Nov 09 2009
The search for more taxes
In the dying days of this graceless Parliament the government is scrambling around to find more ways of taxing more people and institutions they do not like. Gordon Brown has come up with the Tobin tax on financial transactions, only to have it shot down by the Americans. Now Ms Harman is looking at asset taxes on the rich, horrified as she is that inequality has risen during the twelve years of hard Labour.
Why can’t they understand their problem is spending too much, not taxing too little? Why can’t they see that one of the things that keeps too many people on low and no incomes is the high marginal rates of tax and benefit withdrawal? Many on lower incomes need a job. Clobbering those with capital is not the way to create more jobs.
Mr Brown’s Tobin tax is a classic. At the same time as trying to gain support for it, he announces a huge and needless £40,000,000,000 of extra spending to subsidise the very banks he wants to tax. Why not just cancel the subsidy? That would do far more good to sort out the public finances, and make the bad banks sort themselves out more quickly.
Ms Harman’s soak the rich is probably just a campaign to win more votes in a future Labour leadership election. If she is serious it would lead to more rich people seeing the UK as a very bad bet. Yes you can lower ineqalities by forcing the rich out, but that does not make the poor rich or make a more prosperous economy. On the contrary, it will make the poor poorer. The best way to tax the rich is to lower marginal rates. More will stay, and pay more tax. The best way to make the poor richer is to have low taxes on effort and savings.
28 Responses to “The search for more taxes”
John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College...
They haven’t worked this out in my lifetime, so I don’t expect them to understand any time soon. For all their taxes on those who generate wealth, and their profligacy with those who can’t be bothered, the gap between rich and poor has widened.
With Mr Browns record, even if every person and company was taxed at 100%, he’d still try and take more from us. It was never about providing the services that we need (or about everyone contributing fairly), but about raising increasing amounts of money for gerrymandering.
Jilted John was well ahead of his time.
I agree with everything you say about tax but the last word of your post is “savings”. There has not been much discussion about savings. Why should anybody save, given the current rate of return? Savers have been forgotten.
I think the issues are (1) what would be an appropriate level of saving to work towards in the UK and (2) what interest rate is needed to attract this? Perhaps you can tell us the answer?
A lot of elderly people have been knocked out of the game – the return on their savings is negligible and there must be real hardship. Far better to be a retired public sector worker with an indexed linked pension and the ability to spend, spend, spend.
The global imbalance is also a problem. America, as a nation, saves nothing and, I imagine, we don’t either. The Chinese squirrel their money away in savings banks. Do I detect yet another public debate which our Government and our hopeless, left-liberal media ought to promote? Perhaps the BBC (the broadcasting arm of the Labour Party) could do a programme on the plight of savers resulting from the Government’s ill-judged policies? How about one of their much self-vaunted ’special investigations’ on the subject?
Reply: I have said they shouold raise the official interest rate. The savings rate is rising, as people will repay a lot of debt in these conditions , and deposit rates are well above the official rate.
As sound as this post is it may as well be in Greek for what Labour Party supporters will make of it. Labour are a socialist party, their members all think on socialist lines. Trying to make them understand that taxing a successful business at x% and trusting that business reinvest y% rather than tax at x+y% and the government spending y% goes against their beliefs.
I don’t blame Labour for thinking this way (even though I don’t agree with it), that’s what socialism is, and Labour are a socialist Party they have never tried to hide this despite weak bleatings from Blair and Brown their core base is, and always will be, socialists. Who are the 25% of people who are still going to vote for Labour? Certainly not the middle classes disillusioned from 18 years of Conservative rule who flocked to Blair in 1997.
In the same way I hope that if the Conservatives gain power that after a few years of steadying the ship and consolidation they will firmly tackle the behemoth that is current public spending and also deal with inherited sacred cows, such as the NHS and welfare state system.
So very sad that the only ideas Gordon Brown can ever come up with seem to be:
How can I collect more money.
