The Telegraph is getting excited this afternoon, publishing this:
Now Jeremy Corbyn economic adviser wants to raise £100billion by taxing the spending from your bank account
Exclusive Richard Murphy, who is credited as the creator of 'Corbynomics', said the Chancellor George Osborne should start to tax people's money as they spend it from their bank accounts
They have noticed my plan for the abolition of national insurance in The Joy of Tax and its replacement with a progressive consumption tax based on the level of spending people make.
Why abolish NIC? Because it is regressive. Because it can discourage job creation. Because it was designed for a world where people were employed in one job, often for life. Because it is too easily avoided. Because the contributory concept has long gone. Because it no longer works as a result.
But it does collect around £115 billion a year.
So my alternative is a progressive consumption tax on spending and deposits (but not savings and transfers) from personal and business bank accounts. Both pay NIC, after all.
For those on median pay very little tax would be due. The same would be true of small businesses. But as personal spending grows or as the size of business does so would the tax charge. I readily admit: this is an idea that I have not modelled as yet. The precise rate is not clear: they would be low.
So why do it? Because it is green: it will discourage excessive consumption. Because it is progressive. Because it will not discourage jobs. Because it will work and will be fairly hard to avoid (banks assisting those to shift accounts out of the UK would be liable for estimated taxes owing). Because it is appropriate for a world where people have many jobs.
And what does the Telegraph say? Curiously, not a lot, but the pictures imply they think this is some form of imposition. They'll have to do better than that.
It's time for a real debate.
The Joy of Tax is the ability tax has to shape the society we want.
Do we want a fair or unfair society?
One where there is something to leave our children, or not?
One where avoidance is rife, or not?
One where we encourage work, or not?
I know what I would prefer.
That's why I am proposing change.
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Richard,
You may say that “they’ll have to do better than that” but it may be worth your while putting this record straight (keeping your response simple)and making it known that they have deliberately misrepresented you (or they have a literacy problem).
You can also use it as an opportunity to promote your point about the NIC. A point that could be quite popular. If this backfires on the Telegraph or creates a difficulty for them they will be once bitten, twice shy.
Whatever strategy you choose I wouldn’t let them off too lightly, it may encourage bad habits on their part.
Richard, a genuine question: if one persons spending is another’s income, then how does reducing consumption not ‘discourage jobs’?
In the long term we cannot consume our planet
So tax has to ultimately discourage excessive consumption
That is what I am seeking to do
It is an idea wholly consistent with what I argue in the Courageous State
@ Mr Shigemitsu,
You’re absolutely right. Cutting consumption by discouraging spending will reduce income by reducing jobs. So the purpose of the tax system should be to highly tax those things we don’t want spending to be upon ie those which consume natural resources and create pollution and not tax at all that spending which doesn’t.
So in that sense Richard is right. We shouldn’t be taxing employment. I’m not convinced on the idea of a progessive tax on spending though. I can’t see how that could work. But we should be taxing spending on CO2 emissions, anything that creates a pollution problem, excessive packaging on retail items, items which create toxic hazards at the end of their useful life etc
It’s hard to see how there isn’t going to be a serious downturn in the next year or so. We should just halve NIC now and worry about what tax might replace it later. That is: if and when inflation is 2% over target rather than 2% under target.
I argue for specific taxes as well
Rather like golf, taxes don’t work without a whole set of clubs
NIC does not work
What would you replace it with?
I am open to ideas
So that would be a “carbon tax”. In fact, we could have a “border carbon tax” on imports. In July 2010, the WTO produced a report on this subject (very good read) – in summary: totally legitimate. Had we had a border carbon tax – Redcar would not have closed (for example). & for those that say “difficult to impose” I used to do anti-dumping cases – the Ec never had any problem calculating & imposing synthetic anti-dumping duties – so there should be little problem calculating the CO2 “cost” of a product. The burden of taxation could then be shifted from income to consumption.
@PeterMartin2001. You say in reply to Mr Shigemitsu, “.. the purpose of the tax system should be to highly tax those things we don’t want spending to be upon ie those which consume natural resources and create pollution and not tax at all that spending which doesn’t.” I agree, it’s the same principle as the taxes we now have on tobacco and alcohol, for example. However, the consumption tax on spending on bank accounts doesn’t do that. It doesn’t discriminate between the *types* of expenditure but on the *amounts*.
So, for example, you will pay more tax if your routine monthly expenditure is identical to someone else’s but you decide to spend an extra few thousand on solar panels and insulating your house. Of course, this should reduce your tax in the future as your ongoing utility bills will be lower than they otherwise would have been. Is that tax avoidance, however?
Of course that is not tax avoidance
“What would you replace it with?”
Possibly some taxation on property to encourage the better use of what we have. There’s too many empty houses and under occupied properties at present. They could be part of a general wealth tax.
But generally speaking, any changes should be considered for primarily social reasons rather than for ‘revenue raising’ right now. We’ve already got more than enough taxes. Politicians are good at thinking up new taxes – especially when they are directed at the less affluent in society. If there’s anything they’ve overlooked I can’t think of anything too significant right now.
