What, precisely, fair taxation might be is a question often asked, and not always well answered. Given I am talking about it tomorrow it is an issue that I need to consider at some time between now and then because in the time I have available to talk on the subject the many possible directions in which such a discussion could go are not all available to me.
That debate could address issues about the tax base. Issues such as horizontal equity are relevant. Why is it that we now have a situation where income from capital is taxed so much less than income from work? And why are companies taxed less than the self employed?
Or the issue of vertical equity could be considered. Jolyon Maugham asked this week why the value of most of the UK's £30 billion of income tax reliefs go to those who need them least, undermining the progressivity of the UK tax system and increasing inequality.
That naturally leads to the subject of wealth taxation, about which I am talking at the World Bank on Tuesday.
And there remains the thorny issue of offshore, transparency, accountability and the deliberate inequality of access that is one of its pernicious aspects, alongside the economic distortions it creates.
Through it all is the issue of the tax gap, under-resourcing at HMRC, the attitude of indifference this government has in practice to tax collection and the related issue of regulating company law, both of which are going to become much more pressing as more data flows from offshore and country-by-country reporting over the next few years.
Hovering over it all is the shift of taxation to indirect taxes, which to date have almost always been regressive.
Gender issues run through this whole area.
And the failure to embrace anything that looks like an appropriate green tax base, or land value taxation, is also a possibility.
As is finding the right basis for devolving tax to regions.
Which way will I go? I will decide sometime between now and when I speak on fair taxation tomorrow, where I think the event is now sold out.
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Well, I hope they give you a fair hearing Richard. The world Bank seems to be a bit behind the times in my view.
To me tax has always been something that recycles money so that it can be targeted at particular projects and needs within the wider society – a sort of guiding principle.
I also get the feeling that levels of tax can also be influenced by how effectively markets actually work or not.
A market supplying low paid jobs for example may mean more tax in order for the state to supplement workers wages. But do those who insist on lower wages understand this when they then start bleating about tax rates? And can they then not see the folly of a low wage economy?
I think that your book the Joy of Tax was a reminder to the world of why tax is so useful and I think that the message here needs to be constantly repeated.
The opposite to the idea of a tax created ‘commons’ is a world that is increasingly privately owned and therefore much less shared and more exclusive – a world that I would not want to live in that is for sure.
I agree with that kast sentiment
Fair taxation needs to be linked to fair pay. In the early 1980s (in the middle of the Thatcher depression) I worked for Sony in South Wales & was responsible for factory services in one of its factories – a reasonably responsible position. I was single and rented a house (with somebody else). To make ends meet I worked 3 weekends (mornings) in every 4 & took no holidays (since I could not afford them). Taxation then (including NI) was around 33%. Getting up on Saturday @ 5.15 knowing that 33% of pay went to the gov’ was a sobering thought. Knowing what I know now, I am (not) comforted in the thought that some of this went as gov’ welfare to deserving groups such as Mrs Queen & her brood (& other UK landowners), through mechanisms like the CAP plus other UK gov subsidies to the already obscenely rich. Interesting that welfare for the rich (provided by the PAYE mob) stills runs at a good rate.
Since the 1980s the tax burden seems to have shifted further onto the PAYE group, coupled to even more precarious employment (& thus lower wages) with the rich (& corporates) paying little in taxes, all thanks to 36 years of tory & tory-lite (mis)rule. I’ll finish by observing that gone are the days when captains of industry such as John Harvey Jones bragged about how much tax ICI paid (from memory £1bn per year) – the current “captains of industry” probably now regard such statements as verging on the clinically insane.
Tax cannot solve all problems
We need a restoration of albour negiotiating rights and fair pay to make progess on other issues
What is fair taxation?
Is it when the freehold to HMRC’s own offices are owned by an offshore tax haven to reduce tax?
To my mind that’s completely unacceptable and needs to change.
The question I have is, how has this perverse idea gone unchallenged for so long?
http://www.theguardian.com/commentisfree/2010/apr/08/revenue-tax-offshore-millions-avoidance
That was always an outright disaster – part of the consequnce of which will be the forthcoming HMRC office reorganisation
I pointed this out to one of the Shadow Treasury team on Tuesday. We were discussing the way that more and more public property (i.e. land) was being sold off. She was aware of the issue of the NHS Estate, but the same is happening to the education sector and many others. Unless we tax the land the whole public sector will be paying rent to the landowners – when the private sector should be paying rent to us for exclusive use of what we all create the value of.
Shocking.
carol-this has to happen but I assume ,like Richard, you don’t go along with the Georgist notion of a single Tax! People like Fred Harrison (who I respect to the extent that he is concerned about equity) seem to think it is THE ‘silver bullet’.
I suppose the only good thing about selling off land is that whatever happens it won`t actually disappear. It broke my heart attending masses of auctions back in the 80`s and 90`s and seeing vast amounts of machinery being sold off – exported and scrapped.
