I spoke to a group on the above theme yesterday. They were interested in ways that action could be taken to tackle the issue. These were my speaking notes:
1. Let me offer you some quick assumptions that underpin what follows:
· We live in a democracy
· We have a mixed economy and no one is seriously looking to change that
· We are open to trade, and need to be
· Inequality exists and
o According to Thomas Piketty will grow as a matter of fact if no action is taken to stop it
o Is as a mater of fact growing
o Is being assisted by various tax haven practices
· Significant inequality is harmful to the well-being of all in society, including the wealthy
· These messages are being heard
o When the IMF, World Bank and OECD all talk about the risk from inequality something is happening
o Mainstream politics is realising populist politics is driven by a dislike of growing inequality
· The opportunity for change exists
2. Tax can address inequality in numerous ways
· Directly via:
o Progressive income taxes
o Higher taxes on unearned than earned income
o The removal of the tax incentives largely enjoyed by the wealthiest - whether personally or through the companies they own
o By wealth taxation
§ Inheritance taxes
§ Capital gains taxes
§ Financial transaction taxes
§ And now wealth tax itself
o Through the the balance between progressive direct taxes and regressive indirect taxes
o The latter including VAT, council tax and many product and service related charges
· Indirectly
o Through interaction with the benefits system
o Through a Universal Basic Income
o By repricing goods and services
· Through fiscal policy
o Running deficits benefits those who get services as a result
o But without QE it does require a payment of interest to those who lend to the government, which increases inequality (a little bit at current rates)
· Through pre-distribution
o Tax incentives can be given to reduce the highest pay and increase low pay - although we have not gone there in any significant way
· By controlling inflation
o Tax is as effective as interest rates in controlling inflation and inflation might have the greatest power to erode financial wealth
o But it can be penal on those wth low fixed incomes
3. All of this fits with my six reasons for tax
· To reclaim the money the government spends into the economy
· To ratify the value of money
· To reorganise the economy
· To redistribute income and wealth
· To reprice goods and services
· To raise representation in a democracy
4. The question then is what do you want to do?
· Tackling inequality with taxation is about many more things than most people might suspect
· So do you want to:
o Look at progressive income taxation?
§ Ways to do this can be looked at here http://www.taxresearch.org.uk/Blog/wp-content/uploads/2016/08/WealthtaxUK816.pdf
o Consider the more obvious wealth taxes?
§ Capital gains tax
o Actually look at a wealth tax?
o Consider alternative new taxes like my CUT (Carbon Usage Tax) which can be progressive and replace taxes like National Insurance that belong in the last century?
§ http://www.taxresearch.org.uk/Blog/2015/10/02/time-to-get-rid-of-national-insurance-and-replace-it-with-a-progressive-consumption-tax/
o Or consider a Universal Basic Income?
o Or the way that the tax system subsidises those who are best off (pension tax reliefs, charitable gift reliefs, savings incentives and so much more)?
o Consider ways the tax system could change wages? This could cover:
§ Tax reliefs for those paying the living wage?
§ The end of corporation tax relief on high pay?
o Review fiscal policy?
§ The fact is we have a tool that after centuries of use we have hardly explored because we really did not understand its relationship with money
§ Is this the time to start doing so?
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A very broad and challenging subject most of which is above my pay grade.
The only simplistic point I would make is:
IMHO if you want a Universal Basic Income one of of the most underused income stream
levers to fund it would be a Financial Transaction Tax ( Tobin) which has not yet been tried
on a multicountry basis and whose effects if implemented sensibly on that platform ( Europe Japan USA China/Russia-?- Australasia SouthEast Asia ) would be far less onerous/dire than the financial communities warn of.
The CUT I refer to is a broadly based FTT
Thank you for this Richard. A good primer for debating this issue with the wall of ignorance and indifference that exists out here.
I’m a bit unclear about your CUT proposal (which I think was also referred to as a transaction tax, or a consumption tax). Will you be fleshing the idea out a bit more?
It seemed to be doing several things at once. It involved starting from all transactions in bank accounts, and then exempting transfers between accounts held by the same person – but that is more a collection mechanism than the substance.
One aim was to tax high consumption by a person over a year. So that’s a bit like having higher rates of VAT on luxury goods, but instead of making assumptions about which goods are luxuries, look at the total amount a person spends in a year. Which makes sense to me.
When applied to businesses, the tax at first sight seems to be a turnover tax. Though you mentioned that different rates might apply to different kinds of businesses, and higher rates would apply to bigger businesses. And I think a specific aim was to tax financial services (much of which are exempt from VAT) more. Apart from that, I’m not sure what the aims are for this bit – since we already have VAT (which is regressive), and we could (as I think you’ve suggested) have higher rates of corporation tax for big businesses.
Are transactions which are neither consumption, nor part of a business, also supposed to be covered? E.g. buying assets. Or are they covered by FTT instead? I thought you were separately proposing a FTT, which would replace stamp duty but cover a much broader range of transactions.
Do you have a vague idea possible tax rates, and of how much tax might be raised? Preferably separately for each of
1) high consumption by individuals
2) turnover of businesses
3) other transactions
– if I’m right to suggest it can be divided up like that.
