I’ve been having a bit of a ding-dong with Tom Worstall on the Liberal Conspiracy site. As a result of a comment I made he said:
A rough guide to a reasonable taxation system would be one that taxes capital less than incomes and incomes less than consumption. Meaning low capital gains taxation, low corporate taxation, higher income taxation and higher consumption taxation. (Please note, I do not mean lower or higher than rates currently extant in the UK, I mean relative to each other.)
I’m not going to say Worstall is the voice of the Right: he’s clearly not, at least alone. But he’s one of the voices of the Right. And this is his perception of tax.
And it takes moment to realise that what he prescribes is regressive taxation — a system in which as a person’s income from all sources increases the amount of tax they pay reduces in proportion to their income decreases even if it increases in absolute amount .
It’s obvious why: they poorest don’t save: they consume all their earnings, so their income is subject to the highest rate of tax. The best off save: no tax on that.
The poorest enjoy little investment income: they work for a living: so more of their income will be proportionately subject to higher tax rates.
And the savings of the richer members of the community will be subsidised by low taxes on capital.
The result? Guaranteed increases in the gap between richest and poorest with regard to earnings and guaranteed increases in wealth disparity. The result? More social tension, great inequality, less stable societies and all the outcomes predicted by Richard Wilkinson and Kate Pickett in The Spirit Level.
But at least he admits he wishes for injustice.
It’s safe to assume he’s not alone.
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Richard, people might think rather more of you if you were to quote the next paragraph as well:
“That is, after all, the system of taxation in such social democratic paradises as Sweden. High VAT (and excise taxes), high income tax, low capital taxation, low corporate taxation and no inheritance tax at all.”
For the thing is, that is indeed the tax system in Sweden.
Which people Tim?
Do you mean you might?
As for Sweden – yes it is an unfortunate fact that some of the systems that have underpinned their prosperity and well being are being undermined
And I note you make no attempt to challenge the conclusions I reached on your desire for injustice
I take it I’m right therefore?
Whatever happened to the concept of taxing unearned higher than earned income? It is surely indisputable that owners of capital have not actually earned their wealth, which was created by labour. But, of course, capital is mobile, whilst labour is not so much. The order of preference for direct taxes should be first land (totally immobile), then capital, then labour.
‘All for ourselves and nothing for other people’ seems, in every age of the world, to have been the vile maxim of the masters of mankind. As soon, therefore, as [the great proprietors] could find a method of consuming the whole value of their rents themselves, they had no disposition to share them with any other persons. For a pair of diamond buckles, perhaps, or for something as frivolous and useless, they exchanged the maintenance, or what is the same thing, the price of the maintenance of a thousand men for a year.
Adam Smith, The Wealth of Nations, 1776.
“And I note you make no attempt to challenge the conclusions I reached on your desire for injustice
I take it I’m right therefore?”
Logical error Richard. That I do not mention something does not mean that I agree with it: nor, of course, that I disagree with it. Come along now, we all grew out of that fallacy at age 11 or so, didn’t we?
“The result? Guaranteed increases in the gap between richest and poorest with regard to earnings and guaranteed increases in wealth disparity. The result? More social tension, great inequality, less stable societies and all the outcomes predicted by Richard Wilkinson and Kate Pickett in The Spirit Level.”
Having actually read The Spirit Level was of course one of the reasons that I mentioned the Swedish tax system. Sweden (along with the other Nordics) is held up as a vision of a desirable society. I might not agree with quite how desirable that society is (and certainly question the ability to translate a model tjhat works for societies of 4-9 million people into one that works for 65 or even 300 million) but that shouldn’t bar me from noting the essential structure of the tax system that underpins that society.
Which is that they have high and highly regressive indirect taxes, progressive income taxes and low taxes on capital and corporate profits. Further, as far as I’m aware, they always have: if you can show that their tax systems have changed dramatically in the past couple of decades, especially in regards to capital taxation and corporate then I’d love to know.
BTW, this low taxation of capital isn’t unique to Sweden. It’s common to all the Nordics. As are the highly regressive indirect taxes and excise duties.
This all kicked off of course with my repetition of Chris Dillow’s conjecture: that you cannot have a large State simply by taxing the rich. You’ve got to tax the poor as well to pay for it all.
Still interested in an answer from you more susbstantial than the “crap” that you’ve told me it is so far.
Tim
a) The Nordic trait is recent – as I suspect you know – and as yet has not impacted their qualtiy of life. I predict it will. You are overly dependent upon the argument
b) I note you have still not answered the question
c) I’ll answer your other point, but this might come as a surprise to you: I have a life beyond blogging and within both you have a very low priority. I note from your adieu yesterday that I appear to have a much higher priority in yours. That’s touching, but I’m really sorry: I will not be reciprocating the sentiment
Richard
“The Nordic trait is recent – as I suspect you know”
No, I didn’t know that. Could you explain the changes in their taxation systems to us then? When did they happen, what were they, that sort of thing? I’m under the mipression (one which you no doubt would enjoy correcting) that they have always been low taxers of capital and coprorate incomes, for the reason that they know that’s where the wealth is created.