A recent report into antimicrobial resistance (AMR) has suggested two taxes that could possibly help pay to combat this global threat. One is to tax pharmaceutical companies directly via ‘An antibiotic investment charge for pharmaceutical companies’. The other is to place a tax on antibiotics. Are either of these proposed taxes fair or possible to implement?
http://amr-review.org/sites/default/files/160518_Final%20paper_with%20cover.pdf (p67)
These are areas where regualtion would be much more effective
Fair tax should be simple. You raise some very good questions – indeed, why should a large multinational pay less than the self employed?
1. The tax rate should not depends on how big, important or rich you are. So yes we need country by country reporting and a ban on trading with any organisation that uses tax havens.
Currently the UK has regression taxation where the poorest pay a higher percentage of their income than the rich. Plus there are essentially no taxes on wealth which is also wrong (I have come around to the view that a land value tax is probably the right way forwarded as most wealth is tied to land).
2. And tax should not depend on the source of income? Inherited income and income from investment should be taxed at the same rate as income from labour. The economy fails because people can sit on assets and make a living rather than do something productive.
I agree with all that
Surely unearned income should be taxed at a higher rate than wages (and that includes incomes over £100k pa, which are in fact economic rent).
I agree, and have explained why a number of times
There are many people that are paid over £100k pa because of their specialised knowledge and skills, as such I don’t see how you can make the claim that incomes over £100k pa are in fact economic rent.
I tend to agree
£100k can be a headteacher very easily these days
And most doctors
And I think both earn it
I set a limit at 10 times median pay
This is spot on and well put. Labour/Corbyn have utterly failed to make crystal clear the regressive nature of our Tax system and have barely challenged the Tories on the basis of the ‘nominal amount’ argument they wheel out each time…..Why one asks with a thundering loudhailer.
Ona corporate level we’ve had Sanders ponting out for some years that huge companies like Verizon have ‘paid’ negative tax over long periods:
”
Bernie is correct that from 2008 to 2013 Verizon utilized tax code trickery to manage an effective federal tax rate of negative 2.5%, despite $42.5 billion in profits. It actually got money back from the Government.”
Corbyn did do this, last summer at least
So is the Labour remain campaign
But not, crucially, at PM questions, where he should have annihilated the ‘nominal amount’ argument Cameron trots out as ‘proof’ that the ‘broadest shoulders’ are bearing the burden.
He could have quoted pp. 139-140 of ‘The Joy of Tax to clinch the argument.
My, perhaps simplistic, understanding of taxation is that it doesn’t really pay for anything. It is rather a mechanism to reduce the amount of money in circulation, thus preventing inflation, and to give worth to the currency we all use as a medium of exchange. I must pay my taxes therefore I must either work directly for the society (public sector) or work for those who do (private sector). What is really of value to our society is the real goods and services created by the workers, not the pieces of paper and electronic digits we use to record the exchange of those real things.
Presumably, we all here agree that society is the root of nearly all our personal wealth and achievements. Everything from our birth, healthcare, education, technology, culture, work ethic, security, legal system, transport network, food supply, trade, etc. etc. is predominantly derived from centuries of collective effort by the other people we call society. Our own personal input, however great, is near infinitely amplified by that society. As I think I have mentioned before, without society we would be ignorant illiterate ape creates grubbing in the dirt for roots and berries. Even our greatest scientists and entrepreneurs would be nothing without those around them. If Mark Zuckerberg had created facebook amongst the Orang-utans of Bornea I might be willing to admit he deserved the full credit but obviously he didn’t. Warren Buffet might have been the best cashew merchant in Mozambique had in been born in a poor suburb of Maputo but luckily for him he wasn’t.
So, if society is the fountain from which all achievements derive surely our personal reward should be somehow linked to our value to that society. Yet neither wealth nor taxes are good indicators of that value. My favourite illustrative examples are the idle rich asset owner, who contributes little of value but benefits enormously, and may even pay lots of tax, versus the minimum wage sewage worker who receives little reward and pays little tax but prevents devastating public health disasters.
Clearly measuring an individual’s value to a society is a very complex and difficult task. A doctor might cost a lot more than a sewage worker and contribute less in objective terms but in combination they have a synergy that produces a total greater than the sum of the parts. We therefore obviously want both doctors and sewage workers and the rules of our society should encourage that.
