Weekly deaths - all causes - E&W - up to week 25

Data from the ONS.



By that metric, we're not quite at undershoot yet, but pretty close. The BBC reckons we are, by a slightly different metric.

"Meat plants likely source of any coronavirus second wave"

From The Evening Standard:

Asked during a London Assembly investigation into coronavirus for the most likely sources of future outbreaks in the capital, Professor Fenton, the London director of Public Health England, said vigilance was needed in hospitals, care homes and people returning to the UK after foreign travel.

But he highlighted food factories as an “emerging area” of concern because of the proximity of workers to each other and the low pay, meaning staff were unlikely to be able to afford to self-isolate at home if they fell sick.

Outbreaks have been seen in food factories in Wales and Yorkshire, and in Germany, France, Spain and the US.

Interesting, the link is quite striking.

Prof Fenton thinks that the type of people who work there are the common denominator (see also - care home workers). Last month, Sky News quoted an expert who thought it was a combination of close proximity of workers and the fact that these places are kept so cold (not good for immune system).

The other possible link is the animals and meat themselves, as these outbreaks don't seem to happen in other frozen food factories. Which would sort of prove the militant vegetarians right. Oo-er.

Why monopolists prefer VAT to corporation tax

Dinero, in the comments here:

"It occurs to me that VAT has a monopoly profit tax element to it. [In that it taxes the profit margin on a transaction rather than the profit of the balance sheet aggregate turnover]. I was thinking of the word monopoly in that where a vendor sells something unique and in demand, without competition then that vendor can successfully pursue a high profit margin.

Ignore the sentence in square brackets, which betray a deep misunderstanding of basic bookkeeping and economic concepts.

VAT does precisely the opposite! It doesn't tax the profit margin and helps the monopolist.
-------------------------------
Consider our monopolist, who is insulated from market forces (by some combination of economies of scale, barriers to entry, customer loyalty, patents etc). He pays his workers £50 per unit and sells them for £100 incl. VAT. The UK VAT is one-sixth of the selling price, so he pays £16.67 VAT and has a net profit of £33.33 per unit, or 33.33% of the selling price.

Our new entrant or challenger, subject to competition pays his workers £50 per unit and sells them for £70 incl. VAT. He pays £11.67 VAT and has a net profit of £8.33, just under 12% of turnover.
-------------------------------
If the unit selling price is squeezed by a £5 and costs go up by £5, the monopolist's profit per unit is still £20, or 21% of the selling price. The little guy still has to pay £10 VAT and ends up with a net loss of £5 per unit.

So the little guy goes out of business and his ex-workers are all looking for work. The monopolist survives and can push up the selling price to £100 again and push down wages to £50.
------------------------------
In our first scenario, the two businesses had pre-tax profits of £70 and tax man collected £28.33 in VAT.

What's the position if the tax man scrapped VAT and imposed 40.5% corporation tax instead (£28.33 ÷ £70 gross profits)?

The monopolist pays £20.23 corporation tax on £50 gross profit (more than he paid in VAT) and the little guy pays £8.10 corporation tax on £20 gross profit (less than he paid in VAT). That's a good start.

If selling prices drop by £5 and wage costs go up by £5, the little guy's after tax profits fall to £5.95 per unit, so he still making a living. The monopolist is still doing very well. We end up with more new entrants and challengers; lower unit prices for consumers; more employment; and higher wages.

What's not to like?

By how much would UK tax receipts fall if VAT were scrapped outright?

Physiocrat, here, is very radical on this:

VAT costs and losses

1) Admin - not very much as the costs are transferred to business.
2) Churning - VAT is part of the price index to which pensions, benefits and public sector pay are linked. This makes it a major government cost in its own right.
3) Abstraction from other taxable revenue streams.
4) Welfare costs arising from deadweight losses.
5) Tax revenue losses due to deadweight losses (separate from abstraction).

My piece on the LVTC web site needs to be re-worked with better calculations. I would not be surprised if, because of the above, the Exchequer is out of pocket due to VAT.

I think he's overselling it. We exchanged emails this afternoon, and my summary is this, FWIW. Total VAT receipts are about £130 billion a year in the UK. What happens if we scrap it (which we can now do, post-Brexit) and make no other changes to the tax system?

1) Admin costs

Government HMRC admin costs are supposedly around 1% = £1 bn, double that for 'carousel fraud' etc = £2 bn.

Number of VAT registered businesses (two million) x extra work each quarter adding the extra info to the accounting system and doing the quarterly VAT return (ten hours) x average hourly cost of employing a bookkeeper £50 (wages, NIC, desk space) or lost value of small business owners' time when they could be actually producing something = £4 billion a year. Smallish number, so let's include it with dead weight costs at 5) below.

2) Churning

I'm not sure I agree that "VAT is part of the price index to which pensions, benefits and public sector pay are linked". VAT has little impact on end prices, Phys countered that "End prices would go down if all these people were not handed government money to pay VAT with!" which is true. I'm still not sure what the net impact on government spending would be.

3) Abstraction from other taxable revenue streams

This is the biggest and easiest number.

