I am in Helsinki to discuss international tax - and the struggle to ensure that taxable profits are allocated to some of the poorer countries in the world (where they are undoubtedly due) so that they can collect enough tax to break their dependency on aid. It was therefore surprising to have my attention drawn back to the UK a few minutes ago by a journalist who wanted to know why we could not have a progressive tax system in the UK where the problems of increasing inequality and poverty are also very real.
The answer is very clear in both cases: the problem is that we don't have politicians who are willing to address these issues.
We live in an incredibly wealthy world. That wealth could be taxed. And those with that wealth have captured the political system to make sure that their wealth is not being taxed. The problem is not just that they've captured the right wing of politics. Obama has been a dead loss in challenging Wall Street. Ed Balls has said we must not upset the City of London. We can hope for Francoise Hollande; but it is just hope. When in Greece a politician has emerged who is really trying to effect change for ordinary people the world's media brand him a radical - even if he is heading to win the largest number of seats in their parliament.
So what we need - and this is what I told the UK journalist - is that we need to create a new political consensus. That may be within existing political parties - and it may need to be outside and beyond them. But what it needs to be based upon is the belief that in democracies people come first - if only because it is they alone who should have the vote. And that consensus has to persuade people that their voting can make a difference - by forcing the world's wealthy and their companies to pay the tax they owe where it is due.
It is only by doing this what the pressure can be created to ensure that business can be required to be tax compliant. But it can't be done by hob-knobbing with and acquiescing to the City and Wall Street - or their agents such as the Big 4 accountants. If democracy is to be saved - by putting ordinary people first so that they believe it worth their while to vote again - then serious moves to reallocate wealth have to be the foundation for that to happen.
Are there politicians willing to take that position out there? In the UK and elsewhere? And what do we, as civil society, need to do to ensure that these politicians have the resources they need to deliver the tax systems we need to relieve poverty, save democracy and build a sustainable capitalism?
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I believe that puts you in ‘Krugmania’, Krugman blog June 13 2012 ‘Wolfmania’.
Richard,
I presume you mean François Hollande. To the best of my knowledge, while it might be a very good thing, we don’t yet have a female President in France. Sorry to be pedantic – I do understand about typos, but I think it’s not the first time you’ve given him a sex change (or maybe that is what you are hoping for?!).
Sorry!
Too much haste
And as regular readers will know, I’m a lousy copy reader in English, let alone French
“This distinction between legitimate wealth derived from value creation (think Steve Jobs/computer industry) and parasitic wealth skimmed from the productive (think Mitt Romney/investment banker) is the heart of Correspondent James B.’s insightful inquiry into the question: can the parasitic Elite be said to pay taxes at all, given that their income is itself a tax on legitimate wealth creation”
http://www.zerohedge.com/news/guest-post-do-parasitic-elite-pay-any-taxes
“We live in an incredibly wealthy world. That wealth could be taxed.”
I assume you mean income. Because “wealth” could mean ordinary folk like me with a paid-for house and modest savings – the result of working 46 years so far with no end in sight – having started with nothing and never inherited a penny.
Well actually I mean both
Wealth does also need to be taxed
As my house is perhaps worth £750K, and with savings of £6K and an income of £20K (gross), I could still be considered wealthy – £756,000 wealthy, almost a millionaire! But how do you propose taxing that? Even 1% per annum (£7,560) would be beyond my means. I would think the same might apply to truly wealthy people where ‘wealth’ is not in cash or even income but tied up as my wealth is tied up.
I’m not an accountant; just an engineer. But engineer are blessed (or cursed) with logic. And I cannot see any logic in your proposal.
Inheritance tax
Firstly, a large chunk of a houses’ worth is the land value, or the value of the location. No doubt it has risen largely over the course of one’s lifetime – not from any effort on behalf of the owner but from increased demand for land, looser credit, improved local public services and private enterprises etc. We need to separate this component out and recognise it is socially created – and recoup it through a land value tax. Pensioners could get a relief certificate and pay the rolled-up tax on death. Of course they could sell the house, and use the money to support themselves in their old age. I don’t see why the taxpayer should keep those sitting in huge housing wealth which they hope to pass onto their children untaxed.