So, if and when, we do see an economic recovery and we do need to be thinking about reducing aggregate demand to lower inflation, we’ve plenty of taxes to choose from which can all be increased incrementally. We can even think of offering some inducement to save which means that there’ll be less need for taxes.
You probably thought I was nit-picking with my comment about ‘collecting taxes’ but I don’t think we can emphasise strongly enough that there’s no need to ‘collect’any extra taxes unless we wish to reduce aggregate demand in the economy.
Peter
We disagree: we do not have more than enough taxes if we take £115bn out if the system
And I have created a specifically progressive tax
And maybe the most direct implement of fiscal control yet created
Richard
@Mary Snell,
We can all avoid taxes in legal ways; whether that’s by brewing our own beer, baking our own cakes (saves the VAT), making our own electricity or riding a bike to work. That’s not a real problem.
I’m not sold on Richard’s idea. But, I’d have to read more about it in his book to fully understand his argument.
regards
Peter
“But, I’d have to read more about it in his book to fully understand his argument.”
Best grab a copy before the Consumption Tax kicks in! 😉
Richard,
“a progressive consumption tax on spending”
I don’t follow. How can a tax on normal spending be at anything other than a flat rate? Anyone can set up as many bank accounts as they like, or can keep money as cash.
We can have higher taxes on certain items, like petrol, alcohol, luxury non essential items, but I don’t think you mean that.
If we want to tax the rich we need a wealth tax. But let’s not fool ourselves that we can close the deficit this way. ALL of the deficit, and a bit more besides, is taken up to pay for the UK’s net import bill. So the deficit money ends up in places like the Peoples’ Bank of China, and the Bundesbank. They aren’t going kindly to getting a tax bill from HM Revenue and Customs!
The charge would be on flows through bank accounts excluding those under common control
The aim would be to replace NIC
The higher the flow the higher the rate
I think the point above is that it would be difficult for banks to cope with. How do you deal with a situation where a person annually pays £10k out of 5 bank accounts maintained at 5 different banks vs a person that pays £50k out of 1 bank account? Is the thought that each bank informs HMRC of the total amount withdrawn and HMRC combines the figures to raise an additional assessment?
Also how does a bank confirm whether the funds moving to another account at another bank are under common control? In fact what is common control? For example, do spouses count as common control? What happens to a transfer from a joint account? Two individuals holding a joint account may be subject to different rates based on their aggregated positions? Does the bank need to work out who is making the transfer? Are spouses taxed jointly and allowed double the amount?
Similarly savings come in many forms, what counts as savings? Are only cash deposits exempt from this tax? What happens if you choose to invest in other savings products?
Is it deliberate that this arrangement taxes gifts of cash twice (once when transferred and once when spent), whereas a physical gift is only taxed once (when purchased) as is a gift of cash (when withdrawn)?
I suspect that unless a flat rate is used the rules will become extremely complicated and figures will simply need to be sent to HMRC for consolidation and processing at the end of the year. Alternatively HMRC will need to come up with a new tax code (similar to PAYE) to try to collect the amount due.
What happens to businesses that operate on very thin margins but high volume? Would these businesses be unable to function? In the case of a business that operates in a chain, would it make more sense for those businesses to move to a model whereby the middleman only receives their own fee and the other amount is paid directly to a supplier lower down the chain to avoid paying a fee on the additional transactions? In fact would those kinds of businesses just relocate abroad to avoid fees all the way down the chain?
The more I think about it the more questions I have. I am sure there are answers for all these things, but making this tax progressive will make it particularly difficult.
I hope I have addressed some of these issues today
Savings here are cash based: nothing else
Sorry, Richard, this is not a good idea. Firstly, it is a transactions tax, not a consumption tax. And, secondly, it would simply encourage people to use more cash.
There is simply not that much cash in the economy
Especially if £50 notes go
And yes it’s a transactions tax
So?
If it’s a transactions tax, Richard, surely you should call it a transactions tax — not a consumption tax.
And transaction taxes can be avoided. Not only by using cash (and IOU’s and barter) but also by diverting salary payments to off-shore bank accounts. Basically, if you provide an incentive to avoid UK banking transactions, people will avoid said banking transactions. No?
Try
A bank aiding such a process would be liable for the tax avoided – and remember data on offshore bank accounts can be found in future
Richard,
“But it does collect around £115 billion a year”
I just thought I might give you a slight rebuke for your wording here! 🙂
“Collect” implies that the government needs this money for their spending. The tone of the sentence is generally positive.
As we all should know by now, any taxation revenue, (and I don’t think we can exempt NI even though it supposedly goes into a separate fund) destroys money. It just removes it from the economy and prevents it being spent. It doesn’t “collect” it as such. That could be a good thing if the economy was working to its full potential, and needed to be slowed down to prevent inflation, but that’s hardly the case right now.
Oh come on
Collect us not raise
And MMT requires collection or it fails
I really do not agree here
I think this is an are that needs a lot of clearing up (especially for people like me from a non economics background).
