back to article Tax Systems: The good, the bad and the completely toot toot ding-dong loopy

A loyal reader of these 'ere pages, Rich Bryant, writes in with an interesting question. There's a proposal for an entirely new taxation system out there, The Reset, and is it something that mainstream economists are ignoring because the paradigms of mainstream economics just cannot deal with it - or is it because the plan is …

  1. Destroy All Monsters Silver badge
    Big Brother

    "Tax and tax, spend and spend, elect and elect!"

    If We Only Spent All the Money, Then Everyone Would Be Prosperous!

    On the front of today's New York Times business section is a remarkable—or should I say remarkably unremarkable—news article whose entire premise, unchallenged in the course of 1,341 words and input from 10 sources, is that more government spending is a very good thing because it leads to more government jobs and therefore helps the economy. Hooray! (...)

    Credit where it's due: As government-spending euphemisms go, "preserving the wow factor" is surely in the Top 20...

    I have only four questions for the NYT and those who agree with its premise that the more government spends, the more prosperous we are:

    1) Why were states not measurably more prosperous after increasing government spending by more than 80 percent in real terms between 2003 and 2007?

    2) Between the time of Bill Clinton's last submitted budget of $1.8 trillion, and Barack Obama's first submitted budget of $3.6 trillion, did the average American become more or less prosperous?

    3) The United States after World War II, Canada in the 1990s, and Australia in the 1980s all became significantly more prosperous—despite ample warnings to the contrary—after cutting, not increasing, government spending. Wha' happen?

    4) Is there a ceiling on what percentage of GDP the government should account for, and if so why should there be one, and where should it be?

    1. Lars Silver badge
      Coat

      Re: "Tax and tax, spend and spend, elect and elect!"

      I sometimes think Americans have an inbuilt ability to forget how much and who pays for the military and wars.

      1. Eddy Ito Silver badge

        Re: "Tax and tax, spend and spend, elect and elect!"

        Lars, it seems you're not familiar with Reason. They are quite aware how much and who pays for the military and the associated costs of universal militarization.

        1. Lars Silver badge
          Happy

          Re: "Tax and tax, spend and spend, elect and elect!"

          @Eddy Ito. I am not sure how to read your comment, thanks for the links anyway. My post was an effort to be kind and thoughtful in not pointing out that the sentence "time of Bill Clinton's last submitted budget of $1.8 trillion, and Barack Obama's first submitted budget of $3.6 trillion" has a sting of amnesia as there was Clinton and then something happened before Obama that was not mentioned for odd reasons I cannot understand. Oh well.

          1. Eddy Ito Silver badge
            Pint

            Re: "Tax and tax, spend and spend, elect and elect!"

            Ah, I see. As a fairly regular reader of Reason I took it as less amnesia and more a double shot of rubbing noses in it. Specifically to the red team in the sense of "it wasn't there before and it didn't suddenly get there by magic so what happened to the small government thing" and to the blue team "just because the government spends money doesn't make it a magical cure all". Granted as a response to the NYT it was most likely a direct jab toward the blue team but has the benefit of smacking down any smirking by a member of the red team.

    2. xyz

      Re: "Tax and tax, spend and spend, elect and elect!"

      >>is that more government spending is a very good thing because it leads to more government jobs..

      More government jobs leads to more tea drinking, pension hungry, lard arses who immediately leggit to HR screaming "STRESS!" if anyone asks them to do anything.

      Just my 2 cents (ex VAT)

      Tax is like the clap...best avoided

    3. strum Silver badge

      Re: "Tax and tax, spend and spend, elect and elect!"

      >after World War II

      A little clue in there. Taxes fell after the war spending ended, and productive activity started again.

      1. Riku

        Re: "Tax and tax, spend and spend, elect and elect!"

        Well, yes, but the definition of productivity shifts during wartime. It would hardly be fair to say that the war effort wasn't productive.

  2. Neil Barnes Silver badge

    I wonder

    if before we start changing how tax is collected, we should ask why?

    I mean, you say collect tax like it's a good thing... but given that taxes collected from me are theoretically spent for things that benefit me, should we not first be having the conversation about what benefits I actually get?

    Don't get me wrong; I do think that governments provide benefits - but it's not always clear what they are; nor how big they are: for example, is HS2 a benefit? Spend £45B and encourage, what? People to live further away from London? The ability to 'work' on a train for a shorter time? When only two hundred years after inventing the bloody thing the fact that train companies are pricing to avoid customers suggests that encouraging more users may not be the best approach.

    But that was just an example; it gets worse. Every year the Chancellor gets on his hind legs and brays about 'and this will raise a million pounds', 'this will save half a billion', 'reduce tax by a penny in the pound', 'save the average family two pounds a week'... they're all numbers without context, and it's rather tricky for the average bloke on the street to find the actual numbers and how they relate to the real world.

    Every few years we are asked to decide which set of politicians we'd like to lie to us for a while, based largely on financial predictions they make which we are unable to judge and which do not bind; we know neither whether they speak sense nor whether they will hold their word. It's madness.

    1. jonathanb Silver badge

      Re: I wonder

      HS2 frees up capacity on the West Coast Mainline for more local train services, so that the commuter trains for people who live to the north of London are less overcrowded.

      1. Pen-y-gors Silver badge

        Re: I wonder - North London commuters

        True - but £42 BEEELION seems rather a lot to pay to let commuters avoid breathing sweaty armpits. Wouldn't buying a few more coaches for the commuter trains be a bit cheaper?

        1. jonathanb Silver badge

          Re: I wonder - North London commuters

          No actually, it isn't, because that requires longer platforms, which depending on the layout of the station, and other stuff round about it, ranges in price from moderately expensive to virtually impossible.

          1. Zog_but_not_the_first Silver badge

            Re: I wonder - North London commuters

            Double decker trains as commonly used in the rest of Europe?

            1. Anonymous Coward
              Anonymous Coward

              Re: I wonder - North London commuters

              tunnels?

            2. Lars Silver badge
              Coat

              Re: I wonder - North London commuters

              "Double decker trains as commonly used in the rest of Europe?". I think a big (expensive) problem in the UK is all the low bridges you run under.

              1. GitMeMyShootinIrons

                Re: I wonder - North London commuters

                @ Lars "problem in the UK is all the low bridges you run under"

                A fine point. The East Midlands line is gradually being electrified and even this requires substantial works on bridges and tunnels to fit train plus overhead lines.

                The problem the UK rail network has is that it survived the war largely unscathed - so no need to rebuild as happened across Europe. So we have a network designed for steam engines carrying masses more than it was ever designed to do.

            3. jonathanb Silver badge

              Re: I wonder - North London commuters

              It would cost more to upgrade an existing line to take double decker trains than build a brand new line. HS2 will be built to continental loading gauge so will be able to take double decker trains.

              Another problem with double deckers is that it takes a lot longer for people to get on and off, so they have to wait longer at each station.

            4. Anonymous Coward
              Anonymous Coward

              Re: I wonder - North London commuters

              Ok, a Little history lesson might be in order here.

              Only TWO sets of double decker trains have been used in the UK. These were built for exactly the reason people are suggesting them now. i.e. More bodies per carriage.

              They ran on the lines into Charing Cross and were losely based upon the 4-SUB multiple unit designed by O.V. Bullied, the CME of the Southen Railway. They were class 4-DD (no bras size comments please.)

              http://en.wikipedia.org/wiki/SR_Class_4DD

              for a picture of one.

              The reason why these failed as will other suggestions for using Double Decker trains in the UK is the size of the loading gauge. The UK one is smaller than the UIC Gauge used in Mainland Europe.

              The only UIC Compliant line in the UK currently in use is HS-1.

              The old Great Central line from Marylebone to Sheffield was built to continental loading gauge but most of this was cut by Beeching. The Woodhead line from Manchester to Sheffield was built to this standard.

              So we could use DD trains on HS-1 and HS-2 and HS-3 if they ever get built BUT those trains would probably NOT be able to use the rest of the network.

              We currently use 12-coach trains on the WCML and on the SR 3rd rail network. Going longer is just not an option because the stations just don't have long enough platforms.

              Network Rail is spending millions extending Waterloo platforms 1-8 to take 10 coach trains. 12 is jut not possible without a totally new station.

              We could improve the frequency of trains but most current signalling systems are limited (for obvious safety reasons). Until we move the whole network to ETRMS and moving block we are stuck with basically a Victorian network.

              IMHO, we should build HS-2 and HS-3 without delay OR OR OR

              make more people telecommute.

              1. Eddy Ito Silver badge

                Re: I wonder - North London commuters

                make more people telecommute.

                I'd be happy if I was allowed to telecommute, even just a couple of days a week.

                1. Tim Worstal

                  Re: I wonder - North London commuters

                  You might want to try a switch over the economic commentary. I wrote this piece in Portugal and am adding comments from the Czech Republic.......

                  :-)

          2. YetAnotherLocksmith

            Re: I wonder - North London commuters

            JohnathonB,

            I can only hope you've never tried to eat Pringles from a tube. It must have been terribly wasteful. After all, with you were stumped at not being able to eat more once your hand couldn't reach them, there was likely 3/4 left!

            Fortunately, the rest of us simply move the tube and slide the contents up, so bringing them in reach.

            Which might provide a clue for how to add 'extra' platform at the short stations.

            Those where you can chuck a few hundred tonnes of concrete down would be fine, of course - and far cheaper than £45 billion!

            1. Naughtyhorse

              Re: I wonder - North London commuters

              Yetanotherlocksmith

              did you ever see what happens when you try and fit, say 3 tubes worth of pringles in 1 tube...

              it aint pretty.

              now think commuters.

              and about that 'few thousand tonnes of concrete'... we want to put it in your front garden, is that ok?

          3. Tom 13

            Re: that requires longer platforms

            Why?

            Why does the entire length of the train have to be on the platform? Why not simply have longer trains and change the doors at which people will be loading and unloading? I've never understood this.

            Granted I'm not in the UK, and here in the US commuter trains are what passes for passenger trains in Europe, but when we pull into certain stations, the conductors announce which doors will be used for loading and unloading. Most stations they open two sets of doors, a couple they only open one.

        2. AndrueC Silver badge
          Unhappy

          Re: I wonder - North London commuters

          Wouldn't buying a few more coaches for the commuter trains be a bit cheaper?

          Figuring out how to save them having to make the journey would be even better. I have to travel 60 miles to get to work (albeit the hour on the train is actually quite pleasant thanks to Chiltern). Yet I have everything I need at home. Okay not everyone does but how about investing in local rentable offices for all major towns. It seems silly to me that any office worker has to travel more than five miles to get to a desk they can use.

    2. Tim Worstal

      Re: I wonder

      I deliberately try to avoid this very conversation in the piece.

      A rough estimate of average deadweight costs is 30 % or so. Every £100 we raise in taxation destroys £30 of economic activity.

      Hmm. Well, I'm certainly convinced that the value of a criminal justice system is higher than 30% of the amount of money we spend on it. So, that would be justified spending.

      I'm deeply unconvinced that the value of spending £100 on diversity advisors is greater than £130.

      Some things government does are very definitely worth the costs of raising the tax to pay for it. Others not so much: but as I do say in the piece, that's an argument for another day.

      1. jonathanb Silver badge

        Re: I wonder

        Tax destroys economic activity. Government spending creates it, and some forms of spending create more than others.

      2. Anonymous Coward
        Anonymous Coward

        Re: I wonder

        Personally, I do not feel that Reset goes far enough. An automated payment transaction tax as defined by Professor Feige is even better, see

        http://en.wikipedia.org/wiki/Automated_Payment_Transaction_tax

        This proposal would automatically tax ALL transacations (mostly electronic anyway) by 0.35 % (to be paid by buyer and seller) and abolish all other forms of tax, which are usually wasteful to collect, unfair and a major drag on the economy.

        This tax would apply to every transaction from multi-billion stock market deals to a pack of chewing gum. No more income tax, no more death taxes, no more VAT, no more capital gains, no more sin taxes. The thousands of paper tiger cuts that kill us all a thousand times daily would disappear.

