Friday, 21 February 2014

"With the chancellor’s Budget approaching, which tax is the most damaging to Britain?"

... asks City AM.

Now, this whole "economy" thing depends on people exchanging labour, goods and services, no man is an island and all that, that is how wealth is created in the first place. So any tax or group of taxes which discourage such transactions are bad taxes.

So top of any sane person's list must be all such taxes - VAT, National Insurance, income tax and corporation tax, in that order.

VAT is the most distortionary and costs the most jobs and chokes off the most potential businesses; Employer's NIC is worse than Employee's NIC but both are worse than income tax (being applied to a narrower base); higher rate/additional rate income tax is worse than basic rate income tax; and corporation tax isn't exactly a good tax but it is not that bad, it's like having an unwelcome preference shareholder who gets a fifth of your profits in cash.

Between them, these four major taxes raise about £400 billion and give us a typical marginal rate on earnings/profits of nearly fifty percent.

So do the respondents mention these really bad taxes..?

Do they fuck!

City AM wishes to burnish its Home-Owner-Ist credentials and the two respondents single out Inheritance Tax and Stamp Duty Land Tax, which between them raise £10 billion or so; IHT on its own raises less than the TV licence fee, FFS.

Don't get me wrong, IHT and SDLT are not in any way "good" taxes and I'd get rid of them anyway, but they are minor irritants in the grander scheme of things.


Derek said...

Good response, Mark. Wonder how long it'll stay though coz it makes the two folk quoted in the article look pretty silly. Which they deserve...

Bayard said...

The best tax of all is one that people pay voluntarily: step forward The National Lottery.

Kj said...

The IHT "arguments" are confusing to say the least. She claims it takes money from the most productive users(?), then goes on mentioning how house prices in London have moved more people into the treshold. Had she at least said "family owned businesses" or something like that, and it would have some relevance. Capital accumulation is probably a good thing, but values of houses in London can hardly be characterised as representing the most "productive" use.

The Stigler said...


I'm against the lottery because I don't think government should signal approval of gambling. The only reason that the bansturbators haven't gone near it (but love to attack private gambling) is that they're the same people who have mates running the quangoes that gain from it.

Bayard said...

I don't think that governments should be getting tied up in moral issues like whether gambling is bad.
No-one is forced to gamble on the Lottery, meanwhile, the government, by keeping interest rates low, is forcing people to gamble with their savings. Most of what is called "investment" is actually gambling: you buy shares, land, old masters etc in the hope that they will go up in value, but with no guarantee that they will.

Kj said...

TS: fair enough, gambling isn't Good. But as it's daft making it illegal, is it worse that govt is doing it? Private gambling also "encourages" gambling.

Mark Wadsworth said...

D, I'm pleasantly surprised that they approved it and that it's still there.

B, aye, a tax on stupidity, that's a good tax.

Kj, the point is that "family owned businesses" are entirely exempt from inheritance tax, have been for decades (and rightly so).

TS, good point about the quangos. But the lottery today is just what the football pools used to be, same old, same old.

B, yes, those things are not "investment".

Kj, I don't "get" gambling, myself, it's negative sum game, quite clearly.

Kj said...

MW: then essentially, IHT touches very little productive capital, and her argument is exclusively a plead for privilege.
Re gambling, I can enjoy a good game of poker, and I understand gambling as a expression of the quaint idea known as "fun". But economically it's hopeless ofcourse, but a good earner for the house as the saying goes...

Mark Wadsworth said...

Kj, Inheritance Tax in the UK doesn't touch productive capital at all, and is not designed to.

Pablo said...

Now, this whole "economy" thing depends on people exchanging labour, goods
and services, no man is an island and all that, that is how wealth is
created in the first place.

There seems to be a factor missing here!

Mark Wadsworth said...

P: "There seems to be a factor missing here!"

What factor?

Pablo said...

MW: Land!

Mark Wadsworth said...

P, I hope you are being ironic.

1. Land is just there so you can't increase the amount of it or its value by swapping it with labour, goods and services.

2. Land values are highest where there are most people doing the most trading, so land values are actually just a by-product or side-effect of the real economy, like pollution.

Pablo said...

MW: No, no irony, just stating the obvious - you can't create wealth without access to land, yet the piece quoted makes no mention of it.

Mark Wadsworth said...

P, you might as well add that economic activity cannot take place without fresh air to breathe.

Land, fresh air, fresh water, soil and so on are not really part of the economy, they would exist even if there were no human beings and thus would not be of value in themselves.

Everything has to be produced somewhere and/or consumed somewhere and/or exchanged somewhere, and everybody has to live somewhere.

It just happens to be convenient for most of all this to take place on firm soil in the same way as everybody needs air to breathe etc.

Pablo said...

So your meaning depends on the context, and the fact that economy is in quotes. I think I'm with you now.

Mark Wadsworth said...

P, land/location is just there.

Its value depends entirely what happens on and near it, i.e. how many people live there and how much economic activity takes place.

Which is why an acre of prime central London is worth a million times as much as an acre of Scottish grouse moor.

That's because you can't get up to much in the middle of the Scottish highlands. But the land up there is behaving in exactly the same way as land under central London, it is just there. It is entirely inactive in the whole process.

This is not a hypothetical debate, it is facts.

Pablo said...

land [...] is entirely inactive in the whole process.

It may be inactive but it is none-the-less indispensible.

Pablo said...

It may be inactive but it is none-the-less indispensible.

Mark Wadsworth said...

P, sure, but so is fresh air to breathe.

Nobody accounts for that in the national statistics, no individual has to pay for it*, and we pollute the air as individuals and/or prevent pollution by collective action such as Clean Air Acts etc.

* Except to the extent that the rent of housing in places with good air quality is, all things being equal, higher than in places with poor air quality.

Pablo said...

Now, this whole "economy" thing depends on people exchanging labour, goods and services [...] that is how wealth is created in the first place.

I don't see your point.

Mark Wadsworth said...

P, putting agriculture to one side, where the physical land is a vital part of the means of production, it is not really "land" we are talking about, it is "location".

All most buildings need is a firm, dry surface, but that is just a basic essential like "breathable air", what is really relevant is the location i.e. what else and who else is in the vicinity.

And yes, I know that L+L=W thing, but I could just as well say:


because without breathable air we'd all be dead within minutes

Pablo said...

All the matter for our products derives from the earth.

Mark Wadsworth said...

P, that's a statement of the bleedin' obvious. I might as well say "Every molecule in your body was created in stellar explosions".

It's sort of getting off the topic of which are the best or worst taxes.

But if you insist, all those molecules from outer space are free gifts of nature.

With a few exceptions, (e.g. oil) minerals and so on under the ground aren't worth much.

Most of the cost of goods is the cost of the labour needed to extract the resources from the ground, design, make, transport and sell them.

So if we can tax the value of the free gift, to impose market discipline on all participants, and untax labour, that seems like a good plan to me.

Pablo said...

seems like a good plan to me Not arguing with that! It is that you say Now, this whole "economy" thing depends on people exchanging labour, goods and services [...] that is how wealth is created in the first place that I take exception to. Land may well be a constant but to leave it out of account may well lead us to forget about it. After all, these pages are presumably not just read by Georgists.