In a recent article,Mariana Mazucattu wrote : ” These vital roles of the state (as expounded in her book) should be funded by the willing taxpayer “.
This language still conveys that Taxes ACTUALLY fund public spending-this leads me to consider the following:
1) As with MMT discussions on Bonds (the fact we don’t need them to spend)-is:
a) the contention that Taxes destroy money an actual fact or an abstraction of functional finance that is NOT YET implemented (in accounting terms)-or:
b) is it simply a result of linguistic inaccuracy (intended to preserve vested interests, carried over from gold standard days)?
2) When Marianna uses the word ‘funding’ does she mean that taxes don’t really ‘pay’ (i.e are not collected to pay off anything by transfers from one account to another) but ‘pay’ in the sense of money destruction is necessary to deal with sectoral balances and control inflation/incentivise/disincentivise.
3) If 2) is correct then the word ‘funding’ is profoundly ambiguous and unintentionally feeds the dominant narrative.
I think we have to get these meanings more explicit other wise we risk continuous ‘own goals.’
Sorry if I appear naive here ( perhaps because I am!) and I should confess that I’ve just received the ‘Joy of Tax’ but not read it yet! (will do in next few days).
(Simon Q)
I think you are right Simon Q
There is much for MMTers still to do on this
“In the long term we cannot consume our planet”.
I so agree but why are we always – and still – striving for ‘growth’?
And, incidentally, isn’t no growth at variance with PQE?
Not at all
Remember it started as Green QE to create investment for a sustainable future
Of course we need investment to achieve that
In my cigar-smoking days I once passed Sebastian Horsley on the way into a club, and he said “The government should bring in a smell tax for people like you”. I thought then that was radical thinking, and such a tax would have led to a few personal bankruptcies but it would have been for the betterment of non-smokers.
This proposal seems much more radical and promises to provide for a lot of entertainment.
Progressive taxation is radical?
Unfortunately it seems it is
Such a tax would, as others have pointed out, create all kinds of incentives that would need to be policed. An increase in the grey economy activities paid for by barter … large single cash withdrawals instead of debit card payments to minimise the number of transaction… a consequent increase in cash theft, muggings and petty crime because cash is a much less secure medium than bank accounts.
I also don’t buy the argument that the losses from those folks who set up foreign bank accounts could be reclaimed from those banks who aided them to do so – the assumption that these folks would need a UK bank to aid them is a tenuous one. If I were an executive in “Bank of Foreign” I would be planning a big marketing campaign in the UK as soon as this legislation was announced.
All in all, the second order effects of this would be substantial, and measures to police them would be necessarily illiberal and wide ranging. You underestimate people in general.
The withdrawal of the cash would carry a charge
A person with a low rate of transaction tax in proportion to income could be investing gated and surcharged if they could not prove why
I really do not see the issues as being insurmountable in any way
Oh they’re not insurmountable, I agree. Just difficult, illiberal, expensive and intrusive.
I don’t see how this can possibly work without a huge increase in policing, but I guess we will have to disagree on this point.
Illiberal? Have you ever seen how tax investigations work now?
I’m a chartered accountant with over 25 years practical experience so, yes, I have seen how tax investigations work many times. But what you’re suggesting would require an order of magnitude above that.
Far from it
All it would require is evidence of how a person paid for their lifestyle given a known income without apparently using a bank account
Standard tax investigation stuff – and very straightforward
Geoff Taylor:
“If I were an executive in “Bank of Foreign” I would be planning a big marketing campaign in the UK as soon as this legislation was announced”
New Busiess opportunity for Lord Ashcroft, then?
http://www.bloomberg.com/news/articles/2015-10-02/a-pig-story-belize-banks-and-questions-about-u-s-tax-evaders
Again the naysayers.
Our host’s ideas have been taken up by Osborne (GAAR), globally (CBC reporting), and have just swept Corbyn to power. PQE will, of course, be mainstream once the downturn hits.
Prof Murphy is the leading thinker of the age and should be respected as such.
This measure would also encourage governments to increase the role of the state; those paid by the state will not be able to engage in the avoidance tactics that some have suggested here.
Once one nation follows the Courageous State template others will follow. Chine would be perfect; they have both tremendous need of this thinking, and a government with the required control of the democratic process.
I can see that PQE is Green QE with knobs on but I’m still troubled that all economic thought is based on ‘growth’ – and that is another myth to be countered. I’ve always thought it needs doing but PQE is hard enough – How on earth do you stop economics from being a ‘growth’ junkie? After all the current relative lack of ‘growth’ is supposed to be the problem we all face…
Prof Murphy is talking about sustainable growth, for example in Green technology. There’s the genius.
Growth in living standards and real wages in the real economy can be achieved while protecting the planet.
My own concern is that Labour did not put our host at the centre of things, a position in the Lord’s and with responsibility for directing economic policy.
Why not?
Certainly getting rid of NIC is long overdue and cannot really be excused from being the accusation of a tax on employment, and it is regressive to boot.
But a consumption tax would be very broad brush – which is both an advantage and a disadvantage for enforcement.