I also support inheritance tax, but let’s move from an estates tax on the giver at death to taxing the inheritance income received with greater rates than those on earned income. It would be less easily avoided.
I also have a very good Engineering degree, I can’t see the logic in a system that taxes those that earn more heavily than those who inherit, extract rent or sit on idle paper wealth.
I don’t mean to knock you on this Chris, but have you ever considered how the value of home has been ‘earned’? What other commodity have you bought many years ago and used continuously which has massively gained in value in real terms? Many people’s homes have shown a capital gain in excess of a lifetime’s wages.
This would never have happened if we had had land value taxation. Homes would reflect the value of the bricks and mortar only, young people would have a chance of owning their own homes without taking on massive debt. It’s the UK banking sector which has brought us to our knees by ratcheting up their loans books backed up by landed property.
Carol
I concur
Richard
How does LVT solve the problem of retired people being forced to sell to meet the annual levy?
The fact is, academics, neoclassical economists and suchlike can produce wonderful papers showing how LVT is the most perfect tax, with such glittering terms as “the least deadweight cost of all taxes”, but the truth is it will never happen because ownership of property is seen as a birthright for Englishmen. Not saying whether I agree with that or not, just pointing out why it will never get further than the blackboard.
LVT can be rolled up and be paid on death
No problem at all…
Next objection?
Tom,
Would it be such a bad thing if retired people did sell their houses?
We know the burden on the taxpayer of social care for the elderly will get more and more expensive. We know the elderly may be more suited for different homes as they get older. We know the young have trouble getting on the housing ladder unless they inhabit.
Would it not be a bad thing, if the elderly sold their homes to younger, larger families to move into somewhere more suitable and used the cash to provide for themselves?
Of course a lot of the value of my house and other houses I’ve owned was down to house-price inflation. I started with a two-up-two-down in a grim NW town when I was 21. I spent two years bringing the toilet inside, installing a bathroom and generally doing it up. And yes, I got a grant for the work (£300), but I did it all myself. I made a profit and moved to a new bungalow. I sold that and bought a Victorian semi, which I spent time doing up installing central heating (myself) etc (no grants by then so all my money).
Then I moved for my job to the present detached house. Last year I finally paid off my mortgage after having had a mortgage on the various houses for no less than 41 years. I paid £440K for a house that’s now worth £750K. They’ll carry me out of here in a box as I’ve no intention of moving and with four kids and two living locally I don’t see a time when I’ll have to go into care.
So, I’ll never see the money I’ve worked for from 16 years old even if house-price inflation might mean my kids get an inheritance I didn’t get from my parents. I think as it stands they’ll have to pay IHT.
I started with nothing – and I mean totally nothing – and ended up where I am now. It’s the result of hard work, I’ve paid my mortgages (probably more than the £750K my house is worth), and I’ve paid my taxes and NIC. I’ve been made redundant twice but never claimed a penny from the state. Frankly I think I’ve paid my dues and some, and I’m still paying taxes because redundancy and working in the private sector means I’ve got very little in the way of a pension.
Oh Carol, I was once a young person wanting to buy a home. Even though I bought a wreck, the mortgage still accounted for nearly half my take-home pay at 21. I had to save with the building society for 5 years to get the deposit (10%) and prove my worth. So I can’t see how it’s any different now. Two of my four kids have bought houses so far and a third is about to. I haven’t lent them the deposit – they saved it up.
But I’ve got to tell you, it’s been great! I’d do it all again and the same way. I just don’t want some government to come along and start taxing me again on what little I have got (and already paid tax on) and squandering it on some layabout who doesn’t want to work, or blowing it all on a pointless war.
