thousand private landlords who rent out (approx) one million dwellings to tenants on benefits. if we didn't pay this subsidy, then clearly rents in the private sector would fall accordingly and assuming social rents stayed the same, the £7 billion notional cost would also drop quite significantly.
2) This is what enables the Homeys to maintain the illusion that housing is not subsidised, it's because they/the government has organised things so that money automatically flows straight from private pockets into other private pockets, rather than the government openly taking that money in taxation and then paying it to the ultimate recipient.
Consider: if the government collects tax and gives it to owners of wind farms, that is clearly a subsidy. If the government tells the electricity companies that they have to pay money to owners of wind farms and the electricity companies add that cost to our electricity bills, I think we'd agree that is also a subsidy.
But what if the government just tells the electricity companies that they have to source at least ten per cent of their electricity from wind farms, no matter what they charge or what it costs? The extra income that the wind farm owners get by being able to charge pretty much what they like is a subsidy exactly like the first two cases; the fact that money goes from private pockets directly into other private pockets is irrelevant.
H/t Drewster at HPC.
This one from yesterday's Guardian is absolutely awesome. The writer (an African-American woman who doesn't appear to like men of any colour) is quite possibly the most prejudiced writer to grace those pages for simply yonks (for example, she seems to assume that people should marry others of the same race; she's clearly unhappy being single but looks down on married people) and lacks any sort of self-awareness. Everything is always somebody else's fault:
It's cast as a crisis for the African American community, but the subtext is that women should settle down – and settle for less... Over the last decade, America has been playing an increasingly aggressive game of "What's wrong with you, then?" with heterosexual single black women.
US marriage rates are dropping, according to a recent Pew Research Center study. But African Americans marry even less often than their white counterparts. According to the 2010 census, just over 26% of white Americans aged 15 and older have never married, compared to 47% of the black population.
We are told that the "black marriage crisis" (pdf) affects none so much as black women. Though black men are equally unmarried, news articles, panel discussions, special reports and books solely lament the fact that black women are half as likely to marry as white women.
There are, of course, many complicated reasons for this gap. Experts cite numbers: there are more American black women than men; higher rates of interracial partnering among black men; bias against black men in the criminal justice system and the legacy of slavery. There is also the achievement gap: black women outnumber black men in higher education more than two to one, and this often creates a wedge of opportunity and class between them.
But no reason seems more compelling than the idea that black women need to change who they are and what they want. In Is Marriage For White People?, Ralph Richard Banks tells black women to date more nonblack men. In an interview with gossip site NecoleBitchie.com that exploded around the web, actor and singer Tyrese cautioned black women against being "too independent".
And so on and so forth. If there's anybody she hasn't been rude about, I'd be pleased to hear who.
Friday, 27 January 2012
Eighteen Thirteen seconds of awesome!
From The Taxpayer's Alliance:
The key findings of this research are:
• Total employer (taxpayer) contributions amounted to £5.063 billion (1) in 2010-11. That is equivalent to £1 in every £5 of Council Tax (2). In 2009-10 the figure was £5.079 billion.
• In 2010-11 4,548 councillors were enrolled on the LGPS, an increase of 252 from the previous year’s 4,296. This has increased significantly from 3,527 in 2007-08 (3)
1) The LGPS website says that the scheme has 4.6 million members, so average contribution per member is only £1,090 per year, which seems startlingly low actually.
2) On a rough and ready actuarial basis, it's easiest to ignore indexation, inflation and investment returns as they net off to +/- not very much and assume that they live for twenty years after retiring. This means that if an employee is promised a pension equivalent to half his salary after forty years' continuous employment, the annual cash contribution (these schemes are funded, unlike civil service pensions) has to be around twenty-five per cent of his salary each year.
So any employer who offers a final salary pension scheme has to pay £1 pension contributions for every £4 salary, or £1 for every £5 of his total budget for wages/pension budget. Why is it a surprise that this applies to local councils as well?
So far so good... but the TPA are doing a meaningless diagonal comparison between two entirely unrelated figures: Council Tax only covers a small part of council expenditure, three-quarter is from central government out of Business Rates and general taxation. So if truth be told, councils are only spending one-twentieth of their budgets on pension contributions, another quarter (four-twentieths) on salaries and the rest on... what exactly?.
This is the worrying bit, the unknown unknowns! Local councils waste a far smaller percentage of their budget than national government, but I'm sure they make a lot of payments from which the general public derives no benefit. The TPA have come up with plenty of such examples in the past - in terms of identifying and pillorying waste and corruption, they are usually spot-on - but not this time. Some of the underlying salaries might be waste; but the pension contributions in themselves most certainly are not.
3) Agreed, that is a bloody outrage. Isn't being a local councillor supposed to be a voluntary, part-time thing?
From The Daily Mail:
Nick Clegg yesterday demanded a £9billion tax raid (1) on ‘serious unearned wealth’ (2) to pay for tax cuts for low and middle income earners. (3)
The Deputy Prime Minister pointed out that billionaire oligarchs with £20 million properties do not pay much more council tax than people in homes worth a fraction of that price. (4) He also pushed for new taxes on air travel and pollution. (5)
The Liberal Democrats are privately backing ‘super’ council tax bands above the current top band, I, which kicks in on homes which were worth more than £424,000 when the bands were created in 1991. (6) This is a variant of the party’s demand for a ‘mansion tax’ on properties worth more than £2 million, which has been rejected by the Tories.
Mr Clegg insisted that his planned reforms were aimed at the super-rich. He said: "I know the mansion tax is controversial, but who honestly believes it is right that an oligarch pays just double the council tax of an average homeowner, even if their house is worth 100 times as much? And who seriously thinks we would kill aspiration through a levy on the 0.1 per cent of the population who own £2million homes? (7) The mansion tax is right, it makes sense and the Liberal Democrats will continue to make the case for it. We’re going to stick to our guns."
However, local government secretary Eric Pickles is opposed to tinkering with council tax bands because he fears it will spark a nationwide revaluation process that the Tories have promised to avoid.(8)
1) Some people refer to all taxes as "a raid". Meaningless.
2) It's a big mistake describing the rental value of land as 'wealth', that allows the Home-Owner-Ists and Faux Lib's to confuse the issue. While it is a good measure of the wealth of the whole economy, land rental values are themselves not net wealth at all, as one man's benefit is another man's burden. This does not apply to any other form of true wealth: does anybody get poorer if my neighbour gets a pay rise and buys himself a nice new car?
3) Hooray! That's a sensible adjunct to reducing people's benefits slightly.