        Not to mention the constant bickering about who gets to tax the book you purchased on Amazon.

        Of course HRMC, the IRS and tax accountants, tax lawyers and other useful members of society would need to re-train.

        To counter the avoidance problem, Feige proposes that all cash withdrawals be taxed at 0.7 % whenever the cash leaves an ATM or is deposited into a bank. This effectively destroys any incentive to avoid electronic transactions, which are far more convenient anyway. It means everyone gets taxed the same based on their consumption, even the underground economy. Even better, people could spend their money in complete anonymity, without worrying about who is peeking into their private affairs.

        If the 1.5 trillion of UK GDP was taxed once a year at 0.7 % that would already equal 105 billion in tax. In fact, the revenue would likely be much higher after all individual transactions were factored in. It would surely be enough, probably too much.

        In an electronic economy, you have to wonder why we continue taxing only those things that cannot easily escape the King's men, such as land, property, salaries and purchases. This is the system used since the first protection rackets were exerted on pastoral economies by their better armed rulers . This same antiquated approach was then transferred to feudal and capitalist economies. Why are we still doing this today?

        I would say it is high time for a reset and a complete reformat of the entire tax file system. APTT is a good way to do it, TIm, and deserves a better hearing than you have given Reset here.

        1. jonathanb Silver badge

          Re: I wonder

          I pay for stuff with my credit card, a taxable transaction, then at the beginning of the following month, pay of the credit card, another taxable transaction. I could half my tax bill by paying by debit card instead.

          Lots of companies in other countries have money in UK banks, so much so that more Euro denominated transactions take place in the UK than in the rest of the world put together, and more US Dollar transactions take place in the UK than in any other country. Those companies could reduce their tax bills by not using British banks.

          Then I don't think you will find that 0.35% is anything like enough to cover the government's budget.

          1. Anonymous Coward
            Anonymous Coward

            Re: I wonder

            @jonathonb,

            There are a helluva lot more transactions going on in the economy than your credit card bill, mate. 0.35 % x 2 on every single transaction every day adds up to a lot.

            Read the paper, do the math.

            http://apttax.com/

            1. Richard 12 Silver badge

              Re: I wonder

              So I arrange my affairs so I buy everything through my employer.

              At the end of each charging period, they calculate my total expenditure, subtract it from my salary and pay me the difference minus the transaction tax.

              Their suppliers do the same.

              To minimise tax liability all you have to do is bring income and outgoings as close as possible.

              The logical result is a massive monopoly - not just for one product, but for all products, and to charge your employees so much that their take-home pay is zero.

            2. jonathanb Silver badge

              Re: I wonder

              Indeed there is, but the point is that most of them could be avoided if there was a reason to avoid them.

            3. Tom 13

              Re: helluva lot more transactions going on

              You seem to have completely missed his point. That may be true NOW, but it won't be if your rules go into effect. Figure on keeping 1 in 10 not losing 1 in 10.

        2. LucreLout Silver badge

          Re: I wonder @AC

          To counter the avoidance problem, Feige proposes that all cash withdrawals be taxed at 0.7 % whenever the cash leaves an ATM or is deposited into a bank. This effectively destroys any incentive to avoid electronic transactions, which are far more convenient anyway.

          This obviously won't work, and I'd hope you already know why.

          0.35% transaction tax at either end, and you want to tax cash withdrawals at 0.7%. Great, I'll just transact in cash and refrain from depositing it. Sure, you get 0.7% of the cash as tax, once only. After that I continue using cash for all daily expenses and you never see a penny of it. I get paid cash by people I do cash work for, and pay cash for products or services consumed.

          I may not be able to wholly avoid the tax using the above, unless I am prepared to buy and sell goods face to face for a living, in which case my tax rate will be pretty close to zero. As a professional, my salary might get taxed in part, but I'll just sit on as much of it as I can in order to avoid taxes becoming due on it.

          My mortgage payment is about £1400. To have that money to pay the mortgage with I have to earn £2414 before tax. £1014 being paid in tax on the part of my salary that pays the mortgage. Your tax will raise only £85. The state is going to have to cut back a helluva lot to recoup that through efficiency - I believe in a small state, just not that small!

          1. Anonymous Coward
            Anonymous Coward

            Re: I wonder @LucreLout

            Why would you want to take your mortgage payment underground ?

            I don't think you get this idea at all.

            If you withdrew cash at 0.7% and can convince everyone you deal with to take cash forevermore, you may indeed save 0.35 % on each transaction. But the first person who puts that money back into the bank will have to pay 0.7 % tax. He might prefer to just pay 0.35 % instead. Particularly, if he is a cheapskate like you and can't convince the electric company to take your greasy notes.

            Nor do I think your bank manager will be too happy with that arrangement either, since he will lose out everytime he deposits your cash.

            I also don't think the news agent will think saving 35 cents on every 10 dollar purchase (his only tax payments) is worth the risk of keeping a box full of used notes under the counter, just so you and he can avoid a 0.35 percent contribution.

            Do you think Amazon and Ebay are going to implement a "cash only" policy where everyone can send brown envelopes to a cash handling center? I don't think so. They are close enough to the 0.7 % taxation mark as it is.

            I suggest we use Tim's 3 way yardstick instead, to dissipate arguments like "everyone will just use cash".

            1) Efficacy. I admit the jury is still out until this is put into practice, BUT, Feige estimates that 70 % of US GDP is personal consumption. Tax that at 0.7 % and it indeed becomes a shedload of money. My calculator breaks when I use the entire number so let's try per capita figures instead.

            In 2013, US GDP was 53,142.89 USD per head. That is 37,200 USD of personal consumption per person.

            Multiply that by 0.7 % (buy / sell) and that becomes 2604 USD x 316,100,000 people which becomes 823,124,400,000 USD in tax revenue.

            823 billion dollars is about 15 % of the 5.4 trillion USD the US took in in global tax revenues in 2013.

            So yes, at first view we do have a BIG shortfall.

            However, this assumes that everyone is making only one transaction a year. And we are not taxing stock transactions in the above figures.

            On Jan 2 2015, the NYSE had a total trade volume of 33,253,336,431 USD.

            Taxed at 0.7 %, that would collect 2,327,733,550 USD in tax for just ONE DAY (YES, 2.3 BEELION dollars). I think this will help cover the shortfall nicely, but someone else should check because I am getting RSI now.

            Ah to hell with it, lets do the math. 2.3 billion times 180 working days = 414 billion.

            No wonder no one wants a Tobin tax. But we are now up to 1.5 trillion in revenue. Still not enough for 2013 right?

            The underground economy (i.e. you and your merry men) would also have to pay tax every time it injects or removes money from "legit" payment systems. Some estimate that the shadow economy represents 2 Trillion dollars a year. SO 0.7 % of that would reap quite a bit as well. Let's go for broke and say another 140 billion, since every little helps. Now we have 1.64 trillion

            Today, 65 % of US businesses and 45 % of US citizens effectively pay no taxes at all after loopholes, subsidies and transfer payments are calculated. When they start paying something and perhaps receiving less handouts, money will flow in, but more research is needed to see how much that non-payment really amounts to. So we don't know yet.

            And what is 30 % loss on 5.4 trillion again? I get 3.8 trillion left over. 3.8 - 1.64 = still 2.16 trillion short. So we are getting a little closer. Maybe we will have to cut down on government spending a bit or do this more progressively, starting at the state level first. Perhaps a few less global wars, less bailouts and a balanced budget will help.

            More figures please:

            Social Security, Medicare, Medicaid and DOD spending represents around 65 % of federal spending, which is a lot. 24 % of that is spent on administration. So there is much work to do.

            Also note that the total revenue gathered for 2012 was only 4.9 trillion (as opposed to 5.4). As we gather more, there is a tendency to spend more.

            If people suddenly find they have more disposable income when they no longer pay income tax,land tax, fuel tax, sales tax, etc. (not to mention having more free time after binning their tax forms) won't they go out and spend a bit more ? I'm guessing yes. The result would be more tax revenue.

            So I will concede that the jury is still out on Efficacy. But you must break eggs to create omelettes, and omelettes made from freshly printed QE notes don't taste as good they used to.

            2) Efficiency. This one is my favorite. If the transaction tax was levied at every sale, from every till, every credit card or paypal transaction and every bank transfer and then instantly pushed into the state's bank account, much goodness could arise.

            Let's look at a few of the benefits:

            No need for tax declarations, tax audits, tax inspectors, printing of those cute little stamps and forms, no large bureaucracies to make sure everyone pays their "fair share". Not to mention the disappearance of the enormous mountains of regulations that businesses and individuals must wade through every year. If all that went away, I would humbly suggest that tax collection would be mightily more efficient, and not with the 30 % loss rate quoted by Tim.

            Face it, a system that must keep track of which tax rates apply to Jaffa cakes is not efficient, it is a fucking joke.

            So one out of 2 isn't bad and less loopy than we might think

            3) Equity. People will argue until they are blue in the face about this, but most would agree that consumption taxes are about as fair as it gets. Everything else has been legislated and lobbied to death or designed to ensure that one set of taxpayers loses out to another (usually the middle class). Don't forget the loss of human potential, dignity and faith in government that comes with each new tax hike or "favor".

            A 0.35 % tax on stock trades might seem unnecessary and harmful to some. However, if the brokerage and traders no longer need an army of accountants, tax lawyers and the constant fear of audit, they may actually come out ahead. Brokerage fees will be taxed at 0.35 %, as well.

            Today, people on low incomes and small businesses pay an inordinate amount of tax vs income and also contend with Vat rates of 20 %. The very wealthy pay hardly any tax at all in comparison. This isn't fair and even the rich know it isn't fair.

            If everyone pays a little bit every time they buy something, no one is going to argue about tax disparities because everyone will have to pay every time they consume, including the Pentagon, the NHS and all other bureacracies living off the working man's back. What could be fairer than that?

            I'd say 2 out of 3 ain't bad, your flames and comments are welcome

            1. LucreLout Silver badge

              Re: I wonder @LucreLout

              Why would you want to take your mortgage payment underground ?

              I don't think you get this idea at all.

              You either didn't read or didn't understand my post.

              Small transactions would get taken underground. the mortgage payment example I used applied your full tax rate upon, and found it lacking more than 90% of the tax currently gained from the application of income taxes. Where do you propose that can be made up from?

              The rest of your post is predicated on the flawed assumption that people won't use cash between themselves for as many payments as are possible, so I've ignored it for the purposes of this reply.

            2. Tim Worstal

              Re: I wonder @LucreLout

              823 billion dollars

              Err, 82 billion dollars. it's 0.7%, or x0.007.

              "2) Efficiency. This one is my favorite. If the transaction tax was levied at every sale, from every till, every credit card or paypal transaction and every bank transfer and then instantly pushed into the state's bank account, much goodness could arise."

              That's not the meaning of efficiency we're using. Rather, we want to know how much of other stuff would levying the tax in this manner screw up.

              "On Jan 2 2015, the NYSE had a total trade volume of 33,253,336,431 USD.

              Taxed at 0.7 %, that would collect 2,327,733,550 USD in tax for just ONE DAY (YES, 2.3 BEELION dollars). I think this will help cover the shortfall nicely, but someone else should check because I am getting RSI now."

              The EU estimated that a Tobin Tax of 0.1% (and 0.01% on derivatives) would shrink the economy by something like 1%. So we've just decided to reduce the collective incomes of all americans by 7% just by and only by, applying this tax to hte NYSE.

              It's not a great recommendation for it.

              1. Anonymous Coward
                Anonymous Coward

                Re: I wonder @LucreLout, my bad

                Fair enough on the numbers and bad percentage calc. I admit that my head gets a little dizzy when doing the sums.

                I still believe people like Feige and Reset have much to contribute to these debates. At least someone is seeking alternatives to a system that taxes very inefficiently when it isn't also taxing unfairly. Automation, automation could be the answer.

                I agree that Piketty's 80 % tax on the super rich will not solve the problem either. However, dismantling the maze of regulations that protect the super rich and many others would at least be a start. We need something simpler. The APTT at least deserves a good look. We can hardly make things worse.