On the more general point of tax, the problem seems to me that our government spends far too much. When I started out the government didn’t spend half of the GDP and I can’t see anything the government does now that I missed when I was 16 years old back in 1965. Worse, the taxes raised now don’t even cover the amount spent and so we have to borrow as a country. So, Richard, I just don’t understand why you spend so much time thinking up ever more devious ways of taking more tax off us. Why don’t you spend some time thinking of ways that those toffs Cameron and Osborne can save some money instead of blowing it all the time?
I’d suggest you read the Courageous State
And respectfully – would suggest you look around a little more and think a little harder
But if you’re really serious – I’d also suggest you do a costed plan for what you’d cut and then explain how the unemployment you would create and the fall in conmsumer demand you’d precipitate would impact on the economy and government funding
Richard is talking about “the wealth of the world”. Not the wealth created by people. I think.
Both
Also Richard, what are your views on using the tax system to tackle environmental problems (carbon taxes, cap-and-trade permit schemes, road charging etc.) ? It might not turn out to be progressive, but there is a powerful case if they changed behaviour.
Carbon and environmental taxes can only be progressive if matched by a living wage or the like
Exactly. Duties on alcohol and cigarettes have (in theory, I’m not too knowledgable about the practice) the beneficially behaviourial effect of discouraging the taking of unhealthy substances, which have unfortunate social costs. They are also regressive.
Does that mean we shouldn’t have them? No. We just make sure that other forms of taxation are significantly progressive to compensate, so the tax system overall would be progressive.
Fee and dividend is the answer not cap and trade. See http://www.morningstaronline.co.uk/index.php/news/content/view/full/98533.
Wow. Agree with most of this. I’d rather say fee-and-tax-shift though. An increased share of environmental taxes could be used to raise income tax thresholds or such like.
“We live in an incredibly wealthy world. That wealth could be taxed.”
Nice one.
another issue that causes inequality which politicians are unwilling to face upto is private retail an commercial banks ability to create money at zero cost to themselves. since 2006 banks have been able to set their own capital requirements. this means that for evey £1 deposited or held in reserve banks could potentially create £100 or £1000 or whatever ammount they decide. as a result private banking corporations having the power to create money have created 97% of our total money supply. this new money is created as debt with interest and so their is more debt created than there is money to repay the debt. this system is inherently and seriously flawed because you cannot pay back what does not exist. this also causes massive inflation.
banks must be made to hold 100% reserve. ending fractional reserve completely. creating money should only be created by a government agency such as BofE independent of politics. banks should pay interest on money they need to undertake commercial activities. interest would be paid either to savers or to government via BofE which would equal a reduction in taxes of the public. BofE would have a better means of control of economy via creation or destruction of money supply instead if the ineffective tweaking of interest rates which simply hurt the general population. #fullreservebanking will end to big to fail banks.
“Inheritance tax”
We already have that. You said wealth “could” be taxed, implying that it was not. When in fact it is as we have IHT and CGT. I saw nothing in Chris’ post to suggest that he was opposed to IHT in principle, merely he was objecting to being forced to pay an annual levy far in excess of his means, which would be an extremely common scenario.
Similarly “can we create a progressive tax system” implies that we don’t already have one, which we very clearly do. Add in the benefits side and it is extremely progressive.
Sorry – but IHT is largely ineffective
And we do not have an overall progressive tax system
Your assumptions are wrong
Sorry
people wil have different opinions on what is progressive. IMO the only fair taxation is income tax and VAT. those who have the largest incomes are taking the most out of the economy. when money is taken out of the economy this reduces the wealth that is available to individuals. those who earn the least will suffer the most when wealth is taken out of the economy. those who earn the most, take the largest ammounts out of the economy they should contibute the greatest in percentage of their incomes.
There should also be a fairer way of calcluating VAT with goods and services that are productive and healthy paying least VAT while products and service that are a drain on society such as alcohol and junks foods for eg. are taxed at a higher rate thus shifting the burden of the costs of the negative consequence of these produce to the people who use them, and hopefully also discouraging people from using them and making it harder for business to profit form the such products.