A few weeks ago I wrote a blog suggesting that what I most wanted from the Autumn statement was an end to the tax subsidies for the savings of the better off and outright wealthy in the UK. I suggested that maybe £80 billion is spent by the government in this way each year. And, as I argued, when the world is suffering from a glut of savings that firstly, and inevitably, creates government deficits (because if the corporate, consumer and overseas sector do between them decide to save in the UK the government has to be their borrower to balance the books); secondly creates pressure for austerity; and thirdly, of course, guarantees continuation of that pressure for a reduction in government services because the cost of servicing tax subsidies to savers grows during a period of austerity as people spend less for fear of an even rainier day.
I am pleased to note Phillip Inman has written a similarly themed piece in the Observer this morning. He also notes the tax theme but starts elsewhere, arguing first of all that this is not the limit to the subsidy. To keep savers happy the government has first of all sold swathes of public assets to some of the public who get an exceptional and unjustified return from the increased cost in government spending, subsidised by borrowing, that results. PFI achieved the same goal, of course.
Then he argues government spends more protecting the value of savings: low interest and conventional QE were designed to do that with house, stock market, bond and other asset prices. The cost of bank deposit protection schemes is minimal in comparison.
Last then there is tax. As he puts it:
Why pay tax, voters asked themselves, when you can keep the money and earn a return by lending it to the government (or fleecing the government by investing in a private contractor with a state contract)?
Phillip Inman suggests we should think of wealth taxes now and I agree: start with this blog. But let's next start talking about getting rid of the subsidies. And after that begin to change the culture of saving which is crushing well-being under a mountain of financial wealth.
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This is not a coherent set of thoughts. You want a conversation about wealth taxes, but we already have a palette of such taxes, and more if you decide to do anything with that wealth, so what you are really advocating is for a debate on MOAR wealth taxation.
The tax subsidies mentioned at the beginning are known in the majority of the world as tax breaks, and that £80 billion of ‘spending’ isn’t really spending – it’s just the total of the alleged tax breaks. We can’t be sure if it is potential income as behaviours change when government changes rules.
In April next year the child tax credits for people who want new or larger families of 3+ children will be effectively equalised at zero across all income ranges. No doubt the same argument will be used by insane lefties that this is ‘spending’ in favour of the rich, when clearly it is an absence of spending and is wealth neutral.
Respectfully – tax spending is a well recognised and wholly appropriately used term
You may wish to present market fundamentalism here, but you are wasting my time with your fantasies that don’t, have not and never will work for well-being
That was your last post
Kenneth you do realise that your child tax credit argument is basically:-
In its majestic equality, the law forbids rich and poor alike to sleep under bridges, beg in the streets and steal loaves of bread.
It’s the same as arguing that VAT is fair rather than regressive, or arguing for a flat tax, you totally ignore the odds/%age game and focus on absolutes.
Oh and it is spending you need to decide on whether we tax to spend or spend to tax – if you get that bit right then all the rest makes far more sense.
Couldn’t agree more about the dynamics you are describing.
I’m under the impression that savings are not obliged to be with the government. Savings can be in either public or private funds. So how saving causes government deficit is somewhat unclear. Besides, if saving in the UK is so attractive, that is surely to the benefit of existing government funds?
Your final phrase is very worrying though. Wasn’t it the lack of financial cushioning (ie. savings) that made the 2008 crash far, far worse for overstretched individuals and organisations?
I explain here
http://www.taxresearch.org.uk/Blog/2015/07/09/george-osbornes-planned-budget-surplus-requires-some-heroic-and-wholly-implausible-assumptions/
Well Andy I’m under the impression that you need to get a better grasp of the basics. If you visit Steve Keens website he gives some talks that are very accessible and will help you greatly. Bear in mind that I’m talking about explaining what is and how it works rather than advocating any particular corrective approach.
If you want to get deeper into Steves stuff then, though complex, his mathematical modelling is excellent. He even clearly explains the financial crash for you. Obviously if you can mathematically refute his workings then I’ll bow to your superior knowledge.
Sectoral balances:
http://www.coppolacomment.com/2015/03/repeat-after-me-sectoral-balances-must.html
Interesting piece John and quite a good comments section, though still some confusion on the importance of the trade balance. But this is the sort of basic info people need to grasp before they can even really begin to discuss corrective options. People tend to get fixated on the micro and generally small areas that they feel they have a good grasp on. This is reflected clearly in that our micro approaches tend to ignore externalities or employ the ‘somebody elses problem’ attitude to them.