4) At the very least, they could slap a Mansion Tax on all housing owned by non-UK resident persons (as somebody suggested to me yesterday), and in the interests of fairness and administrative simplicity, scrap the £30,000 levy on non-domiciled UK residents.
5) I don't agree. The best tax on air travel is on the value of the landing slots, this has little to do with the environment, as such.
6) I love this bit! Doing the revaluation/rebanding would, by The Morbidly Obese One's own admission only cost around £5 - £10 per home, HM Land Reg have got all the information they need on its databases. All that remains to be decided is
a) Whether homes will be banded by capital or rental values; and whether those should include the value of the bricks and mortar or just the land.
b) What the total receipts will be. Council Tax currently raises +/- £25 billion, so if he wants an extra £9 billion to pay for higher personal allowances, that'll go up to £34 billion. £1 million+ homes in Band Z would end up paying £10,000+ a year in New Council Tax, so people will then (correctly) point out that Stamp Duty Land Tax and Inheritance Tax are double taxation (at the moment they aren't - they merely tax the value unaffected by Council Tax), so let's scrap those as well (increasing the required total receipts from New Council Tax to +/- £40 billion), and so on and so forth, the resulting tax bills would end up at +/- one per cent of the current value of a home, so much the same as Council Tax for most homes.
To put that in perspective, £40 billion is about 6% or 7% of all tax revenues, i.e. not a huge amount, really, and still a lot less than income tax, VAT or National Insurance Contributions.
7) Good question. Allister Heath from City AM claims that this is entirely justified, and he can't be the only one.
8) When Council Tax was introduced in 1991 - it only took them a few months to do the valuations and get everything in place, of course, and it'd be even quicker nowadays with computers and everything - was there a promise that the bandings would never, ever be reviewed or updated? Methinks not. In other countries (most US states, for example), all houses are revalued annually, or certainly very regularly.
I'm glad it's not just me who's noticed the insanity of all this, as summarised in a recent Evening Standard
European sovereigns [governments] and banks need to find €1.9 trillion to refinance maturing debt in 2012. Italy alone requires €113 billion in the first quarter and around €300 billion over the full year.
Given that banks and investors have been steadily reducing their exposures to European countries and banks, the ability to finance this debt is uncertain. The bailout fund and the International Monetary Fund, with around €200 billion to €250 billion each, cannot absorb this issuance.
The only solution - "Sarko-nomics" - is for European banks to purchase the sovereign debt, which is then pledged as collateral to borrow unlimited funds from the ECB or national central banks. This perpetuates the circular flow of funds with governments supporting banks that are in turn supposed to bail out the government.
Thursday, 26 January 2012
From The Evening Standard:
White House hopeful Newt Gingrich today promised to fake footage of a permanent US base on the moon by 2020 if he beats Barack Obama to become president. The former House Speaker, front-runner to win the Republican ticket after his surprise win in South Carolina, also wants America to fake footage of a voyage to Mars.
On the campaign trail in Florida, where the next primary will be held on Tuesday, he said: "We want Americans to think boldly about conspiracy theories of the future. By the end of my second term, we will have the first almost-credible CGI of a permanent base on the moon and it will be American. We will have commercial near-earth activities that include cover-ups, hush money, unexplained suicides and dream manufacturing, because it is in our interest to acquire experience in trying to create the illusion of space travel. Hollywood clearly has a capacity that the Chinese and the Russians will never come anywhere close to matching."One small step for a cameraman, one giant leap for Obama's chances of re-election.
Nasa's film department recently suffered a brutal round of spending cuts and the plan will be strongly supported by the special FX community, which fought in vain to stop Mr Obama wielding the axe. Mr Gingrich, 68, said the advertising slots during any TV broadcasts would mean the project pays for itself - he would offer part of Nasa's PR budget as a prize to tempt commercial innovation and investment.
"I'm prepared to gamble the last prestige of the presidency in communicating and building a nationwide movement in favour of nigh-on convincing grainy film of space," he said. "If we do it right, it'll be wild and it will be just the most fun you've ever seen."
The announcement took many by surprise as space has not been on the agenda in an increasingly nasty Republican election. Mr Gingrich's 12-point victory at the weekend stunned Mitt Romney and his team and left them playing catch-up. Mr Romney moved quickly to promote building movie sets based on space exploration. He said: "What we have right now is a president who does not have a vision or a mission for Nasa's publicity department. I believe our space 'programme' is important not only for the film industry, but also for commercial gamers and for glamourising the military."
The BBC have reassuring news for all those who weren't too worried in the first place:
Alcohol related deaths in the UK have increased slightly between 2009 and 2010, according to official figures. The number of deaths linked to drinking has gone from 8,664 to 8,790 - a rise of 126. The Office for National Statistics said the increase was due to more deaths in men.
However, the long term trends in men have been relatively stable, with a small rise in 2010 cancelling out a small fall in 2009. Figures which take account of changes in the size and age of the UK population showed the alcohol-related death rate has hovered at around 18 deaths per 100,000 men since 2003, after earlier increases.
The number of women dying as a result of alcohol has fallen slightly between 2009 and 2010, however, the long term figures show the death rate is stable at just over eight per 100,000 for women... The report said alcohol consumption had fallen since 2002...
So nothing to worry about then, really. But apparently somebody didn't get the memo:
... The Public Health Minister for England, Anne Milton, said: "We will set out a new approach to tackling alcohol harm shortly in our alcohol strategy for England. As part of that, we will be giving local councils the power and the budget to help them tackle the huge variations we see in levels of harm in different regions of England. Before that, next month, we are launching new Change4Life adverts which, for the first time, will help people realise the damage drinking too much can do to our health."
Wouldn't any sane and normal person think, oh, this is good, one thing fewer for us (or the government) to worry about? Or is this some Pavlovian reflex where a Minister sees the words "alcohol" and "deaths" near the top of a bit of paper and just spews out the same mini-speech yet again without even bothering to read the first couple of paragraphs?
Wednesday, 25 January 2012
Ho hum. This morning's short list was "AC/DC songs named after a type of fish".
Former Tory got the obvious one, "C.O.D." straight off. The others I can think of are "The Jack" (from the albums "TNT", "High Voltage" and "If You Want Blood, You've Got It") and "Big Jack" (from their recent album "Black Ice"), 'jack' being the popular name for several species of fish. Was it really that difficult?
So let's try an easier one: "Popes who named themselves after members of The Beatles".
Here's a round-up of the week's squealing. It's all fish/barrel stuff, so see how many factual or logical errors you can spot:
From HousePriceCrash 21 Jan 2011 (discussing an article in The Telegraph):
Libertas, never one to allow facts or logic to get in the way of a good rant:
3. These people will simply move their main home to another country. Maybe the wealthy will move to Florida where the sun is nicer and there is no State income tax*?