How can I spend more money.
How can I make more people reliant on the State.
How can I stay in power.
One day he will wake up only to find that the State never generates money (other than by printing it)
All of the wealth in this Country is generated by private business who pay for everything by taxation, and when the Government demands more than a reasonable share, people start to lose interest in generating money.
The American Revolution was built on the slogan “no taxation without representation”. The problem is that we have got into a position where we have representation without taxation. Of course people at the bottom end of the income scale are going to vote for increased government spending – they think (wrongly) that they aren’t going to pay for it.
Brown said recently that it would be suicidal to restrain public spending. You couldn’t make it up.
If you gave Labour a goose that laid golden eggs they’d probably see the makings of a jolly nice roast dinner. They’re that thick.
As P J O’Rourke observed
“You can’t make the poor, rich by making the rich, poor”
You are probably right, Harman fancies being leader of the opposition next summer.
Hardly worth the debate because governments will never see the reality nor do they want to.
Cut government spending and create jobs in the private sector whilst losing jobs in the public sector. Increase taxes and lose jobs in the private secor whilst increasing jobs in the public sector.
Increase jobs in the private sector and increase wealth increase jobs in the public sector and decrease wealth.
Simple, but it is much easier for the politician to increase taxes and so that is the direction in which they normally go.
The burden of the state is now so great it is beginning to tell in all walks of our every day life but it will continue because it is the easiest option for politicians.
So, Cameron will be the new broom and he will cut government spending down to the quick?
Not on your life. He will raise taxes and he will contribute to the great decline of this country. It is the quick painless fix for the politicians and a slow painful death for the rest of us.
One day we will have the opportunity to elect a sound money small government Prime Minister but I expect that when his or her time comes this country will be well and truly broken by the spivs and mavericks that have had their way over many years past
“Labour is nothing if not the party of the poor,” said Lord Hattersley a few months ago. He is undoubtedly right. No one with anything to lose would dare touch them now, even with a long pole and rubber gloves on. It’s therefore in Labour’s interest to create as many poor people as possible, and as that is what they invariably do it seems this analysis is correct.
The Athenian statesman Themistocles had a simple election manifesto: “I know how to make small states great”. Labour should come clean about theirs: “We know how to make rich states poor.”
“In the dying days of this graceless Parliament ….” – another blindingly obvious vote winner for the Conservatives – no non elected PMs and four year fixed term parliaments. I do seriously wonder at the lack of political nous and how out of touch senior politicians can be, the clear exception is Mandelson but he is on the other side. Brown’s years of bullying and ruthless assumption of power should be capitalised on – never again. It is rumoured that even the Treasury is alarmed at his scorched earth approach and the financial mayhem will continue until the bitter end. Foreign leaders have sussed him – he gave Blair the kiss of death and his worldwide financial tax plan says it all. The worrying element is a hung parliament is highly likely and the disaster could reach even greater proportions even with Vince as Chancellor.
The best way to make the poor richer is to cut excessive, mainly European, regulation on business, to facilitate trade in the private sector, where wealth is created. It is ironic to watch the strength of China, India (& Brazil) over the last few years, who have freed up their economies after decades of communist/socialist big Govt restriction, while Europe’s civil servants impose more & more regulation. Messers Brown & Darling are too short sighted ( No Jeremy Clarksonisms here…though he was correct) to see the welcoming arms of Geneva & Dubai beckoning the financial sector.
The 3 Hr time zone to Dubai is not impossible to deal with; Std Chartered have moved their trading to Dubai. My Internet based Private Ltd Co will not employ anyone full time given onorous restrictions, & some sub contracting goes outside the UK, in effect exporting jobs. Reduce regulation & red tape/ reward hard work, stop exporting jobs, so that IF they have the drive, the current poor will thrive….(which Labour DON’T want…they’ll never get elected if we adopt the hard work = financial success ethic)….
