From The Telegraph:
Ms Kearney said: "All I am asking you is to explain how you are going to boost growth and that is by spending more and that is by borrowing more if you were Prime Minister at the moment, I just want a straight answer to that."
The Labour leader replied: "Well, I am giving you a very straight answer. I think borrowing would be lower under a Labour government over the medium term."
A temporary one-year VAT cut would cost the Treasury about £12 billion but Mr Miliband could not say exactly how this would be funded in the short term.
"The whole point about a VAT cut is that it would get growth moving and if you get growth moving you get more tax revenues in and therefore you get borrowing down," he said.
The pol's have collectively painted themselves nicely into the corner here.
i. The orthodox-mainstream view is that there is no Laffer Curve. The notion that lower tax rates lead to higher growth is usually only ever vaguely hinted out. The exception is fairly right-wing Tories who point out that reducing rates of tax on earnings and output from "very high" to "a bit lower" can actually boost receipts as well.
ii. But it is also the orthodox-mainstream view across the spectrum and especially among right-wing Tories that VAT is magically a tax on "consumption" not on "production" and therefore has little or no Laffer Curve effects.
iii. For some reason, Ed Balls (for all his faults and they are many), is the only one who has seen through this bullshit and doggedly calls for VAT to be reduced a bit. I'm not sure if he's aware that VAT is borne by the producer not the consumer, perhaps he is? The Two Eds' problem here is explaining that despite what everybody has been saying for years that a) VAT is actually a tax on production (when the rate is cut, prices hardly go down) and b) of course there is a Laffer Curve.
iv. And of course the orthodox-mainstream view is also that taxes on rental-monopoly income streams (like LVT) would somehow have a disastrous effect on the economy and that the Laffer Curve suddenly applies in spades, when quite the reverse is true. If anything, LVT would stimulate the economy (with or without other tax cuts) and there simply is no Laffer Curve, a government can tax rental-monopoly incomes streams at 100% if it likes, as the tax base itself cannot be eroded (if it could be, then it wouldn't be rental-monopoly income by definition). Ah well.
The Government eats first
3 hours ago
8 comments:
FWI I do not think Balls has seen through this at all. He's atx'nspender. End of. I think whatever he says about tax, especiay VAT, is entirely politically motivated. He's just trying a bit of 'political triangulation' as perfected by Clinton/Blair/Mandlesohn.
L, well I think he must have done. If you want purely politically motivated tax cuts, try "Council Tax freeze" or "10p starting rate".
And of course he's a tax'n'spender, they all are.
Surely all taxes are taxes on production? (Ex LVT). The revenue cannot come from consumption, because to consume you have to first to produce?
Oh, and I really do not think he has seen through it, otherwise he be pushing for a permanent VAT cut. And when that works, he opens the flood gates to the argument for cutting taxes generally and forever, and he is definitely NOT up for that!
L, completely correct.
Like I was saying about GDP, you can measure it as total output or as total expenditure, the two are the same and taxing either has more or less the same effect.
Hmm ... I've posited that in discusion amongst my peer group, and you should see the blank looks.
I think it has something to do with cod Keynsianism brain washing which states that all slumps are caused by a lack of demand and governments can sort that out by giving people money...
L - far be it from me to make any assumptions about "your peer group" but I have no fear in declaring myself "a boring old fart" (many people have told me I am, in all three senses) but I dare I suggest that some of your peer group probably mean "by letting them first keep more of their money [earnings] instead of taking it away in taxes and secondly allowing them to use it more productively and perhaps stimulate demand by not applying so many taxes and duties to the things they might spend it on". I have certainly heard some "Young Turks" voicing such sentiments.
Bob e. I think I understand your post. Well, yes, my children for example are definitely wanting to keep more of their money and know full well that they'll spend it better than the gummint. But, 'my peer group' 50 to 65 year old financial services people still cling to the cod keynsian notion of gummint spending to 'correct' slumps caused by 'market failure'.
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