My honest answer is that this does need more work and I have not got the funding to do that as yet so I am looking at other things
And it did not anticipate Brexit
BUT remember VAT is always going to be regressive: the rich save and this tax counters that
Or consider a Universal Basic Income?…or a government Job Guarantee Scheme?
JGS is a farce – it cannot work and enslaves people
UBI empowers people
But, arguably, ‘The Spirit Level’ used cherry-picked statistics (Radio 4 had a good ‘Analysis’ that demolished the book). Piketty is plain wrong. And global inequality is falling.
There is no evidence that the Spirit Level cherry picked
No one has shown Piketty to be wrong
And inequality is rising
Oh, and you’re lying, in my opinion because there is not a shred of credible evidence to support those claims
And I am familiar with the literature
I may be wrong, but my understanding of the literature – discounting reports from Oxfam and other interested parties – is that inequality is falling globally in tbe sense that the number of folk living in absolute poverty (1$ a day) is nose-diving, though inequality in western societies is rising. Absolute poverty bothers me; relative ‘poverty’ – aka inequality – in western societies not at all, providing the minimum is maximised (cf Rawls).
So one trillionaire and all the rest in poverty is fine by you
I utterly disagree – and anyone with an iota of empathy would realise why
I think your days here have ended
‘Kenneth’
The Spirit Level has a good website – you should go and read it. They are more honest about their stats and sources than any neo-lib so called research – the same with Picketty. In other words, the work of these people continues. The books are just a place in time – as far as they’d got.
There are numerous other writings and documentaries about the growth in inequality in the West that all say the same thing. If these are triangulated (as I have done) you will find it hard not to come to any other conclusion than inequality is indeed growing and has been doing for some time. Go and find them or if you are lazy, just make a cup of tea and continue to cosy up to Radio 4’s ‘analysis’.
However, if this ‘analysis’ is as good as I have heard about other stuff in economics they prattle about (i.e. not very) than I think that you are being ill-served.
My advice to you is to be a lot more curious Kenneth.
Thanks for the insights, its great to see a coherent analysis of a very complex subject, its certainly something I would run a mile from doing.
I agree with pretty much all that is said, with the one reservation being NI. It is indeed dated, but rather than scrap it, I would propose modernising it to be exactly what it says on the tin, a universal Not for Profit, Insurance premium that we all subscribe to equally, with a clearly stated list of indemnities covered, and to have those indemnities based on societal claims rather than individual claims. I am thinking more of disaster relief such as deaths and injuries caused through flooding and extreme weather events, which are becoming increasingly apparent.
To me NI is a cement that holds us all together into a cohesive unit…one that we should be proud to belong to, as opposed to avoiding or evading
But the wealthiest do not pay it
So it is a deeply regressive glue
A good concise list. I would only emphasise or add the following :
1) Implementation of a carbon tax is the single most urgent challenge facing the World today. By increasing potential future returns from green technology, a universal carbon tax would actually stimulate green investment – increasing energy efficiency savings and generating a thousand new “Elon Musks”.
2) You are right to suggest that the future focus of taxation should move away from taxing labour (which we now have in surplus almost everywhere around the World) to taxing non-renewable resources and fossil fuels, which will be the real constraint on future economic growth.
3) I do however see a specific role for employer national insurance contributions in slowing immigration. Companies that wish to employ foreign nationals as part of their workforce should pay a national insurance surcharge, which will give them an incentive to employ local labour first where possible. The money raised from comapanies who still need to use migrant labour should then be targeted to help communities that receive large numbers of immigrants. These funds should be used to pay for new schools, hospitals and housing, plus direct assistance for new immigrants, including free language classes. This is not discriminatory as immigrants and nationals doing the same job would still receive the same pay. However, it would help to put a brake on immigration without resorting to quotas or caps which are impossible to administer fairly. Interestingly of course for public service jobs, such as the NHS, the surcharge would be cost neutral.
The changes we need today, to reverse rising inequality and drive the change to sustainable living, are massive shifts in taxation policy which will not be easy to achieve. Critically, any single national government that implemented such policy changes in isolation would potentially face serious consequences from Global financial markets – as France demonstrated in 2014 when it was forced to abandon the progressive taxation platform that Francois Hollande was elected on just 18 months earlier. The best chance of making such changes is therefore at a regional level through bodies like the EU – which is why it is such a tragedy that the left did not fight harder to keep the UK in the EU as a full member. Post Brexit we will need to find new ways to encourage and lead this kind of international cooperation.
Robert P Bruce – author http://www.TheGlobalRace.net
I do not think a tax system should be racially discriminatory – and have said so for a long time
But what Robert P Bruce suggested was descrimination on grounds of nationality, not race. And that is after all what an immigration policy is supposed to be about.
Although National Insurance is a regressive tax this is the best suggestion for a workable method of putting some controls on immigration that I’ve encountered so far.
The two are closely linked, as is all too obvious
This is really helpful, thanks Richard. Is there any literature you would recommend on this theme? Really interested in how tax can be used innovatively to address inequality. Fyi I’m currently working on the RSA Inclusive Growth Commission. Best, Atif.
Have you read The Joy of Tax?