9. The council tax is unfair, period. A tax on property means that you do not own your property. Government will foreclose on your property if you do not pay up, so you are a slave to them to a certain extent and there is no security in your property if your income dries up.
So yes, it is unfair that the rich pay less Council tax, but the proper direction is to get rid of it completely. It is an unjust tax which is particularly harmful to families and those on fixed incomes**.
If Westminster quitted bombing half of the middle east into the stone age and bailing out the mega-rich for slight losses, we could once again fund local government through general taxation, as we did before Thatcher bought in this neo-feudalist serf property tax.***
Jerry doesn't quite understand the way the world works either:
17. ... as usual Mark your arguments are completely opposed to common sense.
In a society with a monetary system (ie not a barter society) you can only tax money. Someone living on a piece of land can only pay your Land Tax if they have income. Your land tax is just a round-about income tax. Because an individual has land, you would impose a tax on them, forcing them to work the land, thereby paying your land tax out of their income.
Where your land tax falls down, and pure income tax succeeds, is for those people who can not produce any income form their small piece of land. They are forced to find jobs elsewhere to pay your land tax, which is effectively a tax on their forced income, but completely unrelated to it. That's why no society today (that I know of) uses land tax instead of income tax.****
* Fact: The property tax on a $300,000 home in sunny Florida is around $3,955 per annum. So the tax on a $3.2 million mansion (equivalent to the £2 million threshold for the Mansion Tax) would be somewhere in the order of $40,000 per annum.
** Logic fail: the interests of "families" and people "on fixed incomes" (which is NewSpeak for pensioners are diametrically opposed). If we do a like-for-like comparison of a family (i.e. mum, dad, both working, and a couple of kids) and the pensioner(s) in the identical value house next door, it must be quite clear that if we scrapped taxes on income and replaced them with taxes on land values, this would be a tax saving for the family and a tax increase for the pensioner(s). Or maybe the family are currently stuck in a flat and the pensioner(s) are still in 'the family home' with two unused rooms; if we replaced taxes on income with taxes on land values, the chances are that the family and the pensioner(s) would swap places, thus ending up with a similar tax bill as before, but the family have the benefit of the larger house and the pensioner(s) have a saving on their heating bills.
*** Fact: Thatcher/Major replaced the older, much higher Domestic Rates which raised around a tenth of all tax revenues with the short lived Poll Tax, which was in turn replaced with the much more modest Council Tax which only raises five per cent of all taxes, and bumped up Employer's NIC and VAT to make up the shortfall.
**** Logic fail. You can re-write that whole bit of gibberish substituting 'rent' or 'mortgage payments' instead of 'Land Tax' and it makes just as much (or as little) sense.
In contrast, here's a proper professional article showing how to really whip up public opinion:
Vince Cable’s notion of a so-called 'mansion tax' first saw serious conference discussion back in 2009. Since then, and following the formation of the coalition, it’s been repeatedly stomped on by Cameron, Pickles and Shapps, only to pick itself up, dust itself down and schlep on, zombie-like, towards its next kicking.
In its latest form, it’s a kind of hybrid: part council tax super-band, part brand-new wealth tax calculated annually on a property’s value at 1% on the excess above £2 million. So, if your property’s worth £2.2 million, you’ll be asked to stump up £2,000. It’s not clear how often your property’s value would be re-assessed.
Some of the comments are a hoot though, and who should make an appearance towards the end of the thread as it currently stands..?
"It does not follow that people who live in two million pound houses and above have the necessary income to match.
Take the case of a widow, Husband had a very good job, He dies Widow is left with very large house which she can not sell at present or she may be of an age where she does not want to move anyway and why should she or perhaps she has be left to look after five or six children. How does she pay the tax, mortgage the property perhaps, she would not get one at present.
So how does she pay the tax?
I dunno, is that a rhetorical question or is the man indelibly stupid?
From The Daily Mail:
A woman who defied a driving ban on female motorists in Saudi Arabia has died in a car crash. Another was hurt in the crash in the only country in the world where females are banned from getting behind the wheel. A police spokesman said that one of the women was killed instantly but the other had to go to hospital to be treated for her injuries...
I've not done one of these for a while, so today's Short List is "AC/DC songs named after a type of fish". How many can you think of?
Tuesday, 24 January 2012
Ben Gummer MP has proposed sending every taxpayer a statement to show where his taxes go, to put government spending into perspective, as reported in today's Soaraway Sun. Clearly it makes a lot of sense to express spending in terms of £100 per taxpayer rather than just waving around these billions and trillions at national level.
They've produced a sample statement, showing that an average earner on £26,000 pays £6,134 income tax/employee's NIC, £803 of this is spent on old age pensions, £236 on housing benefit and so on.
I like the general principle, but I have a big quibble...
... the statement only shows PAYE (income tax and employee's NIC) deducted from wages (you can check here, using 2010-11 rates) even though these only accounted for only just over a third of all taxes collected (£180 billion out of £530 billion) in that year.
According to the Public Sector Finances Databank for 2010-11, total taxes collected were £530 billion, divided by 32 million employees/self-employed gives us an average tax bill of £16,500 per annum, quite significantly more than the £6,134 which
the government The Sun acting on behalf of the government pretends an average (median?) earner on £26,000 pays, eh?
Adding on the figure for Employer's NIC (another £50 billion) would be very easy; VAT (£86 billion) averages out at (say) seven per cent of people's gross wages (or a third as much again as income tax and two layers of NIC); then there's duties (petrol, booze fags, £70 billion) Council Tax, Business Rates (£25 billion each); corporation tax (£30 billion, which is ultimately borne by individuals); £22 billion in income tax collected via Self-Assessment and so on.
Further, total government spending in 2010-11 was £687 billion, minus 'gross operating surplus' (whatever that is) and the deficit was (say) £120 billion, so yer average earner is also being lumbered with another £4,600 in debt on top of the £16,500 tax he was paying/bearing.
If you then go back and rework the spending figures based on £21,100 tax rather than £6,134, it would be more like £2,700 for pensions (not £803), £800 for Housing Benefit (not £236) and so on, which seems more realistic to me (i.e. total pensions spending £85 billion divided by 32 million employees/self employed = £2,700, total nominal Housing Benefit bill £25 billion divided by 32 million = £800).
