If you’re for regressive taxation, say so

Posted on

A commentator on my blogs on the IFS proposals for the reform of VAT said:

Surely, if we wish for integrity in any debate like this, we must complete the proposition with 'all other things being equal'. If we cancel a vat subsidy, we would have a very large pot of cash. The virtue or otherwise of the proposition rather depends on what we would do with that cash. By default, we should assume that every penny recovered by cancelling a VAT subsidy should be redirected back to the population in a revenue-neutral and distributionally-neutral way. Why do you assume otherwise, and them condemn the proposition on the back of your unreasonable assumptions?

I wholeheartedly disagree.

First, he commented on the piece where I drew all the arguments together and showed the IFS's own assessment of the impact of their proposals. It's very difficult in that case to say I was not giving the IFS a fair chance.

Second, I do not agree for one moment that the virtue of regressively charging more tax on the poorest in our community depends on what we do with the resulting cash raised. The first and most fundamental issue is the one I have drawn attention to: that the poorest are paying proportionately most for that cash raised.

Third, the IFS make quite clear that only half the cash raised is going back to that community, and by no means all losers will be compensated. So the assumption made by the commentator is plainly wrong.

Fourth, that assumption of neutrality is in any event wrong: the IFS say half the funds raised will be available for other tax cuts. That assumption is enormously value laden: it assumes a cut is desirable and the best use of the cash. In addition, as anyone familiar with the area will know, tax cits invariably benefit the richest most. Even in our regressive tax system they do pay most tax, and so benefit more, disproportionately, from cuts so making the system more regressive still.

That's not an assumption: that's what the IFS appears to be suggesting.

It's bad enough to suggest increasing the income and wealth gaps in the UK, it's worse still when the apologists pretend they're not doing so.