As to hte question, do I desire injustice? No, not particularly. Clearly, I desire some things which you regard as injustices but that’s a very different matter, isn’t it?
Dang…”misapprehension” obviously.
Tim
No – I won’t – I’m not your research lackey
But there has over a period of several years been research into how to tax capital in Mordic states – led by Norway
More than one attempt at reform has been unsuccessful
The drive has been the misplaced notion that capital deserves to be taxed more lightly when it is very obvious the reverse is true
Re you final para: no; if you want what I consider an injustice I beg to suggest most outside your immediate circle of friends will consider it an injustice
But I accept you have the right to differ
Richard, I may be mistaken, but isn’t Norway’s main tax base oil and natural gas, i.e. land in economic terms, but which is commonly conflated with capital. By collecting this resource rental for the benefit of the whole community they have succeeded, where we failed, in avoiding the deindustrialisation which has always in the past been associated with exploitation of newly discovered mineral resources.
“No – I won’t – I’m not your research lackey”
Umm, you are the person who insists that they are the expert upon international taxation. You work in this area. You are quoted in newspaper articles on this. You are part of an international network looking at these very points.
I’m not asking that you do original research here. Only that you point meto the research that has already been done which supports the points you assert.
For example:
“The drive has been the misplaced notion that capital deserves to be taxed more lightly when it is very obvious the reverse is true.”
Which papers, by whom, with links, make this obvious? All I’m asking for is that if this is obvious, then it must have been said many times by many different people…..so, who? Almost all economists think differently, so there must be some basis for your insistence, no?
“no; if you want what I consider an injustice I beg to suggest most outside your immediate circle of friends will consider it an injustice”
Odd that, I know no one at all in the governments of Sweden, Norway, Finland or Denmark. But they seem to tax, despite being outside my circle of friends, in a manner that you consider to be an injustice.
Just terribly strange that…..
Yes
And I can spend the time pulling out the links
Or you can
I nominate you
Re the governments – yes they have been misled
If not by you then by those of your type
My experience is that there is much disquiet about this in Norway at least
Carol,
Yes, Norway has successfully avoided “Dutch Disease” and yes, they’ve done so by keeping natural resource rents (ie, Ricardian Rents) out of the domestic economy.
Full marks to them.
Although neither I am Tim’s research lackey, I have found this on the recent changes in the Nordic taxation systems – unfortunately only in German, but surely you can ask the author (professor in Jacobs University Bremen) about an english copy and trace the references any further you wish: http://www.mpifg.de/pu/workpap/wp00-5/wp00-5.html
“Norwegen, Schweden und Finnland f?ºhrten ein duales Einkommensteuersystem (dual income tax) ein, welches Lohneinkommen progressiv, Kapitaleinkommen aller Art dagegen mit niedrigeren S?§tzen proportional besteuert (vgl. Ganghof 1999: 26-27).” (Genschel, Philipp 2000: Der Wohlfahrtsstaat im Steuerwettbewerb, in: MPIfG Working Paper (00/5)).
Just one example of this article: Sweden’s top tax rate on bank deposits was 80% in 1985 (included in the general progressive income tax) and was 30% in 1996 (and then singled out from progressivity – the so called dual income tax system).
Things have dramatically changed in Sweden.
[disclosure: I am a member of TJN’s research team]
Markus
Thanks
But also not that Worstall gave no evidence at all to support his view
He’s good at rhetoric and short at data whilst knowingly promoting a blatantly unjust tax system
He also gets the very few facts he uses wrong – as I will demonstrate shortly
And remember – all this came out of my blog in tax injustice in the UK which was laden with facts – facts that show the injustice of the distribution of UK tax liabilities in a way of which he approves
Worstall can’t be ignored, unfortunately – but we have to be aware that his claims are rarely fact based, and as he admits on his blog, most of his comments are snide
It’s about as attractive a combination as his politics and economics are
Richard
Evidence of the Nordic tax systems.
http://worthwhile.typepad.com/worthwhile_canadian_initi/2007/06/doing-it-by-the.html#more
High consumption taxes, low capital taxes. As I said……
I’m all for high consumption taxes. We need to consume less, and anything that encourages reduced consumption is a good thing. And lets get a tax on aircraft fuel as well.
It should also be pointed out that taxes are only one instrument for reducing inequality; we can have a neutral or even regressive system supplemented by transfers to low-income households and the final result will still be progressive
It turns out that the Nordic tax system is roughly neutral. All the gains in reducing inequality are obtained by their systems of transfers.
http://worthwhile.typepad.com/worthwhile_canadian_initi/2007/06/why_focus_on_pr.html
Against consumption taxes as they are regressive, however they appeal to the neoliberal as they shift taxation away from wealth and they exploit the rather vague ‘joy of strictness’ of those who are disturbed by mindless consumerism.
If consumption taxes affected behaviour, we’d all be on bicycles and no one would smoke by now.
With all this talk of Sweden as a country to learn from, it would seem it didn’t really solve its banking problems, it just exported them.
The Latvian crisis seems to embody the current mania for austerity.
And this article on Iceland reinforces the craziness of european central banking and fiscal fetishism