                The beauty of APTT is that as long as you are buying things you will continually pay into the state's coffers. VAT is a poor substitute because the end user pays it all.

                With APTT no one needs to chase you, or keep building intricate new rules to take more money away from those still willing to pay or unable to move countries. A tax that is hard to escape, in sum.

                Nor should this be confused with a robin hood or Tobin tax. If all transactions are taxed to replace the many other taxes used to extract feathers from the goosed economy, than it is clear that stock transactions would need to be taxed as well. Maybe a 1 % hit is the price we will need to pay to release more liquidity into the economy and reset some counters.

                The real question for me is this: what system will allow money to better flow through an economy and benefit the most players?

                A complicated, wasteful system where people with the best tax lawyers and lobbyists benefit the most and throw scraps to everyone else? Where unearned wealth accumulation is the best and safest strategy to the detriment of everyone else?

                or

                A simpler system where smaller players can build up their wealth too?

                The over-concentration of wealth into too few hands has repeatedly and historically been a recipe for revolution, economic calamity and societal breakdown. We are all skating on some very thin ice here.

                Resetting the roulette wheel has many attractions. Doing more of the same does not.

                1. LucreLout Silver badge

                  Re: I wonder @LucreLout, my bad

                  Where unearned wealth accumulation is the best and safest strategy to the detriment of everyone else?

                  Its amazing how hard I had to work to earn the wealth that generates the "unearned" income I derive from it. The money I save to invest in assets is no detriment to anyone else as it is being put to work in the economy as loans, shareholdings in companies needing to raise moeny for capital projects to grow their revenue (and thus the economy).

                  Maybe a 1 % hit is the price we will need to pay to release more liquidity into the economy and reset some counters.

                  Your thinking is clouded and irrational because you are trying to achieve political aims (your much beloved reset of other peoples rightfully held and oft earned wealth) with changes to the tax system to garner a higher tax stream.

                  The APTT at least deserves a good look. We can hardly make things worse.

                  It's been looked at and dismissed as bunk by greater minds than you or I. It doesn't work, couldn't work, and absolutely definitely would make things worse. Much worse. Tax revenues would collapse and the public sector would go unfunded. While they may like to speak the language of saints & martyrs, very few of our public servants would still be showing up 12 weeks after they were last paid to do so.

                  Think of it like this, if I can come up with workable means of avoiding the tax, then the tax doesn't work. I'm not an accountant, though I have worked with some of the best the tax arbitrage industry has to offer. APTT takes no more than 30 seconds to dismiss due to the existence of cash, offshore entities, and alternative tax jurisdictions.

          2. Squander Two

            Incentives matter

            VAT is currently 17.5%. Most people avoid it occasionally; most people do not bother avoiding it most of the time; no-one avoids it all the time.

            Could someone explain why a rate of 0.35% will have such stronger incentives than 17.5% that it would induce everyone to put up with massive inconvenience in order to avoid it absolutely all the time?

            1. codejunky Silver badge

              Re: Incentives matter

              "Could someone explain why a rate of 0.35% will have such stronger incentives than 17.5% that it would induce everyone to put up with massive inconvenience in order to avoid it absolutely all the time?"

              Oh the days of 17.5%. So long ago and almost forgotten. I cringe now when I see 20% when I already considered 17.5% added to the price of pretty much anything (bar a few random exemptions) to be daylight robbery of customers. And the brain dead Gordon Brown reducing it temporarily to 15% as if the gov was doing us a favour by not slapping us as hard as previously. But of course having that extra kick in the teeth by pushing it up to 20% doesnt make me feel happy.

              It is interesting that tax rarely goes down but often goes up. It is interesting that people consider rising tax or creating new ones as a good thing. It is terrifying to think some of these people graduated from an education system.

              1. Squander Two

                Repressed memories.

                You know, I knew it was 20% now, but had somehow blocked that information from my mind when I was writing my earlier comment. The truth must have been too traumatic to confront.

                > as if the gov was doing us a favour by not slapping us as hard as previously.

                See also when the Chancellor "gives" us something in the budget by not raising the duty on it. Oo, thanks, Chancellor! Now, where will I spend it?

      3. Riku

        Re: I wonder

        But is it really deadweight? In order for the money raised to be actually useful, it has to be spent and it is, both through wages and purchases, rents, etc. Government pays staff who buy cars, groceries, etc. Government needs a cruise missile, it buys one and so on. Arguably government is very good for cashflow revenue and turnover in a way that savers (who lock up capital), are not.

        1. codejunky Silver badge

          Re: I wonder

          @ Riku

          "But is it really deadweight? In order for the money raised to be actually useful, it has to be spent and it is, both through wages and purchases, rents, etc. Government pays staff who buy cars, groceries, etc. Government needs a cruise missile, it buys one and so on. Arguably government is very good for cashflow revenue and turnover in a way that savers (who lock up capital), are not."

          So the gov is good because it takes money off people in case they might save it (maybe for their security) and instead works on the assumption that it can spend it better than we can (e.g. expenses, jollys, their own pay rises, pet projects, back handers and of course finding new ways to rob the population)? However there is the cashflow issue that when they stuff it in their own pockets and horde it, or when they spend it on pet projects which often requires paying foreign companies to deliver.

          Maybe if that money was in the hands of the population there would be more spending.

      4. Tom 13

        Re: convinced that the value of a criminal justice system is higher

        I'm not. Granted, I'm a 'Merkin so its a bit different over here. OTOH, we adopted most of the bits that have led to this problem from you Brits*, so it seems likely to apply to you as well.

        I'd concur with the sentiment that it ought to be. So that gets more into the question of exact governance, which is admittedly outside the scope of this article.

        *No I don't mean the bits we kept in 1776 like common law and how the rights initially granted in the Magna Carte evolved over time.

    3. Ilmarinen

      Re: I wonder

      Part of the problem is that there is very little "we" in it. The state can take money from whomever and wherever it choses and spend it on any thing it likes, moderated only by fear of riot or electoral defeat at some future date.

      This is one of the key areas which the Harogate Agenda bods are seeking to address (see R North/EU Referendum, etc.) by putting the government's budget to popular vote for approval. Little chance of success of course - too many people with a vested interest in the existing rotten system.

      1. LucreLout Silver badge

        Re: I wonder @Ilmarinen

        The state can take money from whomever and wherever it choses and spend it on any thing it likes, moderated only by fear of riot or electoral defeat at some future date.

        Unfortunately, it's not even that good.

        Most of those deciding what the state will do, where it will raise money, and what it will spend are wholly immune from the electorate. Civil servants are in jobs for life, the same with much of the public sector.

        There are only 2 ways we'll ever see an increase in efficiency - 1) Reduce taxes to such a low level that they have no choice but to cease certain activites. 2) Cap the length or service within the public sector to 10 years within a working career, thus ensuring a continuous supply of new ideas, and removal of roles for which there is no real world equivalent (obvious exceptions will have to apply such as medical specialists etc, but for paper shufflers and those at HQ it's workable).

        Neither of those options would be at all palatable to much of the electorate, so we persevere with the public sector growing less efficient every year, trying to do more and more, and soaking up an ever larger share of the nations wealth to feed itself. Riots & elections don't touch them.

      2. Tom 13

        Re: government's budget to popular vote for approval.

        I don't see that you'd get much change even if it were put up for popular vote. The voters select the people passing the taxes now. Their as likely to fall for the same lies on the tax vote as they are on the representative election votes.

    4. Tom 13

      Re: conversation about what benefits I actually get?

      No. This exactly the point where discussions about taxes go awry. Phrased the way you did, it becomes a power struggle to see who can shaft the other guy the most often and most deeply.

      The accurate question is "what benefits does society get, after taking into account moral hazard?" Granted, you're not going to get a whole lot of agreement about this, but it is what is essential. So as a rule of thumb, I'd say you practical definition is 70% of the people agree it is an appropriate expenditure for government to undertake. I'd prefer 90%, but realize that even 70% is a difficult number to achieve. What we most certainly do NOT want is for it to be 33% or less, which seems to be the experimentally determined percentages these days.

  3. Anonymous Coward
    Anonymous Coward

    Land Value Tax

    Never thought about that as a "basis" for the tax system - but in the UK it could be very beneficial as there is only so much land. Dampening land value escalation is both good for the non-rich in and around London, and would also promote regeneration of former industrial areas (Middlesborough etc.).

    1. The Axe

      Re: Land Value Tax

      LVT would not make any difference to development of land. Amending the planning system would do that. LVT is a stupid tax as will tax people who have no income but lots of value in their home, e.g. pensioners. So will they have to sell their home and move to a cheaper land value property? Or will there have to be lots of exceptions - which complicates the tax system and downgrades its efficacy and efficiency.

      1. Nick Kew Silver badge

        Re: Land Value Tax

        LVT has a profound effect on the use of land, if set at a level to discourage speculation, hoarding, and the trend to treat property as an investment equivalent to gold that never leaves the bank vault.

        But it's too progressive for any of our politicians, to tax the rich more and the poor less according to how much of our scarcest resource they monopolise. And of course it keeps house prices a lot lower, as seen in US states where tax levels are $5k/year on a $170k house.

        1. YetAnotherLocksmith

          Re: Land Value Tax

          It's very hard to compare the US land situation with the UK. The main issue is that we are small and crowded, while they are vast and really not very crowded.

          We can't all move to France to pay less - there are borders and idiot security checks and a flipping big wet trench which runs the otherwise short commute. People in New York can move 2000 miles away if they want, relatively easily.

          The whole trailer park sub-prime thing? Logically, why would anyone ever buy second hand? Just go 20 miles down the road to a newer, cheaper park with a better view! Because there will always be new land for trailer parks, there is no scarcity to drive the prices up, nor even maintain them.

          Which is very unlike the UK!

          1. Tom 13

            Re: while they are vast and really not very crowded.

            This is all very relative. People living in NYC feel every bit as crowded as those living in London, and for approximately the same reasons. You want to be within a certain traveling distance to get to work, so prices go up, and population density goes up. Out West where the population is sparse, much of that is because the land is locked up in national parks and therefore not really available for housing.

            Sure you can move to France. Granted it takes a bit more work than someone from NYC moving to Jonestown, PA, but you CAN do it.

            Most folks in the US don't live in trailer parks. Trailer parks attract tornadoes. That's bad for cash flow and health.

        2. DavCrav Silver badge

          Re: Land Value Tax

          "But it's too progressive for any of our politicians, to tax the rich more and the poor less according to how much of our scarcest resource they monopolise."

          Except it isn't that progressive. Rich people don't occupy all that much more land than poor people, as a percentage of their assets, and so LVT would either have to be hideously complicated and hence easily avoidable, or would be a massive whack in the wallet to poor people.

          Here's the point: landlords won't be paying LVT, their tenants will, right? If you tax at a rate that will actually make any money from rich people, you are looking at an LVT of over 1%/year, in which case your family renting a £200k house will be on the hook for a £2k/year LVT bill or more.

          Edit: Oh, and a couple more points about LVT:

          1) The value of my house changes every year. So every year the government will have to assess the value of every property in the country, and real money will ride on this, so expect millions of appeals if the inspectors overvalue houses.

          2) Don't think about making LVT non-linear (i.e., double the value, double the tax), because the person would just parcel up the land into multiple plots. This point applies to mansion taxes as well: no no no, my £2m mansion is split into two £1m semi-detached houses. Sure I'll pay two council taxes, but no mansion tax for me. Etc.

          3) Notice that, as part of 1, government inspectors would have to be given access to your house every year to assess its value. People don't even like the landlord coming round!

          1. Eddy Ito Silver badge

            Re: Land Value Tax

            The way property taxes (LVT) work in most of the US is the property value pretty much follows with inflation so if they suddenly raise the rate much beyond inflation there is substantial push back from the citizenry. Also, it is largely a local thing and everyone knows or can easily look up exactly where the money goes with certain fractions set aside for education, infrastructure and services like police and fire.