Egalitarianism is a bad idea as you just get an equality of misery that benefits no one.
Just getting the Tax Payers Alliance, Adam Smith Institute and Center For Policy Studies to work with the CBI on getting real reforms drawn up to cut government spending cut by £120 billion in the next Parliament.
With proper public sector reforms you could save £120 billion and thus have £80 billion for cutting the fiscal deficit & £40 billion for tax cuts.
By raising VAT to 22.5% and ending most corporate tax & income tax breaks along with the £40 billion in public spending cuts you could radically reduce tax rates on profits and incomes.
As those tax cuts where funded the rise in revenue caused by less avoidance and higher productivity you could see the Laffer Curve helping to cut the budget deficit in the longer term by more than the £80 billion caused by public spending cuts.
Stripping out tax breaks would reduce red tape and thus make the free-market function more efficiently while taxing consumption in preference to income & profit was wise in 1979 because it is sound economic sense.
Business investment would come pouring into the UK and dole queues would shorten as the enterprise economy got moving.On the back of falling taxes and an improving fiscal situation the FTSE & Sterling would recover which is good news for pension funds.
Capital Gains Tax should be killed off to stimulate wealth creation and to streamline the tax system.Gains can be taxed as income for the first two years and then be tax free thereafter.
My favorite tax cuts would be:-
Ending claw-back thresholds for basic personal tax allowance & age related allowances,
Raising such allowances to £12,000 p/a and £15,000 p/a respectively with one age related allowance kicking in at 60 for all taxpayers that age.They would be linked to earnings,
Replacing the 40% &50% income tax rates with on 30% top rate on incomes exceeding £200,000 – threshold linked to earnings,
Basic rate tax cut by 25% from 20p to 15p,
Corporate taxes cut to one 10% flat rate.
That would improve equality by ensuring that the rich paid a bigger share of the tax take while helping social mobility as the number of well paid jobs improved in the tax reform sparked economic revival.Fiscal drag would no longer damage the incentive to produce wealth and work hard.
If you want to help the poor then raising GDP growth via the approach that I have outlined is wise as weak economic expansion tends to hit the poorest the hardest. That is why in low growth nations you get numerous people in extreme poverty.
It has been noticed that with a healthy, growing tree the gap between its top and lower branches widens the more it grows.
Funny that.
Best to keep cutting the top off so it grows sideways until it dies because other trees around take all the light – oh and reduce its CO2 to hasten its demise.
“How can I make more people reliant on the State.”
I might be a cynic, but I believe tax credits were designed by Ed Balls and Gordon Brown to lock people into voting Labour. That’s why the upper limit is about £54,000.
I have heard Alistair Darling, Gordon Brown and Peter Mandleson on many an occasion parrot the mantra ‘… giving help to small businesses …’.
I know of no instance where help has ever been given to small businesses, it is a matter of astonishment to me that given the burdens placed upon them, Employer’s NI, Corporation Tax, Business Rates etc., that any manage to survive.
I believe this tax proposal is about two things:
1. It is certainly about raising more taxes from sources that have not been tapped and done is such a way that the government can point a finger of blame at someone else for raising prices. This tax will not be visible in the way income tax is but will be hidden behind increase prices driven by increased transaction costs. Government ministers will then be able to go on television and berate the banks over increased bank fees, much as they do at the moment over reduced private sector lending, and can ignore their involvement in the situation. These taxes will then be used to fund current expenditure, not used as they are being advertised to fund potential future bank bail outs
2. This is also about Gordon Brown trying to look tough on banks and the causes of the current credit crunch, which he helped create. The problem is he now looks like a World War 1 general trying to fight the last war, and not caring about the casualty rates. He has not learnt that the credit crunch has happened, the issues are out there. Fixing the banks is the key and preventing them from getting into the same position should be the focus. Instead he is looking at what he as chancellor let happen and think up ways of trying to rewrite history.
When I heard his speech I was sure I could hear the sound of a stable door being firmly shut and bolted.