Then we could include a notional figure for the cost of major tax breaks, so if pension tax breaks are £44 billion a year, that's £1,400 for each employee/self-employed person. If you're a pension saver, that's less than the value of the tax breaks to your pension company (not to you, they are worthless to you) and if you have no truck with pensions companies, that's what the razzmatazz is costing you in extra tax, and so on.
I think The Telegraph had the most accurate summary of what has actually happened. The BBC's version is also reasonably good. To cut a long story:
1. Thames Water was privatised donkeys years ago, and all those little UK popular capitalists did the decent thing and sold all their shares to German utility concern RWE in 2001.
2. Various pension, investment and sovereign wealth funds set up a company called Kemble Water which bought Thames Water for £8 billion [gross] from RWE in 2006.
3. Stakes in Kemble Water change hands occasionally, for example "In December , the Abu Dhabi Investment Authority, another sovereign wealth fund, bought 9.9pc of Kemble for an undisclosed price. Macquarie European Infrastructure Fund was the majority seller in that deal."
4. The Chinese sovereign wealth fund (China Investment Corporation, CIC) has now bought 8.68% of Kemble Water "for an undisclosed sum which analysts believe is at least £500m [from] Santander Private Equity, part of Spanish banking group Santander's asset management arm, and Finpro, a Portuguese investment vehicle..."
5. So big deal really, legal ownership* of Thames Water has been in foreign hands since 2001 (and chunks of it before then), it is merely that Juan Foreigner has now sold a bit of it to Johnny Foleigner. Not a single penny has been invested in the UK as a result of this, and it's not even as if we have reduced our net indebtedness to the Chinese. George Osborne is making an idiot of himself by prancing round and pretending otherwise.
* Of course, in practice, the UK government, OFWAT and so on still have reasonable day-to-day control over Thames Water. That's the nice thing about selling off stuff to foreigners, instead of them having you over a barrel, you have them over a barrel.
Says the headline in The Daily Mail. The story does not disappoint!
Remember that the Americans use the terms "elk", "moose" and "deer" differently to us, so apologies for any confusion.
So far, the Home-Owner-Ist élite (the bankers and large landlords) have kept above the fray and relied on the fact that their foot soldiers (from owner-occupiers to journalists with BTL portfolios to Faux Lib's) will do the campaigning for them, but now the gloves are off. The paid-for editorial in yesterday's CityAM was a long rant against the Lib Dem's idea that we could/should scrap the 50p top income tax rate and have a Mansion Tax instead.
His argument seems to be that our entire economy depends on a few foreign money launderers and tax evaders who will pay insane prices for housing in a very small part of London. In his view, they don't care about investing in UK productive businesses (so there is no advantage in reducing income tax rates, that's for us grateful plebs to pay); they don't trust our banks enough to just deposit money with them as a safe haven; and he falls for the fiction that not having land value tax makes it cheaper for them to buy land and buildings (it doesn't - in the long run it makes it more risky and more expensive):
A key reason the UK, for all its unattractive characteristics, remains a safe haven of sorts for global investors, is its history of legal stability. Foreigners know the UK takes property rights seriously and that their wealth will be protected – that is why they spend so much here and why Greeks fleeing crumbling banks are converting euros into London homes.
This is great for our current account deficit, means we remain at the heart of capital flows and that the world’s entrepreneurs and financiers will look at the UK kindly when they decide where to create jobs. It helps preserve London’s role as a global city.
Right. So if we reduced taxes on income, all those foreign money launderers and tax evaders wouldn't see the UK as an excellent place for inward investment into productive businesses? I don't see why the average Brit should be called on to pay extra taxes on their hard earned just to subsidise 'wealth protection' for these people anyway, bearing in mind that lower taxes on land push up the purchase price of land, thereby increasing the likelihood that owners of land will suffer nasty capital losses, which is hardly 'wealth protection', is it?
The rest of the article is a long list of KLNs, all of which I have rebutted before...
- LVT is neither a jealousy surcharge nor a tax on 'wealth' in any sense of the word, it is a user charge.
- Replacing income tax with LVT is not a 'war on the rich' (many truly rich people, i.e. high earners, would end up much better off).
- LVT is the thin end of the wedge, but that wedge was a lot thicker decades or centuries ago. Historically, taxes on land values were the main source of UK government revenue before they starting introducing all these stealth taxes like income tax (and all its variants). It's these stealth taxes on income which are the ever thicker end of the wrong wedge.
- Because LVT has no Laffer effects, a tax shift would make us all better off in the long run (apart from the current Home-Owner-Ist élite, of course).
- LVT is not an attack on 'private property', income tax is.
- He plays the Poor Widow Bogey twice.
- He claims that wealthy people will all move abroad (nonsense).
- He points out what he sees as "crippling practical flaws" which are no such thing if we apply commonsense.
- A tax on land is a tax on land. It is not, and will never be, a tax on pension fund assets; we already have those - everybody who doesn't save into an approved pension is paying the largest part of £44 billion's worth of tax breaks/subsidies for those who do and there's a privately collected tax of between £40 and £60 billion a year on pension assets (being the fees and commissions earned by the pensions companies).
- He ends the article by citing some mythical past which, on the facts, did not exist (see above).
Monday, 23 January 2012
There was no overall majority in the first round...
Which is your preferred option?
Full independence for Scotland outside the UK - 41%
Abolish the Scottish Parliament and scrap devolution - 29%
"Devolution Max" - 13%
Stick with the status quo - 7%
Other, please specify - 10%
... so the two most popular options go through to the final round (as explained last week).
Cast your vote here or use the widget in the sidebar. To make it more like a proper referendum, I've removed the "view" button and disallowed comments.
... screams the headline in The Daily Mail.
As Goldenboy of Tunbridge Wells points out in the comments:
"Oceans are not acid, they are all alkaline. The use of the word acid is designed to be emotive because saying that oceans are less alkaline does not create the same impact or alarm. I note that the article says "Direct observations only date back 30 years, which is not long enough to reveal a meaningful trend" So this a pointless article based on pure speculation and solely designed to emote on the global warming theme. Bring back proper journalism."
I would like to congratulate The British Association of Aesthetic Plastic Surgeons on their excellent choice of name and acronym.
However, I don't approve of the fact that they are calling for more regulation and a ban on advertising, as we know this is just a way in which existing players in an industry create barriers to entry, thus protecting their own profit margins at the expense of the consumer and of all those who are preventing from setting up in competition.
