I shouldn't be depressed by debate on tax, but I almost invariably am whenever a politician or an economist discusses the issue.
Since most economists view the world from a right wing, neoliberal perspective they really have nothing very useful to say on tax because their model of the economy sees no useful purpose for it. As far as they consider the issue tax is invariably an imperfection preventing the optimal outcomes that they assume markets will provide and which their models of the economy are built to prove. They do this by the use of assumptions for which there are no rational bases (like people being rational). Alternatively they ignore facts, like tax having a fundamental and seemingly useful role in every economy of note by funding the services that people very clearly demand that a government, and not the market, supplies. But because most economists assume that this is not possible they should, by default, be ignored in debate on tax on the basis they have nothing useful to say on an issue they have never meaningfully studied.
And then there is the problem created by politicians. Let's start with the obvious problem that since Neil Kinnock lost the general election in 1992 no politician has believed it possible to increase tax - barring national insurance and Osborne's deeply unwise 2012 VAT increase and the short lived 50% rate.
Then there's the problem of most politician's incomprehension of what tax is, and what it is for. This is a pretty big theme in my forthcoming book, The Joy of Tax, but the essence of the problem (even if we ignore for now the intimate relationship between tax and money) is it seems that all politicians think that the sole purpose for tax is paying for public spending. This is completely illogical: first tax is also used to reprice goods and services and secondly to redistribute income and wealth. These are not incidental roles; they are fundamental. Then there is the fact that tax is at the core democracy: since the time of Magna Carta the need to control the executive's use of taxation has been at the heart of the demand for accountability - and to diminish this role is to ignore the importance of democracy itself in this process.
All of these uses of tax do, however, ignore its vital role in the management of the economy: the fact that a government can run a deficit and remain entirely viable in the long run (as has happened, in effect, in the UK since the 1690s) is something that is an exclusive privilege of governments if they have the sovereign right to issue their own currency - as we in the UK have (for which Gordon Brown has not been thanked enough). This means that no government needs to balance its books because unlike anyone else the government has the power to change the balance of the money supply to achieve that aim.
Until 2009 that might just have been a theory but now we know it is true: £375 billion of quantitative easing has, since then proved that the government can spend without taxation and effectively cancel the debt it has created to do so without any effective economic consequence if there are otherwise under utilised resources in the economy, as has been the case since then. This should not have been a surprise to anyone: after all, it is now a fact acknowledged by the Bank of England that banks can also create and cancel money out of thin air to meet the demand of the private sector and have no impact on key economic objectives such as inflation if there are existing under-utilised resources in the economy. Why it should be different for a central bank is hard to imagine, except that as the overall best influencer of the price of money it has the greatest chance to do so with least likely damaging consequence arising.
But all of this - and the significance of each of these issues - appears to be totally ignored in taxation debate so that we do instead have discussion solely on the need to balance the books when, firstly, that is as a matter if fact not necessary (as QE proved), secondly might decidedly harmful to the economy if the result is that resources - like people who want to work and who have the ability to do so - are left under-utilised and thirdly dismisses positive action of repricing market failure, inequality and the role of democracy in managing this process as unimportant when they are vital.
I do appreciate discussion on tax. But in 2015 my wish is that it be informed debate. Without adequate theories of taxation most economists cannot offer that because they view it only as a funding mechanism whilst current politicians have forgotten the intellectual achievement of the post war generation of leaders who perceived it if, sometimes only glimly, as something so much more than that.
What we need are those able to ignite this debate again. Then we could have real political discussion in this country because it is tax that liberates economic possibility. The poverty of current debate is that it thinks the exact opposite to be true.
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I’m not being sarcastic Richard but good luck. My personal experience is that many of the middleclass professionals I hang around with are so up to their ears in debt ( lots of Apple iphones, new cars, school fees) that they see a lessening of their tax bill a desirable thing.
I think that this is something we are up against in a credit driven society – people would rather pay off their debts than pay for the NHS, etc etc.
Miracles happen
I have to believe that
But I am also a man who has never believed in debt and who has used it as little as possible
I think you are a little unfair on the economics ‘profession’. There are a few that see tax more broadly….. it is just that most people don’t listen/understand.
Nevertheless, I, too, want a proper debate on tax and other economic issues – preferably one that at least acknowledges Keynes’s existence!
I agree some economists do get tax
But they are very few and far between
As are those who acknowledge Keynes
Hi Richard – I read your blog with intrigue and interest. I agree a sensible discussion on taxation is required as the sensationalist media stories on taxation (including publicly naming and shaming taxpayers who have entered into legal arrangements) is not helping anybody. However, such a discussion has to have at its core what taxation is for most people, this being the taking of hard earned money from their families pockets and instead going to a government who appear unaccountable to anybody and apply the rules to benefit themselves. Of course, one recognises the role of taxation as you describe above but in a difficult economic climate where most people are struggling to feed their families and pay their mortgages the economic and moral role of taxation becomes of little or no concern. Going back to one of my original points, I really do find the approach of the media and HMRC to publicly “go after” and ridiculing those individuals and companies who have practiced tax avoidance as most uncomfortable and in fact has the effect of making most people feel a level of anger to the tax collecting authority rather than one of wanting to work with them. There are ways and means of collecting tax and acting in a gestapo manner is not the right way.
I have to say that if you were right on HMRC’s targeting tax avoidance the issue would not have got the prominence it has, so you are wrong
Just as you are wrong about people handing over their own money to the state. They are handing over what belongs to the state
These are just two of the errors that hinder debate
‘Just as you are wrong about people handing over their own money to the state. They are handing over what belongs to the state.
What? Everything belongs to the state?
No
But tax does
Indisputably
I think Mark Crown’s comment interesting & Mr Wall, while less perceptive, follows it to a degree.
Henry Ford, when asked why he paid his factory workers a living wage, replied that, if he didn’t, they’d never be able to buy one of his cars. This was one of the precepts of the concept of a ‘benevolent’ capitalism.
Sometime in the 80s a combination of the destruction of union influence & the almost complete retreat from the boardroom of moral scruple lead to an alternative paradigm; don’t give anyone fair wages, don’t give anything, but make cheaper & cheaper credit available. the results we can see today.
The problem, for anyone on the left, is as Mr Crown has outlined. The couple that paid a ludicrously inflated price for their house, & then also bought the car, the stereo system & maybe a holiday home “on tick” as my parents would’ve said, is struggling to cope with the bills &, when they can’t cope, they don’t blame the property industry & banks for putting them in this position in the first place, they blame the Govt for the tax bill that comes on top of every other “to pay” reminder through their letterbox.
As an aside, Richard, I agree with you that, where possible, I’ve always tried to buy nothing that I couldn’t pay cash for & have found that any slight deprivation was more than outweighed by the benefits of sleeping untroubled.
I’m told sleep has merit
And I have just had one of my very few lie ins of the year
Best to get them out of the way early, I think
But on debt, I entirely agree with you
So you dismiss the views of politicians and economists as you say they don’t understand tax. Elsewhere on your blog you’ve accused all accountants of thinking only about reducing their clients’ tax bills, wrong in your view. Anything coming from HMRC is dismissed due to you thinking they are deliberately not collecting money you claim is due.
Meanwhile anyone on here who disagrees with you is dismissed as a troll.
It’s not much of a debate if you won’t listen to anyone with a different view point than your own.
The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.
GEORGE BERNARD SHAW, Maxims for Revolutionists
I am entirely unreasonable, as my wife will confirm. She introduced me to the above quotation