            In D.C. they have an interesting way to solve the rental/occupancy problem and that is to tax an empty building at a higher rate, 5% if actually empty, down to .85% if fully rented thus providing an incentive to acquire and keep tenants. Sure, the tenants wind up actually paying the tax but it provides a bit of leverage to tenants as landlords will actively try to keep their occupancy up and their tax down. Other landlords will also do their best to fill vacancies as well and may offer a rental at a lower rate if it means giving up a little extra rent in exchange for a lot lower tax. The trick of course is to find a rate that fits the locality.

          2. Tim Worstal

            Re: Land Value Tax

            "Here's the point: landlords won't be paying LVT, their tenants will, right?"

            What Landlords pay it.

            I'm willing to pay £x amount to rent this house. That's the market price or whatever. Now government taxes that house. I'm not willing to pay more to rent it. Thus it's the landlord that pays that tax.

            Seriously, the incidence of a property tax is upon the property owner, not the renter. Just like stamp duty on a house is on the seller, not the buyer, even though the buyer hands of the cheque.

            "Notice that, as part of 1, government inspectors would have to be given access to your house every year to assess its value."

            why?

            The important word in LVT is "land". It's a tax on the value of the plot of land, not what is built upon it. 100 m2 of Mayfair pay the same tax whether there's 50 flats on it or one mansion.

            1. Eddy Ito Silver badge

              Re: Land Value Tax

              The important word in LVT is "land". It's a tax on the value of the plot of land, not what is built upon it. 100 m2 of Mayfair pay the same tax whether there's 50 flats on it or one mansion.

              Tim, you make an important distinction that I missed. In the US it is largely property tax as it has one assessment for the land, an LVT, and another for "improvements" which consist of buildings and such. That keeps tax on forested lots low, farm land slightly higher and higher still on fully developed land.

              @ DavCrav

              The only time an assessor makes a visit is when you make further "improvements" like adding a second floor or a garage, you did pull a permit I hope. They don't visit every year or consider maintenance to be improvements even if you spend a considerable sum upgrading from single pane windows to triple pane argon filled low-e windows as to them it's a window. At worst in a few places I've lived there was a ten year walk around to see if you've added something to the back yard that isn't visible from the street such as a pool or a shed but that's about all. It isn't like they inspect what size your TV or refrigerator is or whether you have gold bars stacked in the basement.

              One downside to assessing the "improvements" is that the real estate industry is keen to have valuations go up as it means greater commissions for them and many owners like to see their "investment" appreciate in value, especially the ones who treat it like a cash cow and refinance ever greater sums to bolster their income or "consolidate their debt" (which is code for making more room on the credit card for additional purchases). This naturally leads to things like real estate bubbles which are rather nasty things when the correction comes to the market and it isn't helped by certain lending practices of course.

            2. DavCrav Silver badge

              Re: Land Value Tax

              When I said tenants pay LVT, I mean that the incidence of the tax falls on them, following the theme of the article.

              "I'm willing to pay £x amount to rent this house. That's the market price or whatever. Now government taxes that house. I'm not willing to pay more to rent it. Thus it's the landlord that pays that tax."

              In that case corporations pay Corporation Tax, not ordinary people. And VAT. You cannot say that it's the consumer that pays VAT and the landlord that pays LVT: they are the same thing.

              There is no "market price" for a home. You need one, and you will pay it or leave, it's a good that has a price elasticity of basically 0, and the price elasticity of supply is not far from 0 either, otherwise we'd see many more houses being built now than twenty years ago given the rise in prices. If the cost of providing the house goes up, so will the rent. The renter will just have to bear it. I mean, this is basic stuff, no? The amounts we are talking about would be thousands of pounds a year, and you can bet that the rent will be going up when that happens.

              "The important word in LVT is "land". It's a tax on the value of the plot of land, not what is built upon it. 100 m2 of Mayfair pay the same tax whether there's 50 flats on it or one mansion."

              Aha, so it's not property taxes. OK, so my freehold house in Oxford has increased in value by (roughly) £50k in two years. How much of that is down to the land? I know there are estimates for the value of the land, but it would be very interesting to have a governmental value of the land that fluctuates with time. As there are basically no plots of land without houses on them being sold in UK cities, this would be a guess, since there are basically no data points to work to. It sounds not too dissimilar from a more finely banded Council Tax, which we all know and love.

              In California, well Los Angeles at least, they have a system whereby your property tax is calculated based on the value of the house when it was last sold. This is obviously ridiculous, and hideously regressive, punishing young people and coddling those with old money.

              1. Matt Siddall

                Re: Land Value Tax

                In that case corporations pay Corporation Tax, not ordinary people. And VAT. You cannot say that it's the consumer that pays VAT and the landlord that pays LVT: they are the same thing.

                The thing is that corporations are not people, and for tax incidence we are looking at which people have less money in their pockets as a result of the tax. The incidence of Corporation tax is split between three groups of people - customer, workers and shareholders. There have been numerous papers, studies, etc that show the customers wind up basically unaffected, and the incidence of the tax is split fairly evenly between the workers and the shareholders (the exact ratio depending on things like the rules around investment within the country).

                I've not looked at VAT before, but a quick google shows us items like https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=IIPF63&paper_id=31 which state that VAT falls largely upon the customer. Not entirely sure why, but I suspect that this is due to it's being a form of transaction tax, rather than a yearly tax like LVT or Corporation tax.

                1. Squander Two

                  Re: Land Value Tax @ Matt Siddall

                  > I've not looked at VAT before, but a quick google shows us ... that VAT falls largely upon the customer. Not entirely sure why

                  There is some debate to be had about who ends up really paying for corporation tax and employer's national insurance and so on, but not with VAT: it is only paid by the end purchaser, not just effectively but literally, because everyone further up the supply chain either claims it back or doesn't pay it in the first place.

              2. Squander Two

                "There is no "market price" for a home."

                Fantastic! Can you move into my attic, then, please? It's £2,000,000 a week.

              3. Mark 65

                Re: Land Value Tax

                OK, so my freehold house in Oxford has increased in value by (roughly) £50k in two years. How much of that is down to the land?

                Most of it. The value of your home is essentially the value of the land plus the cost of replacing the property roughly speaking. This is obviously clearest for detached properties. It is the land that appreciates in a housing boom (location location location) rather than the building which varies with costs of materials, labour, and other build costs. Unless of course you've added an extension and replaced the kitchen etc.

                1. Squander Two

                  Re: Land Value Tax

                  If you want a good estimate of how much of your house's value is the land and how much is the building, look at your buildings insurance. It covers the cost of rebuilding if the place is destroyed. You will notice that it is usually far lower than your house's price (although it can be far higher for a flat in a block or tenement). You will also notice that you don't have to change the amount insured when house prices in your area increase.

          3. Tom 13

            Re: value of my house changes every year.

            Many districts assess house value once every 10 years. Some have caps on how much taxes can go up regardless of how much the value of the house goes up (my landlord lives in one such area and expects his property taxes to go up by the cap each year because of the outrageous affect DC has on housing prices). Some have homestead exemptions for retired people (pensioners).

            Yes, some districts make taxes non-linear. It's something progressives love regardless of its drawbacks.

            Nope, most value inspections can be done from the outside. Plus, you have to apply for building permits, so they'll know when you're making significant upgrades to your house.

      2. Matt Siddall

        Re: Land Value Tax

        LVT would not make any difference to development of land. Amending the planning system would do that. LVT is a stupid tax as will tax people who have no income but lots of value in their home, e.g. pensioners. So will they have to sell their home and move to a cheaper land value property?

        Hypothetically speaking, why not? Suppose you have a house in London that someone bought for naff all 20 years ago and is now worth £1m+. They have a couple of options - sell up and move to whatever house they want outside of London plus have enough money to live on for the rest of their lives and free up the valuable housing for someone who needs to be in London for work, or stay there and either get relatives to pay the tax (if they are hoping to inherit at least) or let it accumulate against the value of the property until the owner dies or the property is sold.

        We seem to make a religion of "your house is your home" here, and anything that might possibly cause someone to have to move is forbidden - even if it would be better for everyone.

        Or will there have to be lots of exceptions - which complicates the tax system and downgrades its efficacy and efficiency.

        Not lots - you just have to allow payment to be taken as equity in the property, with a proviso that the state can't do anything with it (such as charge rent or try to sell) until the house is sold or the owner dies.

  4. returnmyjedi

    Reforming VAT would be a good start. Lower the starting rate for basic luxuries like a PAYG handset, then ramp it up to 50% for a Vertu our gold iPhone. Lower it for a Ford Fiesta, ramp it up to 50% for a Range Rover (95% if it has shiny 20" alloys).

    1. Boris the Cockroach Silver badge

      And

      125% for bloody Audis!

      Its not the rates of tax we should be worried about currently, its the mountains of regulations that the currrent tax system employs that leaves those who can afford clever accountants to comb the regs for loopholes, while the like of me and the rest of the PAYE mob cant afford to employ them.

      Resulting in the PAYE mob having to pay the full whack of tax on our income , yet someone who is supposed to be taxed at 50% suddenly ends up with a 0% tax rate because the rules say that any whisky in liue of pay is to be taxed at 0% so rich bugger ends up being paid 1500 gallons of the stuff, that he sells on to a bottling plant(and gives a few bottles to MPs to make sure the regs are not changed)

      Until that is changed theres no point concerning ourselves with what we need to pay tax on.

      1. Yet Another Anonymous coward Silver badge

        Re: And

        Weren't city traders being paid their bonuses in platinum nodules because they were tax free?

        Tim will probably remember which metal.

        1. Tim Worstal

          Re: And

          Plenty of people have tried this. And it was about national insurance. Old regs NI applied only to cash. So various schemes tried to pay people in gold, wine, all sorts of stuff. So, the NI system just kept expanding so as to include all remuneration rather than just cash remuneration.

    2. a pressbutton
      Coat

      nice in theory

      however if this was in place back in the early 90s when mobiles were just introduced to the mass market, that high level of tax (as it would have been a high end luxury back then) would prevent the mass adoption of phones.

      Thus preventing the rise of vodaphone - who contribute so much to the british govt in taxes.

      Thus the icon.

      More seriously, glass windows used to be luxury items.

      1. Neil Barnes Silver badge

        Re: nice in theory

        I remeber the late seventies, when ICs were considered essentials at 8% VAT, but sockets were luxuries at 25%...

        1. Naughtyhorse

          Re: nice in theory

          Sockets _are_luxuries.

          learn to solder properly :-)

          1. Mike Ozanne

            Re: nice in theory

            "learn to solder properly :-)"

            Surface mount?

            1. Sir Runcible Spoon Silver badge
              Joke

              Re: nice in theory

              "Surface mount?"

              You know that things aren't stuck on to the surface with glue right? ;)

              1. Anonymous Coward
                Anonymous Coward

                Re: nice in theory

                nothing wrong with conductive glues - if you don't mind a little bit of retooling, redesign and so on? Did masters thesis on them, main problems were not technical

                1. Sir Runcible Spoon Silver badge

                  Re: nice in theory

                  Well, they do say you learn something new every day - I can go back to bed now :)

              2. kmac499

                Re: nice in theory

                "Surface mount?"

                Go with the flow (solder)...

    3. NumptyScrub

      Is VAT not basically a transaction tax? Is there a situation where I can be liable for VAT without it being directly attributable to a specific transaction (the purchase of goods or services) I have participated in?

      I note that the article proposes that transaction taxes are batshit insane have the highest deadweight cost, and that VAT as a "consumption tax" has almost the lowest deadweight cost, just above land value taxation. I must be missing something, because as far as I can see consumption taxes look an awful lot like transaction taxes with a different name.

      Also WTF is up with paying taxes on duties? I pay VAT on fuel duty (not 20% on the price of fuel, 20% on the price of fuel+fuel duty) and the same goes for all items with a specific duty levied. Increasing alcohol duty by 10% increases the revenue raised by more than that 10%, thanks to an extra 20% VAT on that increased levy. That is pretty batshit insane, hiding increased revenue in the knock-on effect of taxing an increase in duty.

      1. I ain't Spartacus Gold badge

        VAT isn't a tax on transactions, althought that's when it's paid. It's a tax on improvement (value added).