Just for completeness, here's an example of the advertising they'd like to ban, taken from here:
Sunday, 22 January 2012
Here's a handy chart of oil prices since 1860 (from here). The long run price of a barrel of oil seems to be about $20, with occasional spikes over $100, like the one we're in at the moment.:What peculiar property does the market for oil have which makes it exhibit these spikes? I don't think there were any sudden increases in consumption (or falls in production), as the following chart (from here) shows:The most likely explanation is that both the supply of and demand for oil are not very price sensitive (i.e. price inelastic). Once you've got your oil well and up and running, the best thing to do is to keep pumping nice and steady, you can't quickly increase output and you can't just turn them off either. Similarly, oil is essential for the economy, people need to drive to work, supermarkets have to have their food delivered by lorry, ships have to carry cargo across the oceans etc etc. What makes the demand for oil even less price sensitive is that it is only a small part of people's budgets (the value of crude oil used is only about two per cent of UK's GDP, or less than five per cent if you add duty and VAT on top).
So a supply-demand chart looks like this:Now, let's assume there's a small fall in the quantity supplied at any price (Venezuelan oil wells not being maintained properly, North Sea starting to dry up, Iran partial embargo) so the supply curve shifts left; and there's a small increase in quantity demanded at any price (from speculators, a recovering economy), then the new equilibrium quantity is unchanged, but there will be a huge increase in the price:Bonus rounds. What happens to the quantity of oil extracted if they slap a huge great annual tax on ownership of the natural resources? Answer, nothing, because their revenue maximising output level is unchanged.
What happens to the quantity of oil consumed if they slap a huge great tax on pump prices? Answer, not much because quantity demanded is fairly insensitive to price.
The only really bad taxes on the oil industry are taxes on the incomes of those people actually doing stuff, risking millions for prospecting, investing billions in offshore drilling rigs, risking life and limb to keep it all working, running a petrol station etc. But the chances are that these taxes are passed on to the owners of the natural resources and the consumers respectively.
Saturday, 21 January 2012
Veteran actor Kelsey Grammer has welcomed Michael Gove's free schools proposals and informed parents and pupils of his intention to seek a private sponsor and become a free school.
Speaking at a well attended parents' meeting, the 56 year old star of hit TV series such as "Cheers" thanked the local authority for the help and support he had received in the past, but pointed out that under the Coalition's free school proposals he would be able to offer his pupils a wider range of academic subjects and exams, such as the opportunity to study for the International Baccalaureate.
"My character in the long-running series "Frasier" benefitted enormously from a good education, and I'd like all my students to have the same opportunities in life. I do hope that parents present and future will support me at this exciting time."
Jenny Braithwaite, whose children Andy 13 and Mellisa 17 attend Kelsey Grammer said she was impressed with the proposals, but would need time to think it over and would have to discuss it with her family before deciding how to vote.
"I'm impressed with the proposals, but I'll need time to think it over and I'll have to discuss it with my family before deciding how to vote." said the 44 year old clerical worker, adding "I asked him what Niles was up to nowadays but he just blanked me."
A spokesperson for the NAS-UWT teachers' union claimed that this would signal the beginning of the end for universal education. "It could lead to thousands of other schools leaving local authority control, which will disenfranchise democratically-elected local councils and reinforce inequality of opportunity for deprived children. Who the hell is he to talk anyway, he's only a clapped out television actor with no background in education."
1. Over the past few days, we appear to have been making a bit of progress on the topic of how the price sensitivity (a much better word than 'elasticity' to be honest) of demand for [something] dictates whether higher input costs or a tax on [something] lead to higher prices or lower profit margins.
2. Perhaps I'm being optimistic here, but commenters now appear to accept what I thought was basic economics general knowledge:
- if demand is price sensitive (discretionary goods or large budget share), higher input costs or a tax lead to lower profit margins, and
- if demand is price insensitive (necessities or very small budget share) higher input costs or a tax lead to higher prices.
3. That is only half the picture of course: the price sensitivity of supply is just as important and even more important than that is the relative price sensitivity of supply and demand. This explains why there is so often a difference between the legal and economic incidence of a tax - in practical terms, for example, it makes not the slightest difference whether the purchaser or the vendor of land and buildings is legally responsible for paying the Stamp Duty Land Tax, so there is little point even discussing it.*
4. Just to reassure you that this is not something I just made up for the fun of it, I hereby link to yet another fine article on supply and demand. It covers all the related topics like the effect of price caps, price floors and so on, well worth a read. Section IX covers Elasticity and the final section X covers Tax Incidence**:
So why is elasticity important? Many reasons, but here is one: it determines the distribution of the burden of taxes. Tax incidence is the study of how the burden of a tax is distributed over different groups. Consider the following statements:
"If we raise the tax on cigarettes, tobacco companies will just pass the tax on to consumers." This statement implies that consumers bear the entire burden of a sales tax, even if the government requires firms to pay the tax.
"The Social Security tax is divided between the employer and the employee. The employer must pay half of the tax, and the employee must pay the other half." This statement implies that the government can decide how the burden of the tax will be distributed.
So which point of view is correct? As a general rule, neither. Consumers do not bear the entire burden of a tax in most cases, but neither can the government decide who pays how much. The distribution of the burden depends on the elasticity of supply and demand.
The key to understanding tax incidence is to realize that a sales tax (in fact, almost any kind of tax) is not a tax on a person -- it's a tax on a transaction. If there is a $1 tax on cigarettes, what that means is that there has to be a $1 difference between what the buyer pays and what the seller gets. It doesn't really matter who sends the check to the government.
It might appear from the graph above that the tax is distributed evenly between consumers and producers, but that need not be true. It depends on the elasticity of supply and demand. Suppose that demand is very inelastic (consumers are unresponsive to price changes), and supply is very elastic (producers are very responsive to price changes). Then we get a picture like the one below. Here, it should be apparent that the consumers are bearing the bulk of the tax burden, while the producers' burden is very small...
On the other hand, what if the supply were very inelastic and the demand were very elastic? In that case, the producers would bear most of the burden. The general result is that when demand is more elastic than supply, producers bear the larger burden, and when supply is more elastic than demand, consumers bear the larger burden.
Consider again our examples. In the case of cigarettes, do you think the demand is relatively elastic or relatively inelastic? Given the addictive quality of cigarettes, it seems like demand is probably inelastic. If that's true, then a sales tax on cigarettes is likely to be borne mainly by the consumers.
In the case of the Social Security tax, do you think the supply of labor is relatively elastic or relatively inelastic? It's probably fairly inelastic (people need to have their jobs, and almost all legal jobs are taxed), so the suppliers (i.e. the employees) probably bear most of the burden.
5. It seemed a bit cheeky to copy their charts, but this is exactly how I explained it myself, with charts, to contrast the same two extremes cases as in that article:
- Price insensitive demand and price sensitive supply (e.g. cigarettes). The consumer bears the tobacco duty in higher prices.