Getting back to tax, it seems to me that the current economic narrative plays into the hands of those who benefit most from our society. We are not taking their wealth as taxes, they are taking our wealth as income. they can leave and live in the forest any time they like as far as I’m concerned. So why do even those on the political left regularly talk about how taxes pay for services when this is rubbish? The richest in our society are simply those who benefit most and not necessarily those who contribute most. Their privilege is further entrenched by our legal and political systems, whilst the media they own tell us that they are our benefactors and we should be grateful that they don’t leave. Of course wealth and true value can coincide and we should not be punishing people for being successful. I just think we should look very closely at what we get for the privileges of our rich people. An inventor, industrialist, administrator or politician might generate huge benefits for society that objectively justify massive rewards but most of our richest have done little to deserve it, and simply used the near guaranteed return on capital investment to take an ever larger piece of the pie. Leadership and inspiration should be valued qualities though and I don’t object to merit based rewards as it encourages the behaviour we all benefit from. I’m not a communist either and I can see the benefits of controlled capitalism to provide a flexibility that long term state planning often lacks.
So what is fair? To my mind everyone should have a basic standard of health, comfort and safety. We are all members of the society and so we all deserve to live a decent life. I’m intrigued by the idea of a basic income and I would love to see that idea made to work. After that I think reward should be based on how our efforts contribute to society. Those who work hard and produce goods or services we all benefit from should be rewarded accordingly. Taxation on that reward should be progressive. The more you benefit the higher proportion of your benefit is due to the efforts of others and the greater the proportion that should be fed back into society. Taxation is a convenient mechanism for controlling this outcome. It would seem appropriate that taxes might encourage beneficial behaviour like low energy usage or sustainability too. Lastly tax must prevent entrenched privilege. It is a natural human instinct to want to secure the welfare of our children but huge disparity will lead to concentration of wealth and unfair political power. An entrenched elite is both inefficient and unfair, so why should we tolerate it?
My view on this is in The Joy of Tax
‘I don’t object to merit based rewards as it encourages the behaviour we all benefit from.’
I’m not convinced of this notion of worthwhile behaviour stimulated by lucre-so-called meritocracy -of so, the filthiest jobs should be payed the best, like cleaning ‘fatbergs’ out of sewers.
Didn’t Bob Diamond say he ‘loved’ his job and the money was ‘incidental.’? he was being disingenuous of course but I don’t remember the PAC commenting on this.
I’m in favour of the idea of ‘service’, an unpopular Christian notion which has culturally died in an era of ultra-commodification
Intellectual skill is a bit like Land-it’s there, though it might need developing -why should we be rewarded for faculties we enjoy having and we didn’t consciously create?
I do sympathise with the ‘fatberg’ cleaners. That’s partly why I like the idea of a basic income. If everyone is safe from starvation then jobs have to attract workers rather than binding them through necessity. The rewards for dangerous or unpleasant jobs would have to be adjusted accordingly.
On meritocracy, I am inclined to believe it is ‘fair’ to reward the able as long as their efforts help society. Future reward encourages academic achievement or excellence in a skill and pushing the boundaries of achievement is healthy for a vibrant society. If this could be achieved through a different mechanism than material wealth it would perhaps be better but it would be a hard sell in the current political climate. It’s a noble goal for the future though.
I like your idea of public service. If Public sector work was seen as somewhat honourable, rather like military service is seen sometimes and very unlike today where it is widely seen as soft option for the lazy or incompetent, then it might attract good candidates without the need for high wages. Years of Tory propaganda, ideologically pushing the small state, is probably responsible for the current state of affairs but it needn’t always be this way.
Quite right Alberto, after all a wealthy person is merely someone who has chosen not to share equally with all those who enabled them to become wealthy. It makes me laugh with all the talk of encouraging the wealth creators in society, when what we should be promoting is wealth sharing!
Unfair tax is what I pay. Fair tax is what others pay.
A basic answer would be that fair taxation is a prerequisite for a fair society and automatically presupposes adequate resources for tax collection. Rules need to be practical and easily understood by those required to comply with them.
How about fairly taxing the personal expenses of the banking and corporate fat cats, you know all the ones that really aren’t “business expenses” at all and get claimed against the company (tax free) despite them earning a few million a year in taxable earnings.
I’m sure the guys at the bottom of the corporate pile wouldn’t be allowed to get away with an extra penny in expenses without someone above jumping all over them. Yet another good example of one rule for the few and a different rule for the many!
https://www.theguardian.com/business/2016/may/20/tesco-bank-boss-benny-higgins-spent-more-than-18000-pounds-on-taxis
More Belle Epoquism.’ I hope he enjoyed the opera(s).
Alberto
“Those who benefit most from our society – We are not taking their wealth as taxes, they are taking our wealth as income.”
I think this is a summary that deserves shouting from the rooftops!
Richard I do hope that any proposals for a wealth tax will ensure that any wealth tax will apply to pension wealth.
Pension wealth would include pension pots where an annuity has not yet started to be drawn and case where annuities are being drawn, where the value for wealth tax purposes would be calculated using net present value formulas.
I argue ‘no exceptions’
Richard
Just to clarify
So am I right in thinking your wealth tax would seek to tax pension wealth?
Yes
But that would not jmpact most people