Obama Beach’s Tobin tax is one of his signature moves – Give with one hand, take back with the other. Take his tax and benefits system. According to the ONS Effects of Taxes and Benefits on Household Incomes 07/08 Table 14, the bottom 10% of earners receive an average of £5,395 in cash benefits, but they also pay an average of £1,029 in direct taxes. That’s nearly 20% of their benefits going straight back into the government’s coffers. Gordon giveth, and Gordon taketh.
With taxation, there is short term and long term. The budget estimates for 2009/10 were £496bn in tax receipts (35.3% of forecast GDP) and £671 bn of expenditure (47.6% of GDP). We can expect the tax receipts figure to rise when VAT returns to 17.5% and when the Stamp Duty concession ends, but it still won’t be anything like enough to cover the deficit. If an incoming Conservative government can, during a 5 year term, hold taxes to 40% of GDP while reducing public expenditure to a similar level, it will have done very well.
So in advocating tax policy for the future, I am looking at general principles and at the last two years of the next parliament and beyond. Within that context, I agree with everything John Redwood has written. It is in line with Nigel Lawson’s famous dictum: “Taxes should be low and everyone should pay them.”, although we should make an exception for income tax on the poor.
Taxes should only be leavied when wealth is created or value added. Taxes on transactions when no wealth is generated should not exist. So why is stamp duty better than a low rate of VAT (say 5%) on new houses and home improvements? Tax the profits of Ladbrokes but get rid of gambling tax. Tax capital gains, but only relative to inflation and only if you are prepared to offset capital losses against income.
As for things like family tax credits, they are a sort of negative income tax. Surely, we should limit them to annual incomes of under £30,000 pa and at the same time raise the threshold at which any income tax is paid. This modest reform would get rid of few snooping bureaucrats.
Sorry. The last line should say “a few” and not “few” – makes a difference.
This is just a smoke screen. He knows it will never happen. He wants to sound tough with the banks. He knows one more tax will break the economy. He knows spending will have to slashed – even the BBC are saying so. He doesn’t want to make cuts and he can’t raise taxes.
Expect the next budget to raise taxes HUGELY – but only after the next election. Brown will want to lay the blame for spending cuts on the Tories. Brown will be raising faux-taxes over the next six months like the crazy fool he is.
But Mrs Dromey IS the rich!
By the way, on Jeremy Kyle this morning, a frantic Mum brought her boy along. Aged 17, he had dropped out of College, although he was obviously a bright A grade sort of chap. He spent his day in bed “but got up at 12 o clock.” Then he played playstation.
Jeremy Kyle told him to get a job.
He just curled his lip.
And, in so many ways, he was right……
Mrs Dromey: please note. This is what you have done to the poor. It was not like this under Ken Clarke and Mr Major.
And taxing people still in employment to pay for the pensions of the Fat Quangocats won’t earn many votes either, I guess.
It is time to paint a picture here of another 5 years of Brown and Labour. We could seriously be looking at DDR Mk II. The £40 billion tax to feed £40 billion in subsidy you mention is a classic control tactic; the state sees all and controls all- “the State giveth, and the State taketh away”.
From the moment of birth, when the local social services decide whether your parents are fit or clever enough to look after you, through your indoctrination in state schools and nurseries, you will speak in politically correct phrases, not learning to think or learn for yourself. You will pass modules with either A*, A or B grades, depending partly on your ability, but also with your ethnicity and any advantages or disadvantages in the background of your parents. In turn, you will take up your entitlement to a University place, amongst students of varying backgrounds and abilities, to provide an approprate mix. On completion of your education, your ambition will be to work in the public sector, in one of a wide variety of roles involved in areas as diverse and important as surveillance and policing, communications and news of state policy, equality and diversity, taxation and financial scutiny, border control, education and political indoctrination. Your work will be scrutinised by more senior state servants who will themselves report to the Political Master Class. Should you be outlandish enough to consider entrepreneurial or commercial activity, you will be subject to special observation by all these agencies, which have exceptional powers to control and direct your activities to conform to the common good.