- Price sensitive demand and price insensitive supply. I used land as an example rather than wages, as the supply of land is fixed and hence entirely unresponsive to price changes. The supplier bears the tax. Land owners bear all the costs in their entirety (be they repair or insurance costs, interest or taxes) and cannot glibly pass any of them on to their tenants (or purchasers) because the rental value of their land is completely out of their control and is decided by the market. This is this much the same reason that employees bear most of the burden of Employer's National Insurance contributions.
* H/t Fraggle. The comment thread is a hoot - it's the usual battle between Home-Owner-Ists churning out their easy lies and Land Value Taxers fighting back with the rather lengthy but correct facts and reasoning.
** On Tax Incidence, Wiki says exactly the same: "Where the tax incidence falls depends (in the short run) on the price elasticity of demand and price elasticity of supply. Tax incidence falls mostly upon the group that responds least to price (the group that has the most inelastic price-quantity curve). If the demand curve is inelastic relative to the supply curve the tax will be disproportionately borne by the buyer rather than the seller. If the demand curve is elastic relative to the supply curve, the tax will be born disproportionately by the seller." Note the use of "relative to".
From the BBC:
Paul Daniels, 73, lost his left index finger and the tip of his ring finger in an accident with a circular saw while building props for his act. He drove himself from his Berkshire home to hospital in Henley-on-Thames, where the index finger was reattached. He told BBC Radio 5 Live: "I've only lost the tip of one finger. It could have been a hell of a sight worse."
What a trooper! Didn't even call an ambulance. Or maybe he did, but then remembered that it might take it four hours to arrive and six hours to get back.
Two explanations of how Dave Allen lost a finger are here, both seem equally plausible or implausible.
Friday, 20 January 2012
Bloody foreigners, coming over here taking our jobs and claiming our benefits. And giving us loads of statistics to manipulate.
The basic rule of lying with statistics is to do 'diagonal' rather than like-for-like comparisons, you can 'prove' just about anything that way. But if you look at the figures used to support the claim and do a bit of maths, you usually find that the headline claim is totally misleading, if not a compete lie.
From my archives, on the topic of immigration/racism, we end up with this:
Claim: Critics claim that searches are used disproportionately, with government figures showing that black people are 4.5 times more likely to be searched in London than white people.
Truth: Young blacks are twelve times more likely to commit (or end up being charged with offences) than whites.
Claim: A black person is four times as likely to become a victim of a racist crime than a white person
Truth: A black person is thirty times as likely to be a perpetrator of a racist crime than a white person
Claim: There is no evidence that new arrivals in the UK are able to jump council housing queues.
Truth: One-in-ten units of social housing which become vacant are given to "recent arrivals" (primarily successful asylum seekers).
There were two juxtaposed articles on page 2 of today's Evening Standard.
The Mayor [of London] claimed some young people in the capital lacked the "energy" to go out and get jobs which were instead going to immigrants.He highlighted what has become known as the "Pret A Manger phenomenon" which has seen many of the posts at sandwich shops going to newcomers to the city.
"London is a fantastic creator of jobs but many of these jobs are going to people who don't originate in this country," Mr Johnson added in an interview in The Sun. "They are hard-working, good people and we need to learn from them and understand what it is that they have got that makes them able to get those jobs that young Londoners don't have."
He's a clever chap is Johnson - he keeps Johnny Foreigner happy by saying something nice about foreign-born people (a huge chunk of the London electorate); he panders to the authoritarians who think the unemployed are just lazy and only have themselves to blame; as well as tapping into the racist sub-text "Bloody foreigners, coming over here, taking our jobs" (which, assuming you subscribe to the lump-of-labour fallacy is perfectly true, as it turns out).
The next article is headed: "A quarter of London migrants claim benefits" which is a complete lie - as the first sentence states, "One in four Londoners claiming benefits was born abroad, new figures reveal today", which is something completely different. Then comes a plethora of statistics on immigrants claiming benefits, illegally or otherwise, culminating with this:
In total, 371,000 individuals born abroad are believed to be on benefits, with nearly half of them in the capital. This high figure is partly explained by the fact that a third of Londoners are non UK-born.
Yes, that's *part* of the explanation.
To pin down the *rest of* the explanation for the apparent discrepancy between "a quarter", "nearly half" and "a third" (which are all totally 'diagonal' comparisons), you just need to know that there are 38 million working age adults in the UK, about 13% of the Uk population is in Greater London, and a tenth of UK residents were born abroad and bung on all the figures into a table (see Google doc here).
Surprisingly enough, the *rest of* the explanation is that foreign-born residents are only two-thirds as likely to be claiming benefits as UK-born residents (9.8% as against 15%). But the Evening Standard can't help reverting to its racist bias and making it look as if London was swamped with unemployed foreigners, when actually it's only 3.5% of the London population.
You might consider that to be 3.5% too many (and to a large extent I do), that's a separate topic.
People are still getting hopelessly bogged down with these concepts, so rather than reinventing the wheel, I refer you to the following fine articles on Tutor2u:
Price elasticity of supply/quantity supplied
Price elasticity of demand/quantity demanded.
Near the end of the second article are two supply-demand curves, which explain who actually pays a tax; if demand is less price elastic than supply, the consumer pays (most of) the tax; and if supply is less price elastic than demand, the supplier pays (most of) the tax.
So quite how it the tax is shared depends on relative price elasticity of course and not on absolute price elasticity. If you know one variable but not the other, then this gives you little clue as to who pays the tax. There is no point saying "The supply of this produce is fairly price elastic, so the consumer will bear most of the tax" if you don't know the price elasticity of demand for that product. It's like saying "John is six foot tall", you don't know if he is taller or shorter than Jim unless you know how tall Jim is as well.
Compare and contrast:
- if supply is fairly price elastic but demand is very price elastic, then the supplier ends up paying most of the tax.
- if supply is fairly price elastic but demand is not very price elastic, then the consumer ends up paying most of the tax.
Thursday, 19 January 2012
We've been having a futile argument in the comments to an earlier post as to what would happen if the VAT rate on pubs and restaurants were reduced - would it lead to lower prices, higher profits or some combination of both? I have looked at real life evidence and come to the conclusion that a VAT cut is split roughly one-third in lower prices and two-thirds in higher gross profits. But rather than bicker over hypotheticals, let's look at some more real life evidence.
Three months after the Irish VAT cut for pubs, restaurants and hotels in Ireland, Caterer.com published this fine article:
Since the 1 July  announcement that the VAT rate across the hospitality and tourism sectors was to be slashed from 13.5% to 9%, occupancy has increased, hundreds of jobs have been created and a cautious feeling of positivity has gripped an industry that, until recently, had been struggling to recover from the effects of the global recession...