        We invoice for our services with 20% extra on for VAT. Every quarter we pay that money over to the government. So if we could earn any interest on the company account, I guess my time in doing the bloody paperwork (at the moment as happens) might be compensated. But our company are small, and we have to do the accounts anyway, so actually it's not all that expensive.

        We buy a bunch of goods/services that attract VAT, but then we knock it off our quarterly payment to HMRC. So the effect of VAT on us is just some paperwork and collecting a bit of cash for old George Osborne, then bunging it to him each quarter.

        Every step up the supply chain, everyone's adding on their margin to the value of the goods/service plus 20% VAT they can later reclaim. Until the music stops when someone not VAT registered buys it. They are the consumer. They have to swallow that 20% VAT as they can't reclaim - hence they're paying a consumption tax.

        Everyone adds 20% to their invoice, gets it back, and sells on to the next link in the chain at the ex-VAT price they bought it for, plus the margin for their work. Plus the VAT again, which the next company will re-claim. None of those companies pay the VAT - although it can bugger up their cash-flow, And it all rolls merrily along until some poor herbett at the end of the line cops all that tax. Ooooh nasty...

        It's a stange way to run a railroad. But I guess one of the side-effects is that the government has a lot better statistics on what's going on in the economy than it did before. And can do much better quarterly GDP figures. As each quarter I report to them how much we've invoiced and how much we've spent on stuff - and they can work out our payroll from the income tax and NI (which get reported monthly).

      2. Anonymous Coward
        Anonymous Coward

        VAT ? VAT are you talking about ?

        I used to fill out 13 Tax forms a year as a sole proprietorship in France. 5 of those were VAT declarations. What's it like in the Uk?

        How can VAT not be a deadweight on the economy? It certainly was on me. The worst thing about VAT is that the government does not tax intermediate suppliers (except by giving them more bookkeeping to do) but only takes the money from the end consumer. It is a transaction tax, but a very stupid and inefficient one, worthy of ink quills and feather pens.

        If I earn 50 K a year and spend 35 K I will effectively pay 50 percent in tax. 30 % on my income and 20 % on my consumption.

        Taxes on duties are just another sign that the system has gone completely batshit insane.

  5. Old Man - Grey Fleece

    Other Taxes

    Any discussion on Equity in taxation needs to consider what is a tax. If we take an employed person and consider direct cost to the company and compare it with net benefit to the employee we have at different pay levels to include loss of state benefits, employer and employee national insurance and income tax - probably simplistic to only consider income tax in any equity or taxation level discussion. (I haven't listed the state benefits because my list we would be incomplete, out of date and otherwise the subject of mockery).

  6. Anonymous Coward
    Anonymous Coward

    "equity is just so important that he doesn't care that they will make everyone poorer."

    Piketty may be wrong but he has been anticipated in this. G K Chesterton once suggested that if we wound back our imperial pretensions and went for more equality, we would be poorer but happier. And psychologists point out that people are happier if they are not surrounded by richer people. (Nicholas Taleb makes this point at some length in one of his books, where he points out that overall it is better to be a dentist who puts his money in the bank and forgets about it, than to be a well off market trader constantly worrying about small losses and the risk of blowing up, and it is better to live in a neighbourhood where you are in the top half of incomes, than a much richer neighbourhood where you are in the bottom half.)

    I also heard this viewpoint expressed by an Old Etonian army officer married to an Italian countess at the height of Thatcherism; he felt that if everybody had a reduction in standard of living of 10% to reduce unemployment, it would be a better thing for the country as a whole. I am not saying he was right or that his views make economic sense, just pointing out, by selecting a Catholic journalist, a market trader and an OE, that it is not only the loony left that sometimes think that if overall everybody was poorer in the interests of social cohesion and greater equality, this is not necessarily a bad outcome.

    1. YetAnotherLocksmith

      Re: "equity is just so important that he doesn't care that they will make everyone poorer."

      Good post.

      I would however point out that the super rich don't have neighbours (unless they want them). That's only for the poor.

      Who lives in the appartment that costs $5 million dollars and is next door to Taylor Swift's $10 million apartment?

      Her security team and staff.

  7. Eponymous Cowherd

    Jaffa cakes

    They can start by sorting out the current system. Biscuits and cakes are "essentials" and attract no VAT, except chocolate covered biscuits which are deemed a luxury an DO have VAT added. Jaffa cakes, however, are cakes, not biscuits, and despite being covered in chocolate do not have VAT charged on them.

    A gingerbread man with two chocolate spots eyes has no VAT, add gumdrop buttons and it does.

    And how come a pack of digestives is a VAT free essential, but adult clothes are not. Try explaining that to PC Plod when you walk down the street naked.

    Paper books are VAT free, but eBooks are not.

    Incontinance products have no VAT, but "sanitary" prooducts do.

    A child's car seat has VAT but a motorcycle helmet does not. Both are required to be used by law.

    All in all, the VAT system is a randomised mess. They can start by making annything that the use of is, or is implied to be, a legal requirement (e.g. clothes) exempt or zero rated.

    1. Adrian Harvey
      Go

      Re: Jaffa cakes

      No, they should start by removing all loopholes and stop using VAT as a crude luxury tax. That way they could eliminate a whole load of overhead costs (tax officials, lawyers, court cases, etc) by simplifying the system. Use the extra revenue to increase benefits and reduce lower end taxes to compensate for the increase in costs. Fairer by far as, for example, the current system charges the parents of larger kids more as they move into "adult" sizes sooner.

      I'm living in NZ now where this is how it works. Rate is only 15% and government expects to run a surplus this year. A simple tax system is obviously not the only thing driving this, but I'm sure it helps.

      1. Yet Another Anonymous coward Silver badge

        Re: Jaffa cakes

        Much better here.

        Buy a single donut and it's a takeout snack with sales tax. Buy 6 and it's grocery shopping and tax free.

        mmm donuts ....

    2. Mike Ozanne

      Re: Jaffa cakes

      "Incontinance products have no VAT, but "sanitary" prooducts do."

      Rates on sanitary products in the UK are the consequence of EU VAT harmonisation regulations specifically Regulation 1326/2013

      1. Mark 65

        Re: Jaffa cakes

        They'd know all about them - bunch of c*nts.

  8. Anonymous Coward
    Anonymous Coward

    Maybe we should turn the whole thing on its head. Combine the tax and welfare system into a Negative Income Tax, work out exactly what the government NEEDS to spend - note, not wants - and work from that.

    The ideal would be to reduce government by two thirds and give the people a direct say in how the country is run but that is not part of the discussion at the moment although it should be because we do have the technology available for it to happen.

    1. codejunky Silver badge

      @ Ivan 4

      I cant believe I needed to travel to the bottom of the first page before someone finally suggests working out what the gov needs to spend and work from that. In the UK we seem to have forgotten that the gov cannot give jobs, it can only take them away. There could also be an argument that they do the same with wealth as they take with one hand, syphon a lot off and then return what is left to the people they theoretically serve.

      Normally when I suggest this someone often suggests that the gov can create jobs as in public workers and they pay tax. However the money to pay the wages for the job and to return tax money comes from tax causing a payment system supported by the private sector. Unfortunately the proportion of public to private sector has increased massively without the money to fund it. Yet govs still get elected on their bribes.

      I think the first problem the UK will have is figuring out what is a need and what is a want.

      1. billse10

        Re: @ Ivan 4

        half-remembered this, and found the quote I wanted:

        Sir Humphrey: "Taxation isn't about what you need."

        Jim Hacker: "Oh, what is it about?"

        Sir Humphrey: "Prime Minister, the Treasury doesn't work out what they need to spend and then think how to raise the money."

        Jim Hacker: "What does it do?"

        Sir Humphrey: "They pitch for as much as they think they can get away with and then think what to spend it on."

        Yes Prime Minister, broadcast Jan 86: heading for thirty years on, that show still sums up a lot of what is very wrong with the UK government's view of how to serve the public

        1. Mark 65

          Re: @ Ivan 4

          I'm still confused as to whether that show was a comedy or a civil service training video.

      2. Tom 13

        Re: first problem the UK will have is figuring out what is a need

        Yep. Given most people can't tell the difference, when you put a bunch of them together and a majority has to agree you are expecting the impossible.

        It's no different on my side of the pond and I expect pretty much the world over. Of course it doesn't help that as time goes on things that were once wants becomes needs. In some cases, such as indoor plumbing I'm inclined to agree. Others I'm willing to grant like a telephone line. Most, the latest iGizmo or Drone thingie, not so much. And of course once you throw in "doing it for the children" all bets are off.

  9. Pen-y-gors Silver badge

    A cynic writes...

    "I would never claim that economics is entirely settled, nor really even mature as a science"

    Fixed that for you

    1. Zog_but_not_the_first Silver badge
      Happy

      Re: A cynic writes...

      "The only function of economic forecasting is to make astrology look respectable."

      J K Galbraith

    2. a pressbutton

      Re: A cynic writes...

      Absolutely.

      I would add:

      One way of deciding if something is a science is if it makes predictions that can be verified and are correct.

      Macroeconomics generally fails this - or has not been doing too well for the last 10 years or so.

      Microeconomics (pricing theory at Amazon, seat pricing at BA) seems to be reasonably successful, mostly because practitioners dont make big claims about what can be predicted.

      However many would say microeconomics is a frankenstien's grandchild of of psychology and accountancy and statistics.

    3. Naughtyhorse

      Re: A cynic writes...

      Obligatory XKCD ref:

      (the economist is the one the sociologist is just off tot talk to)

      http://xkcd.com/435/

      1. Anomalous Cowturd
        Coat

        Re: xkcd.com/435

        I prefer the "alt" text.

    4. a cynic writes...

      Re: A cynic writes...

      You rang?

  10. Pen-y-gors Silver badge

    Tobin/Robin Hood Tax

    I disagree about Robin Hood tax on share/currency transactions being a bad thing. Potentially it's a very good thing.

    We want to encourage investment in business. We want to discourage quick buck financial speculation. A small transaction tax on every share trade and currency trade will address this perfectly.

    For someone buying shares as an investment, who is looking at earning several percent a year in dividiend over the next 5-10 years, then a tax of say 0.1% or 0.2% on puchase is peanuts and will have no noticeable impact on their buy/sell decisions. Ditto for pension funds who are INVESTING for the long term.

    Same for currency transactions - given the variation in buy/sell currency prices, 0.1% extra on the cost of your holiday cash is trivial, and the tax could be waived on pseudo-currency conversions like buying stuff on plastic from USA in dollars and it's charged to your card in sterling.

    But for speculators who are doing dodgy deals, banking on making a tiny profit hundreds of times a day, then the tax puts them out of the game. This probably falls into your category of a Pigou tax - taxing something to discourage unwelcome economic activity. As share and currency speculators are a bunch of worthless parasites who add nothing to the global human experience, their unemployment would be no loss. And a transaction tax would be less painful for them than the suggested alternative of an oxygen tax on them - $100,000 per litre of oxygen breathed. Cash only. In advance.

    1. Phil O'Sophical Silver badge

      Re: Tobin/Robin Hood Tax

      But for speculators who are doing dodgy deals, banking on making a tiny profit hundreds of times a day, then the tax puts them out of the game.

      Well, more precisely it makes them take their game elsewhere, and given how much of the market is made up of such transactions, it will severely damage any financial market where that game is played.

      Look at what happened in Sweden in the early 90s, where bond sales collapsed until the tax was repealed.

    2. Tim Worstal

      Re: Tobin/Robin Hood Tax

      My one and only peer reviewed paper is on exactly this subject, the desirability or not of an FTT.

      No is the short answer.

      A version of the long answer is here.

      http://www.iea.org.uk/in-the-media/press-release/financial-transactions-tax-proposals-must-be-rejected

      That was also evidence to the House of Lords on the point. And their report agreed with me (bonus point, someone actually submitted a blog post of mine as evidence to that same committee. Bit weird but....)

      1. Yet Another Anonymous coward Silver badge

        Re: Tobin/Robin Hood Tax

        Taxing share dealing is easily worked around.