So couldn’t it be currently replaced by a tax on confectionary and soft drinks? They are specific and both too widely consumed in too large quantities and I’m unsure if upping the VAT on them would be legal for the EU.
But the NHS incurs fortunes to mitigate their effects.
Any UK surcharge would have to be relatively small – say 5%ish in order to avoid the paralell importing problems of alcohol. As there is already an imminent alcohol keepers’ registration plan, that could be built on in order to achieve a registration of soft drink/confectionery dealers (who are, I’d suggest, equally as dangerous as their alcohol bretheren) and there would be more tax revenue. If that isn’t enough I’d suggest adding snacks to the equation…
A tax raising £115 billion at low rates needs a very big tax base
That is what I am suggesting
Very interesting.
How could we use also use taxation to increase ‘development’, by which I mean todisincentivise built-in obsolescence, incentivise durability, thus reducing demand on resources & the amount of harmful waste put back into the environmental sinks?
Tradeable extraction permits to regulate the flow upstream are one idea I’ve heard of.
I agree with abolishing NI and you summarise why. But like others I’m not yet convinced of the merits of a consumption tax, although the £115bn gap will certainly need to be filled.
Carbon and other pollution taxes would be prime candidates. I’d also propose increasing property taxes, including a land value tax. Income tax could take some of the strain as most workers would still be better off if NI was abolished while raising thresholds could compensate lower income non-workers. Businesses could afford to pay higher corporation tax without their NI contributions. A VAT rise might be considered, if its regressive impact could be offset.
As you recognise, a consumption tax would really be a transaction tax so we should consider its scope and exclusions. Otherwise it could have perverse results, such as house purchasers moving money through domestic accounts being penalised while those using offshore accounts might not. You know these risks better than most. ‘Consumption’ needs definition: I would not want to tax taking money from a savings account to pay for a course.
It’s easier to make a theoretical case for a progressive consumption tax than to see how it would work in practice.
Correction to my own comment. ‘Non-workers’ should be ‘non-employees’ as we need to ensure that the self-employed would not lose out from tax increases to replace NI. As Jeremy Corbyn observed last week, this is a rapidly growing area, often poorly remunerated and missing out many employee benefits.
The average self employed person warns £11,000. And I stressed, small businesses would pay low rates as they rarely employed anyone
Offshore would be easy to spot
But carbon is a deeply regressive tax base on consumption when I specifically want a progressive one
And land tax has serious limits, whatever Georgists say
I have also suggested the abolition of stamp duty on housing, if that helps
“And land tax has serious limits, whatever Georgists say”
And yet you, and no one else to be fair, is able to articulate what those limits are.
All taxes are “land taxes” insofar as they lower rental incomes/selling prices. By taxing land indirectly, we unfairly punish producers. This leads to poverty and inequality. Only the wealthy elite gain from this.
All roads lead back to rent. So all an LVT is, is the most direct, efficient and thus fair path to paying for public services from the rental value of land.
Now, of course, this is very hard for Socialists to accept, because they are obsessed that rich people must pay more simply for being rich.
Yes the top 1% as a group, are a net burden on the rest of society. But only a minority within that minority.
How do we separate the net contributors from the net parasites? Easy. Stop taxing income/capital and transactions. Replaced by directly collecting land and other economic rents to pay for public services instead.
Reconciling the aims of wealth creation and an equitable society.
Sorry, but it is quite absurd to suggest that you can tax a base to several times its worth
LVT as you suggest would have to be charged at several hundred per cent
That is not credible
And candidly, it will open opportunity for all sorts of failures elsewhere in the economy
You really have to understand what tax is for, and it is obvious you think it is only about raising money
It isn’t
These are fair points but all taxes have downsides. I need to see more detail on how a consumption tax would actually work.
Essential for the operation of this tax is the use of HMRC designed and monitored software to be issued under licence to the private sector and run pretty much on the basis of computer operating system software.
We could always keep raising the limits on ISAS, thus encouraging the affluent to save more and do less of that harmful consumption. Planet wins; non-consumer wins; the joy of tax.
Trust you to like a regressive tax
ISA a regressive tax? That’s a new one! Could you explain this world view a little more; how does NOT taxing someone become “a regressive tax”? Are you definitely not in favour of ISAs them?
Or would the Courageous State rather take refuge behind the delete button again?
Only the better off have savings
So not taxing their savings makes them better off still
And increases inequality
Ergo, not taxing is regressive
I think this tax must be a winner. Even the Sun cannot fault it.
Neither could they find any economist, who thought the idea was “potty” either.
So they just printed the facts, more or less.
Is the reporting of your “consumption tax rather than NI” idea in the Sun the most positive review you ever had from that paper, Richard?
Must be a winner, Corbyn should adopt it immediately.
http://www.sunnation.co.uk/lets-tax-brits-straight-from-their-bank-accounts-says-corbyns-tax-guru/
I was amazed when they interviewed me about it that the impression was they were not going to be as abusuve as usual
Richard,
Just a couple of questions?