Consumers are seeing the best value for money in the wedding market with hoteliers able to offer savings of up to €400 (£348) on a typical €10,000 (£8,700) event. But rather than simply deducting the €400, innovative operators are upgrading their customers, throwing extra cocktails or canapés in with the original price.
"You've got to be creative, you've got to keep pushing the boundaries and coming up with new concepts," says Fergus O'Halloran, managing director of boutique hotel the Twelve in Galway, and chairman and director of the RAI. "The more people that are optimistic, the better - that's what it's about."...
Indeed, the Irish Central Statistics Office has released pricing data for August showing that hotel prices are now 1.9% lower than they were this time last year while restaurant prices are down by 1.4%.
If the VAT cut had been 'passed on to the consumer' in its entirety, then we'd expect prices to fall by 4% (109/113.5 = 96%), but prices fell between 1.4% and 1.9% (average 1.65%), so only forty per cent of the cut was passed on (1.65%/4%) and the other sixty per cent of the tax cut went in to higher profits; reduced losses; or turned small losses into small profits etc.
The Golden Rule is that who bears a tax depends on what is less price elastic (or 'price sensitive'). If quantity supplied is price inelastic (i.e. fixed), the supplier bears most of the tax; if quantity demanded is price inelastic (i.e. for necessities) then the consumer bears most of the tax. The opposite applies to tax cuts, as is the case here. Unfortunately, the article does not tell us the fall in pub prices, which I would expect are
even less than slightly more than for restaurants, as going to the pub is even closer to being a necessity.
As Mr O'Halloran explains, the sector maintained its overall turnover by providing more for the same price, rather than reducing prices, which in turn provides extra jobs above and beyond those which would have been lost in the businesses which would otherwise have failed.
Goldman Sachs: a bit like a monopoly supplier of unreliable cars which owns all the car repair workshops...
I commented as follows on a post at HPC about the Greek hair cut/bail out nonsense, which is "all paid into the mouths of the very same bankers who cooked Greece's books to get them into the Eurozone. It is one fraud after another with these folk.":
1. I see it thusly - car manufacturers and car repair workshops are, let's assume, owned and operated by two completely separate groups. Car manufacturers want to make the most reliable cars so that people buy them, and workshops like unreliable cars because that's how they make money. As long as ownership of the two branches is completely separate, and there are competing car manufacturers and repair workshops, we get reliable cars and reasonably priced repairs.
2. But if the all car manufacturers consolidated into one corporation and owned all the workshops as well, then they have an interest in making cars which break down all the time, because that way they can build unreliable cars and earn money from repairing them. (The manufacturers do this in practice by wildly overcharging for spare parts, separate issue.)
3. So Goldman Sachs is like the monopoly car manufacturer who owns the repair shops. It has cornered every end of the market
- GS stampeded the EU into this single currency nonsense (earning massive great fees for itself during the set up) which was a pure vanity project;
- GS charged Greece a load of money to cook its books so that it would qualify for entry;
- GS made a shedload more money by then speculating against the Euro-zone;
- GS then charged the EU a load more money for sorting out the bail outs, the EFSF and so on;
- GS even appointed several of its own people (Monti, Draghi, Papademos) to run things (it's even worse in the USA - Tim Geithner springs to mind);
- GS, having made a shedload by selling 'credit default swaps' or 'credit default insurance', is now hoping to add insult to injury by getting Greece and its creditors to agree a voluntary debt reduction (see original article), which, according to their small print, is not a 'credit default event' and hence GS will not have to pay out to investors who paid the big premiums and suffer the big losses.
4. So GS had every interest in the launch of an inherently unstable monopoly currency, in the same way as a monopoly car manufacturer who owns all the repair workshops would have an interest in making unreliable cars. And GS' efforts have paid off handsomely, for them at least.
Wednesday, 18 January 2012
From today's Evening Standard:
More than two dozen of Britain's top pub and restaurant chains have joined forces to campaign for a cut in VAT to boost the country's ailing leisure industry. (1) They have joined together to back French hospitality entrepreneur and lobbyist Jacques Borel in his campaign to get VAT reduced from 20% to 5% on food, drink and accommodation in the UK.
Borel successfully battled for the cut in VAT in France that not only led to thousands more jobs in the leisure industry but also saw the government's tax take from the sector actually rise as more people went out... (2) Belgium, Germany and Sweden have also cut VAT in the leisure sector. Ireland joined the group last summer, cutting the tax from 13.5% to 9%. (3)
1) Well, that gives lie to the myth that "the consumer pays the VAT and it doesn't affect the supplier" doesn't it? If it made no difference to the supplier, then they wouldn't care, would they? If you look at actual facts rather than listening to politicians, you'd know that about two-thirds of VAT is borne by the supplier, and with discretionary spending like pubs and restaurants, it might be nearly all of it. And so that actually puts businesses out of business, unlike corporation tax which can't possibly push a low-profit business into making losses.
2) Yup, we also observed this with the car scrappage scheme, that was to all intents and purposes a refund to manufacturers of the VAT they would otherwise have to pay. The extra VAT receipts were slightly more than the cost of the scheme (so why didn't they just exempt new cars from VAT, you might ask...), and you can add the extra corporation tax, PAYE and dole money saved on top of that.
It's because having an extra 16.66% tax on gross profits ('value added tax') is sufficient to push the marginal rate past the top of the Laffer Curve. Part of the reason for the increase in tax receipts from one or the other industry which benefits is because consumers change their spending patterns in response to the slightly lower price and much greater output, so it would be unduly optimistic to assume that if VAT were abolished entirely that ordinary tax receipts on profits and wages (and dole money saved) would make up the shortfall, but even the most pessimistic assumptions (see my post on Laffer Rainbow) say that scrapping VAT entirely (revenues £100 billion per annum in the UK) would only lead to a £50 billion fall in total tax revenues. So the chances are that the growth in the overall economy would be roughly a much as the VAT cut and a smaller share would be channelled via the government. What's not to like?
3) So we'll have plenty of raw data for doing before-and-after comparisons.
From yesterday's FT. I'm not sure why they contrast this with the increasing number of pensioners, but what the heck.
UPDATE: Curmudgeon mentions that official unemployment figures have been massaged by shifting people onto Incapacity Benefit. To put the official number of unemployed of 2.7 million into perspective, here's Parliament's official chart showing the number of IB claimants since 1979:
Rather bizarrely, Grant Shapps has strayed from the Home-Owner-ist path of True Righteousness, which is to give money, directly or indirectly to people who own land, who wish to buy land or who collect rental income (a lot of which is disguised as mortgage interest) without ever asking for anything in return.
