Tax and inequality

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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

§  Inheritance 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?