Gone will be the days of holiday homes in France and Spain. Even travelling to EU partners will require special permission (on grounds of anti-social carbon use), and your movements inside the Continental EU will be monitored and charged for as part of your carbon-usage tax. Attempting to travel outside the Continental EU will result in a “travel administrative and carbon tax”, or TACT, only realistically affordable by very few, if they arer not on EU or HMG business.
Chilling, but this is where we are heading with these people in control.
I haven’t mentioned this for a while but I can’t help thinking that if we coined and printed our own money rather than borrowing it by Printing Gilts, we could issue that to pay for public services free of charge.
There would then not be any Public borrowing, no public debt and absolutely no need for an income tax.
If we can Print Gilts, then we can Print our own Money.
http://www.youtube.com/user/campaignforliberty
I remember “tax the rich” from the Healey years. But of course the rich don’t pay ANY taxes. For rich people, tax is optional.
So what it meant then was “punitively tax the middle class”, “punitively tax the small businessman”, indeed “punitively anyone not part of a favoured group such as boilermakers.” Funnily enough it never raised much money, but it did cause much misery.
It’s like Labour’s IR35 hate-tax on freelance IT staff, combined with throwing open the doors for Indian IT staff who could undercut them. The tax made no money, but it did lead to 100k fines on people who never made more than 50k in a year and couldn’t work out what the legislation meant (no-one can). Meanwhile rates of pay are less now than they were in 1998, and loads of UK contract staff are sitting glumly at home wondering how long their savings will last. High tax, heavy burden on ordinary people, no gain to the nation, and envy and hate the only things that benefit.
I hope DC kills IR35, as it makes our lives miserable. And I hope that we get a sensible flat tax. No-one earning less than 10k a year should be paying tax. And no-one should be punished for trying to earn more, or succeeding. Enough envy!
If you assume that Harman is intelligent, something of a leap on occassion I know, but undoubtedly true, then she must be aware that ’squeezing the rich’ does not work and only keeps the poor poor. Therefore you have to assume that she, labour, socialists, the left generally, want to keep the poor poor to maintain a solid labour vote.
Particularly when you see what Thatcherism did to the poor by giving some of them aspiration and turning them middle class Tory voters. That simply won’t do at all.
You have to say they are right. After 12 years of the most venal, corrupt and disengenuous government, labour still retain around 30% in the polls and will remain there as a minimum at the next election.
Throw in a bit of dumbed down education. 20 – 25% of the north on benefits, and uncontrolled immigration, you would have to say labour are a lot cleverer than the Tories at (looking after -ed) their vote.
Depressing really isn’t it.
Neil
It is far, far easier to make many thousands poorer by taxation and reliance on Benefits, than it is to encourage the same number to be more wealthy through their own efforts.
That is the simple logic of Labour, particularly when you arrange the taxation system to frustrate and penalise those who want to make a go of it themselves.
The result, you have more people voting for you, because they depend upon you to live.
Its only a problem when those who are paying taxes give up and say enough is enough, then the system fails, but only after you have sold off the family silver, and borrowed up to the hilt to keep it going.
We are nearly there.
It must change soon, one way or another.
Roger Pearseon 10 Nov 2009 at 3:53 pm
“I remember “tax the rich” from the Healey years. But of course the rich don’t pay ANY taxes. For rich people, tax is optional.”
In a way you are correct, but not in the way that you meant it – tax evasion. In the Healey years I avoided tax by the simple stratagem of stopping working when my earnings reached the supertax level. I had better things to do with my time than solely working for the tax-man.
It happens in all communist/socialist countries, and that is why they eventually fall apart. That is also the problem with the welfare state; if you pay someone to do nothing, you should not be surprised that that is exactly what he does.