Can you tell me how the Consumption Tax would actually work (i.e. tax rates)?
Would it seek to replace VAT as well as NI?
This would not replace VAT
More on the detail in the next day or two
I did not pet this one to hit headlines quite so quickly
Surely a VAT on luxury items would be easier?
I am looking for £115 bn, not the odd Bob or two
£115bn as a one-off, or a sustainable model?
Why the urgency? There is always the “bail-in” option for wasting sovereign assets.
A higher vat rate on a number of items would achieve sectoral balance over the mid-term. Keep it simple. I sometimes wonder if you worry too much about accounting periods?
If you look at government spending in any one year (since 1940), it roughly equates to tax income (government revenue) in the subsequent year.
Sure, some blips, notably 2007/08, when tax revenue dropped whilst government spending carried on it’s usual trajectory.
That doesn’t mean a sudden need to balance the current budget. Why not just show that the current budget is balanced by next year’s spending?
Can I mail you some graphs? The correlation between current years spending and the following years spending is one I find hard to dismiss.
I am well aware of that correlation – and have noted it many times
But the rest of you analysis is awry
£115 billion pa is not a matter of tinkering
And what the bail in option for wasting sovereign assets might be is too cryptic for me
I get my copy of your book next week but I have to say the furore here concerning your suggestion has certainly whetted my appetite!
I was leaning towards a property or land tax myself so I’m keen to find out more.
Picking up on what has been said above however, it does seem that you have gone beyond simply ‘collecting money’ to also encompassing the ‘behaviour modification’ side of tax policy.
This means that you are indeed being very consistent and true to yourself. There is nothing for anyone to complain about really – and an awful lot to admire.
It takes a lot of vision to come up with something as far sighted as this. A modern politician could never come up with something like it, bounded as they are by their finite terms in ‘power’.
I think that some of those above need to think in terms of ‘behaviour’ and not just ‘income’.
But also, we do need to think about the fact that the resources we’ve been exploiting for the last 30 years are under severe pressure. To deny this fact would be a huge mistake.
Thanks PSR
It will take a few years for the idea to go mainstream
But that’s normal. Remember PQE is five years old
I know that this suggestion is just semantic but looking at some of the confusion in this thread, the term ‘transaction tax’ may have been better than consumption tax. In terms of word (and idea) association ‘transaction’ would associate it with ideas like the Tobin tax (well regarded among those who know it). ‘Consumption tax’ seems to invite confusion with the VAT.
By the way Richard, what is your take on the Tobin Tax? Did you know that the EU were quite recently considering it? I suppose you would.
http://www.theguardian.com/business/economics-blog/2012/may/15/hollande-merkel-financial-transaction-tax
I am in favour of a European FTT
But I stress, my desired revenue is zero -I want to stop the harmful transactions
The problem with the LVT solution now, it seems to me, is that the house bubble genie is out of the bottle and will be undermining communities and the general economy for years.
Sorry to wheel it out again, but here’s a reminder of Brown in 1997:
“‘I will not allow house prices to get out of control and put at risk the sustainability of the recovery.’”
The house bubble and the inequality and wealth transfer will continually pull the rug from under everything until some coherent ideas are put forward on this issue. Can the genie be put back in? I doubt it, without large numbers of struggling families that have just about got on the rickety rung of the so-called ‘ladder’ facing negative equity-I don’t think that’s a sacrifice they would make for the social purpose! Unless banks stepped in and said we’ll pay for the negative equity because we largely cause the bubble-doubt that!
So Housing remains the ‘grey eminence’ and even if a Corbyn gets to build lots of social housing, even slightly lower than market rents will be high in an era of flatlining incomes.
Any thoughts on this fundamental issue of social equity?
“we do not have more than enough taxes if we take £115bn out if the system”
You’re still guilty of some neo-liberal thought processes, if you don’t mind (too much) me saying so, Richard!
The implication in your remark is that if NIC were suddenly abolished the government would lose £115 billion of revenue. That’s not likely. If everyone had more money in their pay packets they’d spend some or most of it. Maybe at the local pub! So alcohol and drinks revenue would increase. The economy would receive a stimulus, but the government’s deficit would equal savings (including the savings of the big exporters to us) just as it has always done and always will.
So the deficit will only change to the extent that the removal of NIC changes our savings pattern. Maybe we’d save more and spend more on imports.
There might be a problem with inflation though if we suddenly increased spending power by £115 billion, so I wouldn’t advocate doing it all at once. The correct level of taxation, in relation to total spending, will end up being whatever is necessary to keep inflation in check.
Whether than includes NIC, or your idea of a progressive consumption tax is more a political question than an economic one.
I was not discussing deficits: I pay little heed to them
I was discussing inflation
I am not reckless on that issue: it appears you wish to be
It’s not fair to say I was being reckless with inflation. I was suggesting removing NIC incrementally so as to avoid any suddenly jump in AD. Not all countries have a NIC system. Australia doesn’t , for example, but still pays unemployment benefits.