        There is a 15% tax on sales of US shares by non-US tax payers so instead you buy derivatives contracts which bet on the value of the stock market but don't buy or sell shares and don't pay tax

      2. Benjol

        Re: Tobin/Robin Hood Tax

        How about making it so that shares had to be kept for a minimum of x months before being re-sold? The idea being to force investment in companies that people actually think have a future, as opposed to FX-style speculation.

        1. I ain't Spartacus Gold badge

          Re: Tobin/Robin Hood Tax

          How about making it so that shares had to be kept for a minimum of x months before being re-sold? The idea being to force investment in companies that people actually think have a future, as opposed to FX-style speculation.

          So what happens if I buy stock in say Tesco, and it suddenly plumets in value due to mis-stating its accounts? Am I stuck with it? What if my dog suddenly dies, and I need to cash out some shares to buy the gold-plated coffin?

          If you make an asset less liquid, you make it more risky, and therefore worth less. Which means that you've just devalued the pensions of everyone in this country.

        2. Tom 13

          Re: shares had to be kept for a minimum of x months

          I believe it was called the Great Financial collapse of 2007, from which all economies in the world are still suffering.

          Because that's exactly what caused the collapse. Too much in long term assets without the ability to make short term payments. The more flexibility you have in buying and selling, the more you transmit price information by frequent trading, the more transparent the markets become. Can some people abuse it? Sure. But some people can abuse anything, including breathing too much oxygen. That doesn't mean you hobble the mechanism.

        3. Nick Kew Silver badge

          Re: Tobin/Robin Hood Tax

          How about making it so that shares had to be kept for a minimum of x months before being re-sold?

          I would do that slightly differently. A progressive stamp duty to make short-term speculation more expensive and investment more attractive. Something along the lines of, stamp duty at 12%, reduced by 1% for each month the share is held until it reduces to zero after one year.

          I'd expect that to affect derivative products (like spread bets) too, since your provider needs to trade shares to hedge your position. Whether that's sufficient to discourage them bubbling I know not.

          1. Mark 65

            Re: Tobin/Robin Hood Tax

            Yep, a more complex tax system is just what we need. Not. So much time and money that could be spent on more fruitful endeavours with a simple tax system is wasted because we have a complex one. More HMRC to be paid for to implement. More tax advisors to be paid for to avoid.

    3. Nick Kew Silver badge

      Re: Tobin/Robin Hood Tax

      We have one in the UK.

      It's called Stamp Duty, and costs 0.5% on share purchases.

      1. Doctor Syntax Silver badge

        Re: Tobin/Robin Hood Tax

        "We have one in the UK.

        It's called Stamp Duty, and costs 0.5% on share purchases."

        And at a larger rate on property sales.

        Given sufficient capital it would be feasible to handle house sales by an agent taking your existing house in part-exchange. Because the transaction tax would be taken twice there's no chance of this happening except, maybe, on corporate-funded relocations (something like that actually did happen to me).

        What happens, therefore, is that agents and solicitors end up arranging long chains of transactions all set up to happen on the same day so each deal is only subject to a single transaction tax. If something goes wrong with one link in the chain the whole thing is delayed or collapses completely. If you need to move for work without the employer paying relocation you can end up renting in one place for months at a time which your family stuck hundreds of miles away (been there too).

        It's an enormous deadweight effect which has a bad negative effect on mobility of labour.

        1. Nick Kew Silver badge

          Re: Tobin/Robin Hood Tax

          Given sufficient capital it would be feasible to handle house sales by an agent taking your existing house in part-exchange.

          Housebuilders do exactly that, and have done for many years. Furthermore, they offer above the market price for your old house, thus inflating the stamp duty paid. It's a way of pushing up prices: you sell a new house worth £200k for £250k, pay £25k above the true value for your buyer's house, and everyone thinks they've got a fantastic deal. But more importantly, that £250k sets a price point for your other new houses.

          That at least was the same back in the days when it would've been a £20k new (4-bed detached) house for £25k.

    4. YetAnotherLocksmith

      Re: Tobin/Robin Hood Tax

      A noble idea, but it isn't really possible now. Wiping it the banks trading billions through London would ruin the UK economy to a level akin to nationalising all the banks tomorrow.

      Sadly you are a hundred+ years late.

  11. Zog_but_not_the_first Silver badge

    Ctrl-Alt-Delete

    Given the rat's nest of tax laws that we've ended up with some sort of reset looks appealing, superficially at least.

    The former Soviet bloc countries had the opportunity to "start from scratch" and it would be interesting to see how things worked out. Are there any summaries out there (I'll look too!).

    Unless they were advised by Goldman Sachs etc., in which case we know the result.

    1. Tim Worstal

      Re: Ctrl-Alt-Delete

      The Russian system was such a total mess that moving to a 13% flat rate income tax actually raised revenue collected. I wouldn't expect that result in the UK though, to be fair.

      1. regadpellagru

        Re: Ctrl-Alt-Delete

        I'm somewhat surprised the most messy tax system known to human kind in this Unverse has not yet been mentioned: our sublime french system.

        I need to renovate part of my house, and here is what I've been blessed with:

        http://www.impots.gouv.fr/portal/deploiement/p1/fichedescriptiveformulaire_8418/fichedescriptiveformulaire_8418.pdf

        All of this because there are 2 VAT ratios, 10% and 5.5 %, depending on which work is carried on.

        I'm sure noone sane will go through all of this, but rest assured when you have (as I've done myself), you still need to read the article of Code des Impôts it refers, in order to know which ratio you'll get.

        Awesome.

      2. Naughtyhorse

        Re: 13% !!!!!111!!11!

        The CEO's of amazon and starbucks would commit suicide!

      3. Tom 13

        Re: moving to a 13% flat rate income tax actually raised revenue collected.

        Why not? Maybe not 13%, but every time real, long term tax rates have been reduced the government has gotten more money. Most of the time they've stupidly spent two or three times as much as the increase in revenue, but that doesn't negate the fact that the actual revenue collected has gone up.

        1. Mark 65

          Re: moving to a 13% flat rate income tax actually raised revenue collected.

          But tax rates need to be tiered so the rich pay more! Not that they just pay advisors to avoid it and structure away those pesky bills or anything. I struggle with why a tiered system is considered more equitable.

  12. timple

    Uniformity of land use

    Similar to the little lady living alone in the family mansion problem, what about companies? I.e. I guess there are a lot of long established private businesses located in areas where the land value has gone up a lot. Do we want to accelerate the process of closing or moving these businesses to be replaced by higher yield businesses all doing similar things?

    1. DougS Silver badge

      Re: Uniformity of land use

      It is possible to modify it to limit the amount the value of property (and therefore tax) can be increased year to year so long as the use remains the same.

      So if you have the pensioner living in the little house he built out in the countryside in 1950, which is now in a ritzy suburb surrounded by multi-millionaires he may pay a fraction of the tax his neighbors do. If he sells it or makes significant changes (knocking down the bungalow to build a mansion) the tax is recalculated to the new norm. If he dies there would be certain criteria where his heirs might be able to maintain the favorable taxes (i.e. if they actually reside there)

      Similarly for a family business, which might have started in a crappy neighborhood and be surrounded by skyscrapers a century later. Obviously there would need to be criteria for maintaining the favorable treatment - you can't change the use of your building from a ball bearing factory to a hotel and expect the same tax treatment. Determining how to handle transfers of ownership would be the most difficult. A family business that stays in the family, that's easy. What about a family business that is sold...arguments could be made either way but obviously if you owned an old building sitting on land now worth $100M, if you can't transfer the tax treatment in the sale the only buyers will be those buying it for the land, not for the building sitting on it.

      This would be nice for maintaining historic districts in cities. Part of the law would be that if a building is designated as historic, the tax increases are permanently limited. Then building owners won't see historic designation as a negative that reduces the value of their property since they can't sell it to someone interested in knocking down the building. The building would be worth a lot as the tax treatment would be included in the sale, so people would be willing to pay more for it than they otherwise would, being located in an area where they'd otherwise have higher taxes.

      1. J.G.Harston Silver badge

        Re: Uniformity of land use

        The simplest solution is to charge LVT (or any property tax) on the purchase price, whenever that was. So, the LVT gets automatically reviewed every time the property's ownership changes, and little great-aunt-nellie who bought her house for 3 and six back in 1930 will pay LVT on her 1930 purchase price. Yes, it adds a drag onto the system, but which two legs do you want?

        1. LucreLout Silver badge

          Re: Uniformity of land use

          The simplest solution is to charge LVT (or any property tax) on the purchase price, whenever that was.

          Just another tax that favours baby boomers over the young.

          The boomers are sat on massive unearned financial gains, and the young are paying for those by being forced to buy property from relocating boomers. It is the boomers that can most afford to pay more, and the young that can least afford it.

        2. DougS Silver badge

          Re: Uniformity of land use

          The problem with basing it on purchase price is that it is easy to game that in some circumstances. Let's say I buy your building and business, and you think your building is worth $5 million and your business is worth $1 million. Maybe I ask you if I can pay you $3 million for the building and $3 million for the business to hold down my property taxes.

          Or if I buy multiple properties at once, I can allocate the values how I see fit - putting most of it onto property I expect to develop and turn over quickly, and reducing the price of property I intend to hold for a long time.

          Anytime you consider taxation, you have to think about the obvious ways people will attempt to reduce that burden. If you don't address them, the idea is only worthy of academic discussion, and wouldn't pass muster for the real world.

    2. Tom 13

      Re: Uniformity of land use

      Once you've said that because all of society benefits from improving the economic efficiency of the people at large, yes the little old lady living alone in the family mansion has to move if she can't keep up with the increased taxes. This is the dilemma for anyone advocating for greater economic efficiency without regard to property rights. It's why all the great conservative thinkers proceed from property rights first in determining the proper limits of government. When you replace property rights with some amorphous right of the people at large, anything can happen, and usually does. Yeah, we all focus on the antisemitism and death Hitler caused. But we ignore that he got there by promising greater economic fairness to THE PEOPLE of Germany.

  13. Naughtyhorse

    rising productivity raises wages

    Say What?

    1. Richard 12 Silver badge

      Re: rising productivity raises wages

      Of course it does.

      Is your employer more likely to pay you more if they make a higher profit or a lower profit?

      Your bargaining position is much better if you know they can afford to pay you more, and even better if they need you.

      Actually, corporation tax is one way of pushing up wages - higher wages means lower profits thus lower tax, as well as (theoretically) better staff.

      1. Naughtyhorse

        Re: rising productivity raises wages

        "Is your employer more likely to pay you more if they make a higher profit or a lower profit?"

        or on the other hand if i produce more the employer will pocket the difference and fuck the workers.

        "Your bargaining position is much better if you know they can afford to pay you more, and even better if they need you."

        do you know how many people are on the dole?

        "Actually, corporation tax is one way of pushing up wages - higher wages means lower profits thus lower tax, as well as (theoretically) better staff."

        Actually, corporation tax is one way of pushing up profits - higher profits means lower wages thus higher tax, as well as (theoretically) more frightened staff. (the walmart model)

        there fixed it for you

  14. EmbraceUnity

    Loved this article (especially placing Land Value Taxation first)

    Strongly agree, in general, except I'd put VAT lower on the list than you. I'm a big fan of Pigouvian taxes, especially when they take into account variable pricing (congestion pricing, smart parking meters, etc)

    I would also add severance taxes, which are slightly distinct from Pigouvian tax, in that they don't tax an activity which is intrinsically harmful to the environment, etc. Rather, they tax the act of taking something out of our commons.

    ie. when you extract copper from the ground, you are reducing the value of the land (which belongs to us all). So you need to pay something back, or else LVT would just encourage rapid mining in order to whittle down the LVT quicker.

    One of the unspoken costs of VAT is that it imposes all the collection overhead upon businesses. And this is a bigger burden for small businesses than large businesses.

