The Guardian reports this morning that:
The people of Wales will vote in a referendum to decide whether to take control of powers over income tax, David Cameron and Nick Clegg have announced.
The prime minister and his deputy said Wales would be given a new ability to borrow, and control over stamp duty revenues, as part of the package of measures giving more responsibility to Cardiff Bay.
The democrat in me wants to cheer: in fact it does, unambiguously do so on the issue of borrowing powers. But on tax? there I am worried for a number of reasons.
First, income tax remains at the heart of our revenue raising powers in this country. But we also know that revenue raising capacity varies enormously across the country because our income distributions are widely geographically different: London and the South East have by far the highest incomes and places like Wales have a low tax base. Now that should not be an issue except for the fact that we know that as a result there is s net redistribution through taxation from the South East to Wales, the North, Scotland and so on. And I believe that's right.
But suppose that if Wales secures its own right to tax income then London follows - which has by far the highest level of income? And suppose London then cuts rate - as you can imagine Boris doing. What then? Will there be as much income to redistribute? Or will Wales have to increase taxes to compensate for London not paying enough to Wales?
And if so will we create regional tax havens?
Now I know evidence in the US says people do not over across state lines to avoid tax - quite surprisingly given how strongly economic theory would suggest that they should - but there are other issues in play here too. Who is in Wales for a start? Just because you live there does not mean you work there. And vice versa. So we have an admin nightmare and net pay differentials between people doing the same job on the same pay with the same circumstances just because they live either side of the border. Does that make sense?
My answer to this is it does not, at all. I do not think there is capacity for more than one income tax in a country. Administratively and in terms of justice that makes no sense. It would make even less sense when the case is made against redistribution 'because they can raise their own tax' which is, I am sure, the real motive for this move by Cameron and Clegg.
There is though a tax that can be applied and which should be applied and which would make a difference and which we are missing in our tax system right now - and that is land value taxation. This is the obvious local tax for the UK - and it could be used to make a big difference to the way local economies work whilst administratively the position is a lot clearer.
So I want devolved taxation - but please take care what you ask for. Devolved income tax powers could be the route to ending redistribution and that could be a disaster for Wales.
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All we hear about is that tax avoidance and evasion is a threat to democracy, all those multi-nationals are undermining democracy etc….
Yet when democracy results in someone wanting lower taxes which would undermine social justice then apparently democracy can go hang………
You seem to think democracy is only acceptable if people want higher taxes!…..if their democratic choice to have lower taxes undermines social justice would you then try to prevent their right to democracy?
I’ve not said anything can go hang
I’m arguing for workable taxation
In response to the posted response, Land Value Taxation is almost always considered as a Tax Shift, shifting taxation from one source to another. It would not represent higher taxes in the vast majority of the population.
In your response you say that Richard is suggesting that democracy can go hang when people want lower taxes that undermine social justice, I think you have got it a bit wrong. I also think you have it largely incorrect that the majority of people in a democracy would like to undermine social justice. This is because there is an ever increasing majority who make up the populous who require social justice.
What Richard Murphy is questioning is the value to the county of allowing regions to create their own tax regimes without considering the effect on each other region at the same time. And that is a good question.
Land Value Taxation would actually end up with lower taxes for more people with social justice. Its a great move for the fiscal system as it is one of the few that drive the economy in that it puts more spending power into the pockets of the populous while encouraging production. If we could implement it we would see lower taxes for those who really do need it + social justice! Its a win win.
Regionally it is also a boon because it can be collected locally which gives more power to our local authorities. For example, if we were to lower income tax and VAT and instead collect from LVT then more taxation would be in a local place to start with which is a strong form of pre-distribution, cutting the requirement for as much redistribution as the current income tax system requires – in the way that Richard Murphy discusses in the blog.
Thank you Richard Murphy for promoting this here.
The UK cant lower the VAT. It is set by the EU.
I don’t understand how the Land tax would work for the farmers. We still need them, they help to feed the country?? Please can you explain??
That is wrong
We have to have a VAT but we have discretion on rates
Workable from your perspective…….costly to those in London and the SE.
Lets make it simple, in a plain choice between giving people their democratic rights and social justice which would you choose?
Would you really prevent people having that democratic choice if you knew that social justice would suffer?
I am saying both are possible – and avoiding tax competition and excess admin is desirable in the interests of social justice
So the alternative is better
Is that so hard to understand?