PAYE (income tax plus two layers of NIC) on average worker = 40%. Higher rate employees PAYE = 49%. Corporation tax is 19%. If profits are paid out as dividends to individuals, there's a bit more income tax on that. VAT cuts into business rents, which are taxed at about 40% via Business Rates. The overall average rate is (say) 33%, so one-third x £130 billion would come back in anyway = £43 billion, assuming no change at all to selling prices and output in real terms (goods and services supplied, hours worked etc).

5) Tax revenue losses due to deadweight losses (separate from abstraction) and 4) Welfare costs arising from deadweight losses

Let's say scrapping VAT boosts the economy and trade by 5% in real terms (low guess - it depends what assumptions you make about price elasticity of supply and demand). Total current tax revenues from economic activity (PAYE income tax and NIC, corporation tax, bank levy, Business Rates etc) about £430 billion a year. 5% of that = £21 billion.

There are about thirty million employees. Let's say that number also goes up by 5% and 1.5 million who are currently un- or underemployed get a part-time job, longer hours, full time jobs. Average unemployment benefit, housing benefit etc (say) £10,000 per person per year = £15 billion saving.

Summary

HRMC would lose £130 billion of VAT receipts.

HMRC would save £2 bn admin costs and fraud; get £43 bn more from other taxes anyway (static basis); get another £21 bn from other taxes from losing deadweight costs (dynamic effect); and the DWP would save £15 bn a year in welfare payments, total £81 billion.

That means that the UK government would only lose about £50 billion a year if it scrapped VAT outright.

For convenience and to make this politically sellable, we can play along with the myth that consumers/households pay the VAT.

£130 billion divided by 29 million households = £4,500 per household on average. If we claw back the £50 bn shortfall from total housing values (pre-lockdown) of over £7 trillion, it would require a progressive property tax of about 0.7% on selling prices (or for the purists, a 25% Land Value Tax on residential site premiums) = £1,750 on average.

The average household is £2,750 a year better off. What's not to like?

Lockdown is a golden opportunity to realign the academic year with the calendar year

My daughter, who is in her first year of doing A-levels came up with this plan, which I thought was pretty good:

1. Schools and universities all start again in September with the syllabus they were supposed to cover in the summer term.

2. Pupils and students who should have taken exams this summer just take them in December instead, when everything is hopefully nearly back to normal.

3. The academic year now ends in December with a few weeks off for Xmas and New Year before the next academic year starts. Hooray, lazing around and partying without anything to revise and no homework to do!

4. Bonus #1 is that people will get real GSCEs or A-Levels in December 2020, instead of notional GSCEs or A-Levels awarded by their teachers. Surely a real B grade is better than a notional A grade?

5. Bonus #2 is that the anachronistic and nonsensically long summer holiday would be a thing of the past, each school just pencils in a few shorter holidays of two or three weeks* scattered through the year, which would reduce the price differential between 'summer season' and 'rest of year'.

* So they can have holidays to coincide with European Cup, World Cup, Olympics, Wimbledon (for the posh schools) etc and kids and teachers can enjoy them in full. A level pupils get a few weeks off during festival season. And so on.

Killer Arguments Against Citizen's Income, Not (29)

From The Scotsman:

Helpfully, the former Edinburgh SNP MSP and local government minister Marco Biagi has done some sums, calculating that rolling in all benefits currently paid out in Scotland would cover £19bn and on the basis that the Scottish Government won’t stop spending £19bn on schools, hospitals, police and all the other services for which it is directly responsible, the rest of it would have to come from higher tax, almost all on income.

It doesn’t sound too bad when you say it quickly enough; a bit more income tax and everyone gets £9,000 a year with no strings attached. The rich can easily afford it, so what’s not to like?

What’s not to like is the scale of the tax rise. Most appraisals of CBI presume the £12,500 tax-free personal allowance would go and National Insurance would be paid by everyone, and Mr Biagi’s calculations produce a basic income tax rate of between 42 and 44 per cent.

The Office for National Statistics estimates average gross earnings in Scotland to be £470 a week, £25,000 a year give or take a quid or two, and income tax at 40 per cent would mean the average worker paying £10,000 a year in tax and getting £9,000 in return.

He appears to be suggesting that UBI is bad for two reasons:

1. It would increase basic rate of income tax to 40%, and

2. The net cost of income tax minus UBI to an average taxpayer would be £1,000 a year.

The problem is, he is a fucking moron who doesn't know what he is talking about and isn't comparing like with like.

1. At present, the total marginal withdrawal rate (PAYE deducted plus means-tested benefits foregone) for an average earner is at least 75%. They might not know it, but it is. £9,000 a year is a very generous* UBI, so I hope it would replace all means tested benefits, in which case the effective withdrawal rate is reduced to the new higher PAYE rate of about 55%**, which is a big improvement. You end up 45p better off for every £1 you earn, not 25p.

2. The current net cost of income tax minus UBI to an average [Scottish] taxpayer is £2,480. They pay £2,480 income tax and receive £zero UBI. So reducing that net cost to £1,000 is a big improvement.

* I would say overly generous, but hey, I'm using other people's figures.