So I would favour removing NIC and, but only if we had to, replacing it with income tax with no upper limit as applies now with NIC. That would be fairer. On the other hand, asking the elderly who don’t qualify for unemployment pay, to pay extra tax wouldn’t be fare so they may need a one off increase in the their pension to compensate.
I too suggest an incremental changeover
“Sorry, but it is quite absurd to suggest that you can tax a base to several times its worth
LVT as you suggest would have to be charged at several hundred per cent
That is not credible
And candidly, it will open opportunity for all sorts of failures elsewhere in the economy
You really have to understand what tax is for, and it is obvious you think it is only about raising money
It isn’t”
But, Richard, it’s you that’s being absurd. You’ve have epically failed to grasp my point that all taxes are land taxes insofar as they lower rental incomes/selling prices. An LVT does exactly the same thing, from the same base, fairly and therefore at optimum efficiency. Can this really be so difficult for you to get your head around?
We already tax the rental value of land. Only we do it via the most unfair and inefficient routes possible. And yet we still have £200bn rental values left over untaxed.
Or too make things really simple for you to understand, what would happen to the current rental value of land (£250bn pa) if a foreign benefactor stepped in and paid all of our current taxes for us?
The amount it would go up by is the true tax base of the rental value of land in the UK.
Or put it another way, true tax base of land rent is (current land rental values + current taxes+ increase in GDP due to elimination of dead weight losses ) – (allocational efficiencies + preferences for capital goods)
Or another way is that LVT is simply a lump sum tax simply attached to a freehold property not a person. As you know such taxes carry no deadweight losses.
As people are already allocated their property resources based on today’s rents/selling prices + current taxes, simply shifting the whole tax base onto freehold titles in proportion to their current rental values therefore wouldn’t be inefficient.
Plus you’d eliminate all the deadweight losses from taxes on output.
What failures would it open elsewhere? You can’t just say that and not justify it.
And as to your last point I don’t believe we owe the State one penny in tax. We do however owe the community compensation for the burdens we place on it. No.1 of those being exclusive rights to valuable Land.
That we pool that compensation to pay for public services we share is a separate issue entirely IMHO. So, for me “tax” is 100% about a fair relationship with my fellow human beings and zitch to do with paying for State spending.
It’s quite interesting that when I argue to so called free market capitalists that we should have an LVT because we get optimal efficiency, it turns out that that’s not really what they want. They argue in favour of wealth creation, efficient markets and choice, but that is secondary to their ideology that Land is property like Capital.
And when I argue to Socialists that an LVT reduces absolute and relative inequality, it turns out that’s not really what they want either. They argue for a fair distribution of wealth, but that’s secondary to their ideology that Capitalism is inherently unfair, that it needs top down control (by people like them) and progressive taxes on peoples privately earned income/capital is a good thing in itself.
Not saying Allodial Capitalists or Socialists are bad people. You just believe in very bad things.
I’m sorry: but to argue all taxes come back to land is insulting to human creativity
And just rong
And I can’t be bothered to waste my time tallking about something so irrelevant to usueful debate on taxation
But fairness and efficiency is the whole point in debating taxation.
Land and other economic rents are the only form of public finance that is better than neutral because they are fair i.e they align incentives instead of distorting them.
All costs, including net taxation, do come out of rents. Because rents are based on affordability not cost.
For you to argue otherwise, or deny the importance of this shows a fundamental lack of basic understanding of economics and tax incidence.
As I said above, to illustrate my point, if a foreign benefactor stepped in and paid all our taxes for us, the increase in rents is the true tax base for an LVT. I assume you wouldn’t deny rents and house/commercial selling prices would rise substantially if someone increased our disposable incomes by £500bn pa by paying our bad taxes for us?
Do I know how much they’d rise to the exact penny? No I don’t. But if we extrapolate the current ratio of preferences between capital and land, then we have every reason to believe it would as least cover scrapping all the bad taxes, £500bn worth.
So, rental values would double, which seems pretty likely to me.
And, if I’m completely wrong and we can only shift an extra £200bn pa off todays bad taxes, well that’s not so bad is it?
As to your point about insulting human creativity, that’s a non sequitur.
Penalising people for what they contribute by taxing income/capital and transactions is however insulting to human creativity.
When we finally learn what it right to share and what it’s wrong to share, we’ll all start to get along a lot better and in more prosperity.
That is what you want isn’t it?
Respectfully, if it not true that all costs come out of rents
The suggestion makes any debate pointless
I won’t be engaging so please don’t bother again
Personally, I’d like to see tax weigh down VERY heavily on property ownership, to the point of making anyone that owns a property in the UK wish they didn’t. This is necessary to push property prices down to sensible levels & alleviate the current situation which almost everyone agrees is both inequitable & unsustainable.
So, someone like me that owns a “nice” property in Birmingham might end up paying £10k pa. Someone living in Knightsbridge would find themselves paying like £250k pa. By contrast, if you bought a property in a council estate in Sunderland you might only be £1k pa worse off than your neighbours who rent.
NICs would go & I don’t think anyone would mourn, especial Employers NICs which are a tax on creating jobs. I’ve argued for their abolition on here many times.