    Pigou's intellectual opponent Ronald Coase made this very wise argument:

    --

    "He notes that government measures relating to the market (sales taxes, rationing, price controls) tend to increase the size of firms, since firms internally would not be subject to such transaction costs. Thus, Coase defines the firm as "the system of relationships which comes into existence when the direction of resources is dependent on the entrepreneur." We can therefore think of a firm as getting larger or smaller based on whether the entrepreneur organises more or fewer transactions."

    https://en.wikipedia.org/wiki/Theory_of_the_firm

    1. J.G.Harston Silver badge

      Re: Loved this article (especially placing Land Value Taxation first)

      "Strongly agree, in general, except I'd put VAT lower on the list than you."

      But it wasn't a subjective list, it was an objective maths-driven list. Unless you use different maths to Tim VAT will be at the same place on your list as Tim's list.

    2. Tim Worstal

      Re: Loved this article (especially placing Land Value Taxation first)

      Severance tax can also be called resource tax, or resource rent tax. And yes, entirely right that there should be whacking great taxes on such things. I make that argument somewhere around here actually on the spectrum auctions. The value of something simply existing (oil, copper, spectrum) should be entirely taxed away while the value added to that something should remain private profit.

    3. LucreLout Silver badge

      Re: Loved this article (especially placing Land Value Taxation first)

      when you extract copper from the ground, you are reducing the value of the land (which belongs to us all).

      Land belongs only to the current land owner. It does not belong to us all, nor does it belong to the generations yet to come.

  15. Alan Brown Silver badge

    How to REALLY raise the tax income

    Decrease collection costs. Simplify the systems whilst removing most of the exemptions which have been rolled in to appease various consituencies.

    Seriously. It works. Overall gross tax revenue goes down, but overall NET tax revenue goes up.

    If govt can net more money with less tax then there's more in the economy to spend in the first place.

    There are _far_ too many people working at HMRC and other boondoggles such as DVLA and every time a new IT project is rolled out it's used as an excuse to employ MORE people, instead of a way of getting rid of them.

    Civil service "employment" is frequently used as a way of hiding true unemployment statistics. There's no way areas like the Northeast of England should have 60% of its economy dependent on people working for the government for the same reason there's no area should have those kinds of numbers dependent on any other single employer.

  16. Anonymous Coward
    Anonymous Coward

    7 Lean years then a lifetime of fat.

    The BBC's got a show where some highly paid ex-Guardian journo is explaining why we need to tax the 1% more, but not himself. In it, he points out that when the UK had an 80%+ tax rate, high earners left or created cunning schemes to avoid tax. He suggests we're not currently taxing the rich enough.

    He goes bling shopping and bemoans the fact that jewel encrusted tat isn't made in the UK. He does not ask why it isn't, but suggests our imported 1%ers aren't spreading the love. Then goes to get a gold & caviar flecked facial from a clinic in London, which would seem to demonstrate that at least one UK business type has realised there's one born every minute. He complains about non-doms being able to pay a flat rate of £30k tax. Then points out the lowest tax rate is currently 5% in Jamaica, so I'm thinking 7 years to become a naturalised Jamaican and then surrendering UK nationality could be money well spent. We have a form to do this.

    He complains wealthy foreigners are buying up UK property as an investment. But haven't we been encouraging property speculation? And lowering interest rates, and taxing other investments so property becomes a lucrative occupation for middle-class buy to let portfolio builders rather than other forms of income or pensions.

    But basically a stunningly ignorant bit of journalism that suggests the solution is to tax the wealthy more rather than incentivising them to invest in job creation or wealth generation schemes, ie charity or philanthropy. It interviewed some US billionaire who compained he had too much money and thought he should be taxed more. Why wait? Why not set up a charitable trust and direct the money where it's needed. Bill Gates figured this out. It's a social good, and oddly tax efficient in the process.

  17. dogged

    Yeah, but...

    Okay so 1% would raise 1.5 trillion which is all of GDP so clearly 1% is too high.

    But I find myself wondering - what happens to GDP when all those other taxes are gone? Do you spend more or less when you seem to have a minimum of 30% more money? When your petrol costs 50p/litre? What happens to to GDP in that situation? Does it fall? I suspect not.

    If cash transactions are taxed at on withdrawal/deposit, doesn't that mean your incentive to dodge taxes is now bigger in paying normal tax than by arsing about with cash?

    If we (the UK Government/people/etc) now own so much of at least two major banks, couldn't "we" - the same "we" - give everyone a bank account and say "Oh by the way, if your wages get paid into that then they will be taxed at %tiny_but_significant_reduction_on_normal_transaction_tax)" which not only reduces the cost of collection but actually makes UK Plc into a savings bank with astonishing security and only one borrower (HMG)?

    I was really looking forward to this article because the idea seemed quite appealing and nobody really had any genuine objections on the record. I hoped Tim would go into detail, throw some facts and figures around and point out the blindingly obvious hole in the logic that I can't seem to find. Instead all we got was "1.5 trillion lol" and that was pretty much it.

    A pity.

    1. Tim Worstal

      Re: Yeah, but...

      " I hoped Tim would go into detail, throw some facts and figures around and point out the blindingly obvious hole in the logic that I can't seem to find. Instead all we got was "1.5 trillion lol" and that was pretty much it."

      1.5 trillion lol was really a comment on hte point that they don't seem to have thought it through.

      However, you can indeed piece together something from the rest of he piece.

      Transactions taxes are a bad idea because:

      1) Bad efficacy, too easy to dodge.

      2) Bad efficiency, they have higher deadweight costs than other taxes.

      3) Bad equity. As we can't track the incidence we don't know who is really carrying the burden. so we've no idea whether the rich are paying a higher portion of their income than the poor.

      1. Anonymous Coward
        Anonymous Coward

        Ummm yes but..... @Tim

        "Transactions taxes are a bad idea because:

        1) Bad efficacy, too easy to dodge."

        If they are taken automatically with every payment and are very small (0.35 %). How are they easy to dodge? Why would anyone bother dodging them ?

        "2) Bad efficiency, they have higher deadweight costs than other taxes."

        See above. If you don't have to spend your valuable time and tax money collecting these taxes, declaring them, chasing them, avoiding them, administering them etc. where does the deadweight lie?

        "3) Bad equity. As we can't track the incidence we don't know who is really carrying the burden. so we've no idea whether the rich are paying a higher portion of their income than the poor."

        I think Piketty makes it pretty clear who is carrying the burden and who will continue to do so if some changes are not made.

        Today, if I make or lose a 1 million a day on the stockmarket I will pay no taxes as long as the money stays in play. If I liquidate my assets, I will pay a little tax depending on how good my accountant is.

        If I am a bricklayer, waitress, maid or low salaried office worker, I will pay a significant part of my income every year at tax time and everytime I buy something. Until I can't afford to buy anything, that is. How is that equitable ?

        As long as the transaction taxes cover the bills and everyone pays the same percentage, I fail to see what difference visible incidence will make to anyone. The government number crunchers who might care can be replaced with software anyway. In fact, I suspect long term, anonymized statistics generated from electronic transactions would provide the best economic data ever seen in the history of record keeping.

        1. Anonymous Coward
          Anonymous Coward

          Re: Ummm yes but..... @Tim

          1) Bad efficacy, too easy to dodge."

          If they are taken automatically with every payment and are very small (0.35 %). How are they easy to dodge?

          By moving the transaction to a place without the tax

          Why would anyone bother dodging them ?

          Because even 0.35% adds up if you're doing dozens of 100K transactions per day, or per hour. Maybe you only make 1% on each transaction, do you really want to lose a third of it every time?

          1. dogged

            Re: Ummm yes but..... @Tim

            > By moving the transaction to a place without the tax

            I can see that working out really well for Tesco! Wait, no I can't.

            > Because even 0.35% adds up if you're doing dozens of 100K transactions per day, or per hour.

            If you're doing that you are either stock/bond trading - which is exempt, if you bothered to read anything - or you're selling to the public at a low margin in which case you are most certainly passing that cost along because as Tim points out, business doesn't pay tax.

            1. Anonymous Coward
              Anonymous Coward

              Re: Ummm yes but..... @Tim

              I can see that working out really well for Tesco! Wait, no I can't.

              Why not? I can buy UK company shares on a US stock market.

              If you're doing that you are either stock/bond trading - which is exempt, if you bothered to read anything

              The exemptions are still being argued over. As of December, it will apply to stock trading, but possibly not to derivative transactions.

      2. dogged

        Re: Yeah, but...

        Tim, you say the deadweight cost is lowest on sales taxes such as VAT but look at what happened with the pasty tax? Even Little Gideon was forced to back off, which indicates that the deadweight cost is actually very high. Logically, the only place a deadweight cost is low is where taxpayers have no choice but to choose to make themselves liable for the tax so that'd be things like VAT on essential items (like clothing), Road Tax (or SORN, the mere act of owning a car means you pay tax whether or not you drive it or even if it works) and taxes on heating, light, other utilities.

        On those you can stick the rate up as far as you like and rake in the money, except that doing so will actually kill people long term because 20% is very high after all the other tax you pay and you have no choice. If, as the AC above says, it was 0.35% you'd probably have a lot more left than you currently do, not counting the fact of the Chancellor taking less of your actual pay.

        It's a big change and I desperately want to find a reason for it to be impractical because if it IS practical then we're just self-harming as a nation by not doing it.

        Some day, somebody will do a Party Political Broadcast where they do nothing except "A week in the life" highlighting how much of a normal person's wages are taken in tax. All taxes, not just Income Tax.

        And if we don't do something soon, that day will be the first day of the revolution.

  18. LucreLout Silver badge

    @Tim Worstall

    As a matter of equity we do want the rich bastards to be paying more as a proportion of income. Even Adam Smith was sound here.

    The central problem with this is everyone is someone elses "Rich bastard". I used to think an annual income over the national average made one rich, or owning a house outright, or having a decent pension. It doesn't. So define rich and we know where we're starting from, but without that definition, nobody can ever agree other than to say rich means richer than themselves.

    Start with land taxation, add on any Pigou Taxes we want (carbon, baccy, booze, pollution etc, we want these precisely because they do destroy certain economic activity), as much VAT as we can get away with and if we still need more to feed the ravening maw of government, income taxes and on up the list.

    2 main issues here. Firstly, feeding "the ravening maw of government" is the main problem. Government is not efficient and it is trying to do too much. Were it efficient and focussed, we would only need to collect about a third of the level of taxes we currently do. So the next definition we need before we can begin is to define what we need the government to do.

    The second issue with this point, is land value tax. The principle thing destroyed by implementing this is land value. Sure, it's great, if your primary motivator is to reset the landed gentry. For literally anything else, it sucks, because it's too easy to avoid. Just sell the land. What you end up with is land values dropping to the point where the tax on them becomes negligible, and you now have dirt cheap land, but government has a major funding problem.

    Thomas Piketty is advocating tax rates of 80 per cent on incomes at the top end, and of 1-3 per cent on wealth annually, knowing very well that these entirely fail the efficiency and efficacy tests.

    At best this would induce capital flight to more sensible regions. At worst it would cripple the economy as the wealth generators and educated and mobile workers leave for somewhere less hostile. Piketty's main issue is that he started with his conclusion, and then did enough research and thought to prove that. Not at allt he scientific method, nor even a truly academic one. What it was, was politics dressed up as economics, and nothing more.

    1. dogged

      Re: @Tim Worstall

      > At worst it would cripple the economy as the wealth generators and educated and mobile workers leave for somewhere less hostile.

      "Wealth generators"?

      Rich people very rarely generate wealth. Big business does not create jobs - on the contrary, it cuts jobs. Small businesses make jobs.

      1. LucreLout Silver badge

        Re: @Tim Worstall

        Rich people very rarely generate wealth.

        Brin, Page, Zuckerberg, Gates, Ellison, Jobs etc etc etc all were rich because they generated wealth. Your premis is flawed.

        Big business does not create jobs

        I work for a big business. It created my job.

        Small businesses make jobs

        Small businesses are portable just as readily as big businesses. Why be a self employed hairdresser in Essex, paying 80% when you could be a self employed hairdresser in Berlin paying a lot less (other businesses and locations are available).

    2. Geoff332

      Re: @Tim Worstall

      "Were it efficient and focussed, we would only need to collect about a third of the level of taxes we currently do."

      Nice assertion. But it really needs a few little things, like evidence.