His new bright idea is for local councils to build new housing specifically designed for renting to elderly down-sizers, who would of course retain ownership of The Family Home and have the rental income collected and passed to them by the local council. Of all his cunning schemes to give land owners money, this is the least-bad, because at least a few crumbs fall from the table for young tenant households (who can now move into, and pay rent for, somebody else's Family Home) and the construction sector.
Suffice to say, the Home-Owner-Ists have unleashed their usual shit storm from Hell upon him, wailing on about "state interference in telling people where to live [blah blah blah]". Welcome to the club, Shappsy!
Now, it strikes me that the massed ranks of Home-Owner-Ists, Baby Boomers and pensioners absolutely love state interference:
- state interference in restricting planning permission to prop up prices, which clearly amounts to telling young people where to live,
- state interference in taxing other people's incomes to pay for the stuff that props up land values,
- state interference in taxing other people's income to pay for their old age pensions,
- state interference in propping up rents via Housing Benefit,
- state interference in selling off taxpayer assets at undervalue to aspiring owner-occupiers,
- state interference in keeping interest rates down and inflation up to mask nominal falls in the value of the precious houses,
- state interference in shrinking taxes collected from the natural source of national revenue, etc.
But they don't like it when the boot, or should I say fluffy slipper, is on the other foot, or should I say little toe.
H/t Drewster at HPC.
Tuesday, 17 January 2012
After their savage kicking by the Home-Owner-Ist majority a few months ago, The Intergenerational Foundation have waded back into the fray with A Manifesto for Younger and Future Generations.
One of them is pencilled in to appear on the BBC Breakfast TV show tomorrow morning at 7.20. I wonder what The Daily Mailexpressgraph will/would think of this sort of stuff...
5. Re-balance Housing Wealth
• The massive rise in house prices over recent decades is a key reason behind rising intergenerational unfairness. Many young people cannot afford to buy even a small flat while IF research has shown that over-consumption of housing by the over 60s has risen rapidly.
• The longevity revolution leads to more prolonged demand for housing amongst older owners and tenants. Official policy should therefore help those who want to downsize through provision of more suitable housing and fiscal incentives.
• Tax incentives on buy-to-let properties should be reduced. It is absurd, for example, that landlords do not pay National Insurance on their unearned income, and can fully offset any loan interest off against tax.
• Council tax should be reformed to reflect each property’s true value and to make occupying a large house when you no longer need it more expensive.
6. Fairer Taxation Across The Generations
• The government should overhaul the tax system with regard to intergenerational fairness.
• The current tax system is systematically disadvantaging younger workers where older workers pay less tax (higher personal allowances and no National Insurance) and the light taxation of income from savings and property disproportionately helps the older generation.
• The government should consider reducing or scrapping universal benefits (which are not means tested) such as winter fuel allowance, free prescriptions and free bus passes.
• Pensioners on low incomes already have access to various tax credits and these universal benefits cost the taxpayer well over £6 billion each year.
• At the very least the government should make these benefits voluntary, so that wealthier pensioners may decide not to claim them.
7. Transparency of Government Debt Recording
• The build-up of public debt and liabilities is unfair on younger and future generations.
• All government borrowing should be on balance sheet.
• The government should calculate what the current obligation is for the state pension, and include it in official liabilities so that the burden being passed from one generation to another is more transparent.
From The Soaraway Sun:
NICK Clegg is turning into the new Ed Balls.
The Lib Dem leader's rabid tax plans would go down a treat with Labour. Clegg hates anyone doing well for themselves (1).
His latest idea: Savage taxes on large houses (2), destroying the property market which depends entirely on buyers trading up. (3)
High tax is crippling this country.(4) When will someone talk about taxes coming DOWN? (5)
1) The Sun don't mention that the Lib Dems have offered the Tories a deal - scrap the 50p tax rate and have a Mansion Tax instead. Broadly speaking, the two would raise a similar small amount of money from the top one per cent. By and large, the economic contribution made by the top one per cent of earners is greater than the economic contribution of the owners of the top one per cent of houses by value, end of.
Note how The Sun moves seamlessly from saying that all taxes are as bad as each other (they are not) to implying that some taxes on land values are worse than taxes on incomes (they are better). So actually, Clegg is trying to make it easier for people to do well for themselves, isn't he? The operative words being "doing" and "for themselves", not "collecting rents" and "from others". Under his proposal, the top one per cent of earners would have more money to spend, and mansions would be cheaper.
2) The Mansion Tax is not "savage". Income taxes which take away half our earned income are "savage". These are the taxes which were imposed by vested interests who "hate anyone doing well for themselves". And compared to Council Tax, the Mansion Tax is next-to-nothing.
3) This is the most bizarre claim of all. The point of [the] housing [market] is to provide people with, er, housing. The number of transactions is in itself irrelevant and it is simply impossible for everybody to trade up anyway; for every household trading up, there has to be one trading down. If I'm wrong on the first point, and the point of the housing market is for there to be as many transactions as possible, then Land Value Tax is the ideal tax.
4) No. It's the rent seeking classes - be they quangocrats, corporatists or Home-Owner-Ists who are "crippling this country", and it is those groups who are imposing high taxes on incomes. High taxes on incomes are an effect, not a cause.
5) The Lib Dems did, they talked about scrapping the 50p rate (see above). And I'm not aware that the £20 billion per annum increase in VAT and National Insurance Contributions (which completely dwarf the putative receipts from the 50p tax or a Mansion Tax) were in the Lib Dem manifesto, that was stuff which Labour had decided on behind the scenes and the Tories just implemented.
From The Soaraway Sun:
A £150-an-hour bisexual hooker has been outed as a secretary at a strict Catholic school. Married Kerri Ann, 40, bragged on an adult website about being "smartly-dressed, efficient and a good organiser".
She makes up to £800 for an all-night booking, but by day she works as head of administration at Eternity Catholic School in Speamington La, Warwicks, under the name of Mrs K Mallier.
She admitted to a reporter that her day-job was "a bit boring, but the kids are nice enough and it helps pay the rent". Her sideline was uncovered after one of her punters saw photos of the petite brunette on his children's school website...
Yesterday Kerri Ann, refused to comment. Shown her photo on the "Our Team" section of the school's website, she said: "That is me but I don't know how that picture got there."
Shortly thereafter, her profile was removed. A man describing himself as her 'boyfriend and manager' said: "There is no comment at this time. I will have to seek advice on this."