I wonder how we would deal with the bankruptcies and the failure of the bamking system?
http://www.3spoken.co.uk/2013/05/making-banks-work.html?m=1
Richard
We have a *house of cards* banking system. You know, as well as I, that it will fall over of its own accord shortly.
A really prohibitive Land Tax won’t cause any damage that wouldn’t have happened, in the fullness of time, anyway.
If the Land Tax is introduced gradually it could actually reduce harm by forcing people in this country to disinvest from property.
It’s not that: LVT alone is a lousy tax system
Richard, when you give us more on this I hope you will consider both the mechanics of how it might work and how to get there, politically as well as economically. Radical changes in the tax base are hard to implement, as Thatcher found with the poll tax, and a progressive consumption tax will generate serious opposition. Any change should be implemented over several years to minimise disruption.
Shifting the tax balance on employers from NIC to corporation tax and on individuals from NIC to income tax are both plausible. With appropriate rates and thresholds these shifts could be both progressive and popular, in that they should entail more winners than losers, although that would not reduce resistance from those who lose.
Shifting towards taxing consumption might be best handled indirectly through raising income tax but allowing people to hold investment accounts. Payments into these accounts could be claimed back against tax but tax would be payable on any money taken out. Many pension schemes work in a similar way but a broader range of investments should be permitted from these new accounts.
It’s probably easier to go with the grain of existing taxation rather than against it.
I disagree
When I have time I will elaborate
OK, I’ll read carefully when i see that. I’m looking for something I can envisage within a budget statement.
Read chapter 9
That is a budget statement
“Respectfully, if it not true that all costs come out of rents
The suggestion makes any debate pointless
I won’t be engaging so please don’t bother again
”
I gave you a very specific example, as a thought experiment to illustrate what the possible effects of reducing costs on rents might be.
Which if it were not true then, I’m sure you’d have easily pointed out the error.
But you didn’t, so you are not being honest or respectful.
Least of all with yourself.
I have made my position quite clear
No serious tax commentator takes the Georgist position seriously
Wow 85 posts!
In mitigation on behalf of those challenging this I’ve got to say that when I first read Richard’s suggestion I was dumbstruck – it was from another planet concept wise. I didn’t see it coming at all. However as I say above, further consideration leads to elucidation. Honest.
The fact that some of the above challenging this are supporters of this blog indicates just how heterodox you are Richard. I’m not surprised that Labour have not started to mention this at all – it is so way ahead of the curve. But it is addressing the elephant in the room: sustainability of the planet; the limits of consumption.
Most of us (me included) have still got to seriously come to terms with the fact that the earth’s resources are finite. And when this becomes more known or accepted, are we still going to use the resources to produce luxury goods or things that we actually need to live? So how do we make the best outcome for everyone come about? It has to be through tax as a modifier of behaviour.
Finite resources could be the great social leveller of our times. With this idea I can almost feel the burden of having to consume being lifted from my shoulders.
Cor!
I am used to being way ahead of the field
And to being told that what I am proposing is wholly unworkable
It has happened often
I am also used to then moving mainstream
I think this one will follow that payment
The paradox here is that it is the many non-luxury cheap goods that are imported that are the chief cause of environmental despoliation-the need to by cheap, every day goods that have travelled many air miles (eg. an electric kettle from China costing a tenner) is one of the main issues that taxation may not be able to solve.
The reliance on cheap, less durable imported goods is a product of :
1. Globalisation and the annihilation of domestic manufacturing
2. Stagnating wages that don’t allow people to purchase better quality durable goods
3. Private debt means people have to seek out the cheapest alternatives possible
Ironically, its often luxury items that are more likely to be made in closer proximity to the buyer!
(Simon Q)
Simon
Well, the environmental cost of exporting/importing will have to be considered then, and making things locally may have to come back into vogue – something that will answer most of your points above.
There is a lot of vested interest to be overcome in the long run. But even Mark Carney has brought up the issue of sustainability in a speech recently and how this could destroy established markets.
These markets will be affected by regulation/taxation in the short run or by total collapse of resources in the long (short)run. Sooner or later the bullet will have to be bitten.
It’s not going to be pretty and I fear that most ordinary people will be made to pay for this.
Hope I’m not being incredibly naive in asking this question. What would happen if NICs and income tax were merged? Couldn’t the same amount of money be raised? At the moment retirees (some of them quite wealthy) don’t pay NICs and would probably squeal if their income tax were to be increased, but it might go some way to decreasing generational inequality.
In principle it’s an interesting idea
But the rates required ate very high and create all sorts of problems as a result
So I have looked for another base to overcome these problems
May have missed it but surely the basic emphasis should be that NICs are regressive and anti employment. Nothing to do with income tax as such.
If this is accepted something different is required. You’ve certainly provided it and if it also has a fairly big free from tax ‘allowance’ then, apart from increasing HMRC resources, I see no problem.
I’ve done the rough sums on a confectionery and soft drink tax and even at about 5% it would provide only about 1% of NIC – regrettably! But it would help..