** Basic rate tax and NIC are bad taxes, but not the worst. That's VAT, and in this context, means-testing.

Classic VAT DoubleThink

The myth is that VAT is a relatively benign tax because it is a "tax on consumption". Anybody who knows anything about tax incidence and bothers to look at actual statistics on what happens to prices, output levels and profits or wages when VAT rates change; or price differences in the USA where each state has different Sales Taxes knows that this is nonsense.

Value Added Tax is the worst of both worlds, it acts like a tariff, so dampens economic activity and is also, quite literally a tax on "value added" i.e. wages and earned profits. It's a crude profits tax that is payable even if a business isn't actually profitable (but would be if there were no VAT).

In the UK, businesses pay about three times as much VAT as they do corporation tax, so surely, if you interested in the tax system, you focus on VAT. But all the attention is directed at corporation tax. There are loads of headlines that Starbucks or Apple (or whoever) pay little or no corporation tax in the UK, which is quite probably true. But they still hand over £ billions in VAT.

So far so bad.
------------------------------------------------------
Mombers spotted this at Bloomberg:

There’s a new bad idea doing the rounds in Europe. Many governments are convinced that a reduction in value-added tax will help relaunch their economies. Some, including Germany, have already wielded the ax. Others, such as Italy and the U.K., are taking this option seriously.

But the benefits of cutting VAT are limited, and the costs are large.

Reducing VAT from 20% to 17.5% was the best thing that Alastair Darling could have done back in 2009. He did it and it worked i.e. softened the impact of the financial recession. The benefit was measurable and large and far from 'limited'.

As with any other tax cut, the key question is who gains from it. The answer for VAT depends on a concept economists call “incidence,” which refers to how the tax burden or benefit is shared between companies and consumers. In the case of VAT, retailers can either pass on any reduction to shoppers by lowering their prices or they can keep their prices unchanged and pocket the difference.

Unfortunately, research shows they’re more likely to do the the latter, which wouldn’t be much use for any policymaker looking to use such cuts as a way of fostering a consumer-led recovery... They looked at a large cut (from 19.6% to 5.5%) for sit-down restaurants in France in 2009, after the financial crisis.

The results showed that consumers weren’t the chief beneficiaries of the reduction. It was the restaurant owners. The price of a restaurant meal decreased by a mere 1.4% in the month after the steep VAT cut, and it didn’t fall much further over the next two and a half years. The two researchers showed that restaurant owners pocketed 41% of the economic gain from the VAT reduction, while consumers got 19%. Restaurant staff obtained 25% in the form of higher wages, and suppliers accounted for the rest.

This is of course exactly what you'd expect to happen (it has been observed countless times). There was plenty of evidence ten years ago that this is what happened, it is hardly a new insight. What they don't mention is that output increased (a lot more people visited restaurants, even though prices had only dropped a bit).

So, having made the false assumption that VAT is a benign tax because consumers pay it, they argue that VAT cuts are bad because consumers don't pay it? The article then goes on to say that VAT increases are bad because consumers do pay it! Do they not realise that they are contradicting themselves at least twice over? Is there such a thing as TrebleThink? Everybody's entitled to be wrong, but at least be consistent!

As to "fostering a consumer-led recovery", people can't consume more unless somebody else is producing more. And do they not realise that restaurant owners, restaurant staff and restaurant suppliers (and their employees) are all consumers too? If they have more money to spend, they will probably spend it.

"Drivers in Yellowstone Get Caught in Middle of Bison Stampede"

Hat tip - Brian, follower of Deornoth, who spotted this at Twisted Sifter.

'Never kill a job, mate. Never kill a job'

These words were spoken, through a just alight dog end stuck to his bottom lip,  by a labourer in a potato merchant to a friend of mine who was his foreman and was trying to hurry him up in loading the lorries.  The message is don't work too hard or fast or the job will go.

But what really kills jobs?

We all know that jobs are a cost of production, not a benefit hence the costlier you make it to employ somebody the less jobs there will be.

Which brings me on to this (which I have just re-discovered):



It seems to me that the other takeaway from Fred's analysis is that by taxing labour not land you kill production which in turn kills jobs.  Or rather the killing of jobs kills production.

Of course it gets worse.  The value of money arises from production.  Fiat money is what it says it is. Its value does not arise from production.  So without production (and yes that would include house building) money must eventually have no value.

So on top of reducing production we now have money printing to save production...

It's not going to end well is it.

Unless we change course...

When Animals Attack: Texas Mayor Killed In Donkey Attack

Cow attacks? Those crazy Texans have gone one better. From Bossip:

Hollywood Park Mayor William “Bill” Bohlke was killed by his 500-pound donkey in an apparent attack Monday, said Chief Deputy David Soward of the Atascosa County Sheriff’s Office. Soward said the donkey remains on the ranch and an exact cause of death is pending.

“They [donkeys] can become very aggressive, very mean, sometimes triggered by a female in heat,” Soward told the San Antonio Express-News. “We’ll probably never know what triggered it, but it was evident that this particular donkey was involved, based on the evidence at the scene and what we saw on this donkey.”