      As I understand it, around 1/3 of the Government's expenditure is on Health Care. By your argument, privatising that would make it more efficient. Fortunately, there are a number of privatised healthcare systems around the world (both publicly and privately funded) and we know from looking at them that the more private you make healthcare, the more expensive it gets. So, yes, you could cut one third of the budget by cutting health care. But that would - if the US is anything to go by - massively increase the burden on the economy.

      Another third goes on pensions. Here, it's hard to compare, because private pension funds are contribution-based, while public pensions are usually either mixed or funded in the current period.

      Putting those two together, you realise that well over half of all Government spending goes on the elderly (something like 3/4 of all health spending is on the over 65s. Less than 20% covers you from 5-65). So any meaningful, order of magnitude cut to Government spending is going to involve substantially cutting funding provided to the elderly.

      You have implied that these cuts could be achieved without any loss to services (i.e. the money is wasted).

      What I want to know is, "how?"

      1. LucreLout Silver badge

        Re: @Tim Worstall

        As I understand it, around 1/3 of the Government's expenditure is on Health Care. By your argument, privatising that would make it more efficient.

        Well yes, it might. But that wasn't my argument.

        Keep the NHS. Keep it public sector. Just make it work efficiently - no more having one clerk per dept sitting in the same big waiting room when one clerk could do the work of all three (yep, see this every time I visit my local hospital).

        Another third goes on pensions.

        Scrap the public sector pension schemes. They're from a bygone age and only existed to top up the career average below market salary that many decades ago were normal in the public sector.

        What I want to know is, "how?"

        Very little of what the government spend is on equipment or plant. The vast majority is on pay & perks. Simply stop doing things like diversity, street football management, scrap the pen pushers and middle managers, abolish the quangos (we just don't need the DVLA anymore - its just make work for Wales).

        Where purchasing is actually done, employ a few people from the private sector to handle the negotiations as the public sector spend £6 buying a 6p pen (yep - I have actual experience of that when I started my career in the public sector).

        As cost of provision comes down and taxes fall, economic activity will increase, meaning perversely enough, more taxes paid at a lower rate.

        Its about efficiency of getting the states job done, not efficiency of an employees job, as most of the latter simply aren't required to deliver the former.

      2. Tom 13

        Re: there are a number of privatised healthcare systems around the world

        There are NO privatized healthcare systems anywhere in the world. Because we've all decided that healthcare is too important to be denied solely because some individual can't pay. So we make the hospital treat them. Then the hospital has to tax its customers to cover the cost. So it doesn't matter how private or social the insurance is, it's still been socialized.

        We'd all be better off if healthcare were more private and less social. You guys ran this experiment a couple hundred years ago. It was called the Massachusetts Bay Colony and it failed miserably. Half the colonists were dead before the remaining colonists threw out this commie crap and privatized it. Then it became a roaring success.

  19. BoldMan

    >I'm willing to pay £x amount to rent this house. That's the market price or whatever. Now government

    > taxes that house. I'm not willing to pay more to rent it. Thus it's the landlord that pays that tax.

    Surely you mean "Thus, the landlord refuses to renew the lease because there is always someone else with more money willing to pay the higher amount"

    1. Brewster's Angle Grinder Silver badge

      Surely you mean "Thus, the landlord refuses to renew the lease because there is always someone else with more money willing to pay the higher amount"

      Ignoring housing benefit, you can't hand over more money to a landlord than you earn.

  20. johnaaronrose

    Piketty

    Please note the article's racist/xenophobic remark: "Obviously he's wrong, for he is a Frenchman". What's interesting is that remark is made a within a week of last week's events in France. It's therefore difficult to take this article seriously as it cherry picks repeatedly e.g. it fails to mention that the Financial Transactions Tax is meant to be levied on high value (i.e. millions & billios) transactions and thus it could not be easily evaded by switching to cash.

    1. codejunky Silver badge

      Re: Piketty

      @ johnaaronrose

      You are aware of the current state of the French economy which is why this article on economics can poke fun at the Frenchman. The French economy which thought high tax could solve its problems only to find its wealthy people moving over to the UK and elsewhere. The French economy where the idea of some lovely utopia on the back of flogging the rich (by whatever yardstick) turned into an unpopular leadership as the economy was flogged instead.

      As for avoiding excessive taxation, it can be done. Either by avoiding the tax or by avoiding the country.

    2. Benjol

      Re: Piketty

      Not one for satire then?

      That reminds me of last week in France too...

    3. Tim Worstal

      Re: Piketty

      "Please note the article's racist/xenophobic remark: "Obviously he's wrong, for he is a Frenchman"."

      Eh?

      Taking the piss out of the French? I don't call that being xenophobic or racist.

      I call it being English.

  21. kmac499

    Tax paradigm..

    To paraphrase; Tax is taxing because it's designed by accountants, economists and politicians. A bunch of people that can't handle minus signs, insist on teaching theories that do not match reality and will make poor decisions to bribe other to stay in work

    I accept the need for taxation in order to fund common services but surely we can have a simple single principle to define what is taxable and what is not. Dynamic wealth Wages,Sales, Interest earned (in all it's many forms.) should be taxed

    Static wealth i.e. Bank Balances, House values, Gold buried in the back garden or the vey garden itself(LVT) should not be taxed. When that wealth is transferred to others then maybe it should be taxed as it would then become income.

    As the UK personla economies reveolve so much around property. My personal new tax arrangement would be either make the house seller pay the stamp duty, not the buyer, effectively making house prices inc Tax. Or scrap stamp duty and pay capital gains on house sales, on any 'profit' not used to buy the next house. The same logic applying to inherited property so killing off the need for estate duties on property rich cash poor estates.

  22. bencurthoys

    Everyone's claiming that everyone would avoid this tax by dealing only in cash, or by batching up all their transactions to a monthly central clearing house, or whatever.

    But that the moment there is ALREADY a transaction tax on basically all B2C transactions. The credit card company + payment gateway takes between 1% and 3.5%+20p per transaction. If my business took cash payments, Barclays would charge me 0.9% to deposit cash in my bank, and I'd want to consider hiring security to move it to the bank, and buying a safe to keep it in on my premises. Giving a tiny percentage to the Government wouldn't make any difference to my cash handling costs.

    Admittedly, BACS is free, but I don't see everyone buying their daily groceries by BACS to avoid the fees. The convenience of the credit cards wins out, even when it costs merchants money. Why would an additional 0.5% or whatever on those fees cause everyone to abandon existing, convenient systems?

    Perhaps B2B is different, and the sums are certainly larger, but if it cost me 1% to receive a payment by BACS, that wouldn't be enough for me to want to get the train to my customer to take payment in the form of a big bag of cash, which I would then have to worry about storing securely, or have to pay to pay into my bank anyway. That convenience is worth way more than 1% to me.

    Whilst I'm not certain that a transaction tax isn't loopy - the Payment Card Industry provides the infrastructure that allows Credit and Debit card transactions, and funds it from a transaction tax which no one really objects to. The Government provides the infrastructure that makes all commerce possible - the existence of a stable currency and the rule of law, for a start, so it's not obviously to me why they haven't as much justification to claim a transaction tax as Visa and Mastercard have.

    1. theblackhand Silver badge

      Re: Transaction taxes

      Doesn't this demonstrate Tim's point?

      B2C users can't easily set up their own trusted payment system, so end up paying - B2B users can afford to set up/use their own payment system (BACS) so avoid the additional cost.

      If there is a way of minimising taxes, most people will - whether that is paying trades people for cash jobs or employing specialists to create tax-efficient organisational structures or operational practices that avoid or delay when tax needs to be paid.

      1. Paul Hovnanian Silver badge

        Re: Transaction taxes

        Bitcoin.

        We may not understand the problem, but Bitcoin is the answer.

        1. Anonymous Coward
          Anonymous Coward

          Re: Transaction taxes

          Bitcoin will provide the answer, but perhaps not in the way we think.

          I rather like the idea of everyone voting with their keyboards and people wallpapering their homes with recycled 100 dollar bills.

  23. strum Silver badge

    All that needs saying...

    “The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing”

    Jean Baptiste Colbert

    There's never going to be a single tax to perform this conjuring trick, because there's always going to be some poor bugger whose income/wealth depends on this single taxable element, and he's going to hiss like crazy.

    1. I ain't Spartacus Gold badge
      Devil

      Re: All that needs saying...

      I've got this idea for an oxygen tax...

      1. codejunky Silver badge

        Re: All that needs saying...

        Is that to compliment the co2 tax's?

  24. Graham 25

    Waffle waffle waffle.

    if there is a larger tax take, then everyone assumes some other poor sod is the one paying the extra tax.

    The people who go on about changing things are the ones that should not be allowed any responsibility.

    1. Tom 13

      RE: changing things are the ones that should not be allowed

      I don't have direct experience with things on your side of the pond, but on this side they definitely need changing. You don't have to have an IQ above an icebox temperature to know that 100,000 pages of regulation is so much that no one can know what it's all about. And that's probably under-estimating the current tax codes, regulations, judicial rulings, and resulting interpretations of it.

      Could government make all the revenue it needs by taxing everything sold at retail at a rate of 13%? Even shoes, clothing, and housing? I don't know. But I'd sure like to try. Granted, the big problem there is defining exactly what "at retail" is in such a way that clever people couldn't avoid it. And that's sort of how we would up at 100,000 pages in the first place.

  25. R Callan

    All tax systems are loopy

    Tax systems are designed with one main purpose in mind, to hide from the taxpayer how much they are really paying. The only honest system would be personal income tax ONLY. This would at a stroke remove all of the double treble and more dipping and allow the taxpayer to know exactly how much tax they really pay. It would have side benefits like reducing the size of tax departments and the numbers of accountants needed in both the public and private sectors thus reducing needed tax takes.

    Could you imagine the screams if the average taxpayer discovered that thy were paying 80 or 90% of their income in tax (which they in fact do).

    1. Tom 13

      Re: only honest system would be personal income tax ONLY.

      Nope. Even that doesn't work. I was too young to remember the guys name, but back in the 1970's the Today Show had on some guy from New York City. He earned like a $1 a year as CEO of his company so he paid no income tax. He lived in a penthouse suite his business rented for him because he was constantly entertaining clients. He had a limo with a driver paid for by the business because he was always going to business meetings. He threw lavish holiday parties paid for by his business because he invited clients to the parties. In fact he lived exactly like all the other millionaires who paid 70% or 90% income tax rates. But he never paid a dime. He was explaining how easy it was and that he didn't understand why more people didn't do it.

  26. Benjol

    Seems to me that the (tax/law) system can either be fair or simple. Not both.

    Could be neither.

  27. Offnow

    The Real Tax Fraud

    "We don't think that the tobacconist is paying the duty on our cigarettes, nor the tobacco company that buys the stamps. Instead it's the consumer who does. Same with the barman and beer duty, same with our paycheques and the income tax that is taken out of them."

    Unfortunately, the barman and practically every employee regard income taxes as being paid out of their hard earned gross income, that is what would be their due reward if income tax did not exist.

    If we converted payroll taxes to a VAT on net pay, then it would be clear to all that the employee recipient is not the principal taxpayer. Actually this would immediately make exports more competitive as every exporter could claim back his payroll VAT payments. As an intermediate stage to tax reform, this could be a great advance for voter understanding and a great economic benefit for the country. It might turn out to be the easiest way forward too.

    That companies and their employees are real taxpayers is a delusion that governments like to encourage to hide the real scale of taxation we all pay. Thus government inflates the prices of goods and services by taxing every productive sector. Voters become confused as to who really pays tax and who should be that isn't. It provides a multitude of opportunities for politicians to tinker. The success of this disinformation is that everyone believes it. By this means the huge cost of the state is hidden.

    The true rate of tax on our personal consumption is about 45% of the cost of goods and services on average, whether we are rich or poor. But if implemented in full view at the point of sale, we would really know who pays tax - we all do and it is too much.

    So much for democracy, when people and voters neither understand what they really earn (their disposable income) nor the tax that they pay (when they spend it). This is the real tax fraud.

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