Richard,
“Why abolish NIC? Because it is regressive.”
It’s not regressive in the same way VAT is regressive. Would we say income tax is regressive? NIC is just like a parallel income tax whose main regressive feature is that it stops at an upper income limit of £42k.
That’s easily fixed. Just have a sliding scale of NIC with no upper limit.
But it only taxes labour
That is also deeply regressive
It is tax decades beyond its sell by date
Before we do abandon the word “progressive” in regard INCOME tax (not just a labour tax) we should just check on its actual meaning which is that it ranges from low to high depending on an ability to pay. So it can then be said to be progressive in a social sense too.
https://en.wikipedia.org/wiki/Progressive_tax
So the present day income tax does clearly fit the description and so could a NIC with some adjustments.
VAT too is progressive, to some extent, in the sense that basic food is rated at 0%. Then there’s an intermediate rate of 5% and 20% for the full rate. So I was wrong to use the term regressive previously. I should have said “less progressive”.
Is your proposed tax more or less progressive than income tax or my favoured wealth tax? I can’t see how, but I’ve not yet read your book!
You can’t have a progressive tax system where a major income tax ignores income from wealth
Richard, I’m not sure it does ignore it. But it certainly could tackle it better. At one time we had a distinction between earned income and unearned income. There now seems to be a different method of taxing dividend payments so which encourages small business owners to pay themselves a minimum level of salary but then take out most of their income as dividends.
We hear a lot of gripes from small business holders about having to collect VAT etc but there’s not much said about the tax benefits they have!
So if income (I’d say unearned income) from wealth is the problem, why not a wealth tax?
Becvause wealth taxes won’t raise £115 billion
Do they have to?
How much could the tax levels be reduced, say over a period of a few years, before inflation started to become an issue?
Sorry, but that assumes running large deficits for current spending is a risk worth taking
a) it is not
b) we can’t under EU law and we have to pay some lip service to it right now
No it doesn’t assume that the govt deficit will increase except insofar as the gradual reduction in NIC will change the savings pattern in the economy. The govt deficit has to equal total savings. Always.
Govt Deficit = Surplus of Non Government Sector = Savings of PDS + Savings of Overseas Sector (Trade Deficit)
It works the other way around too. When the Tories raised VAT to 20% that raised more VAT but the revenue from other taxation dropped so the deficit didn’t close as they expected. They scratched their heads and wondered why. They couldn’t apply the little bit of lateral thinking to the problem that was required.
So I still think its a fair question: How much can we reduce taxes and/or increase spending before inflation starts to become an issue? ie How much slack is there in the economy?
Too simplistic Peter
The formula may be right
But it’s an explanation
It is not a cause
This is an interesting discussion for me as an ‘only-partially-initiated’ observer.
Richard:-
Could you explain why the risk factor is greater for increased CURRENT SPENDING deficit (week to week spending such as NHS wages etc) as distinct from Capital spending deficit-is this to do with the different accounting procedure (someday I’m going to have to sit down with Whole Gov’t Accounts and a cup of tea and a packet of biscuits).
Peter:
I understand the MMT formulas but Richard seems to imply that they make sense but ‘grate’ against present ways of accounting.
Could this be clarified-time permitting, Richard, of course!
It was, I thought, intended to be to Stephen Griffiths
I have moderated more than fifty comments in an hime or so
If this one went the wrong way, sorry
The formula is either right or it isn’t Richard! What is too simplistic, simplistically wrong, is the idea that govts can cut their deficit by raising taxes and cutting spending. Cutting spending also cuts tax revenue. Raising particular taxes raises the revenue from that tax but reduces the revenue from other taxes. So if we raise income tax, for example, any gains will be offset by a reduction in VAT revenue as people don’t have as much to spend as previously.
Conversely, if we want to expand the economy by raising spending and cutting taxes, the deficit won’t increase as much as we might ‘fear’ for the same reasons. Increased spending generates increased revenue. Reducing some taxes might reduce revenue on the taxes lowered but will increase revenue from other taxes.
So if we do want to reduce the govt deficit, there is only one policy that will work -bring the external deficit into closer balance. It’s the savings of the overseas sector that is the ‘problem’ (if ‘problem’ is the right word in an MMT conversation!). The domestic sector isn’t saving at all right now. I felt a bit uneasy about John McDonnell saying that he’s going to reduce the deficit by growing the economy at the same time as claiming “truth and honesty in politics”! Sure it sounds good, but there’s zero evidence that any growth in Britain’s GDP has ever done that previously.
So, if the equation is right, it is both an explanation of why the present govt’s policies are all wrong, and it shows what is the cause of the government deficit that everyone (except hardline MMTers like me! ) are so worried about.
We have just two options. 1) Learn to accept the govt’s deficit for what it is. Notwithstanding any EU regulations that we may be infringing. 2) Devalue the pound and reduce the trade gap.
Either way we can then expand the economy sensibly – only backing off when inflation shows signs of causing us some trouble.
I note what you say, but MMT is not always the answer