I mean it. It's 6 April. It's the start of a new tax year. And tax is a good thing. So why not say 'Happy new tax year'?
The obvious response is that no one enjoys paying tax. But I am not sure that's true. No one actually enjoys paying for anything. Just ask them. If they can got something for less very few will deny that they would prefer it. And marketeers know it: that's why price is used as an incentive on so many occasions. But the fact that price is an issue does not mean people stop buying things. It's the same with tax: the fact that people would like to get the services they enjoy for less does not actually mean they would not pay for them still. So I'm not convinced people don't like paying tax. They're just grumbling about the price.
In that case what else is the problem? HMRC's attitude could certainly be a factor. From patronisingly calling people customers when it is blatantly obvious that we are not to telling us that demanding six tax returns a year is simpler than submitting just one, it's as if HMRC go out of their way to alienate taxpayers. Making it as hard as possible to sort out tax problems just adds to that sense of alienation. This one I understand.
But get through the irritations (I queue in the supermarket and still go back, after all) and what is the real objection to celebrating tax? I suspect there are three.
The first is alienation from government itself. This is real, and populist politics that feeds on it also provides some evidence that for a minority this is an issue of significance. A quick PR campaign will not resolve this. People have been told for too long that government is not good for them and some now believe it. A long term political shift, right across the board, saying that the role of government is vital if society is to survive is the critical factor in changing this sense of alienation. That it's very obviously counter cultural to say government is a good thing when so much of what it does is at the heart of what people want done well is the best evidence there is of the existence of this problem, and that changing this attitude (which also requires things to be done better) would be of enormous beenfit.
Then there is a lack of understanding of what government, and the taxes it charges, actually does. How many people really think about just how much they are really dependent upon the existence of good government, the rule of law and the services the government provides to make a great deal of life possible? And I mean possible, not better. Without the infrastructure the state supplies there would be no markets of the sort we know to provide us with anything else. But awareness of that is, I suspect, quite low.
Third, the understanding of tax in all this is low. Most people, including the vast majority of politicians, still think that tax pays for government services. It doesn't. Tax reclaims the money the government has spent. That's because the government can always create the money it needs to spend anything it wants: the pound in your pocket is tangible evidence of that. You did not make that pound: the government did. And the government's spending it into existence gave it value; that and the fact that you have to use it to pay your taxes are why it has worth in exchange. And if that was understood then it would be appreciated that the tax we pay is overall dependent not upon what we earn, but upon the level of government spending. That's because the more the government spends the more money it has to claim back in tax to prevent inflation, but the better off we all are because of the greater quantity of government services we enjoy within the capacity of the economy.
It's my suggestion right now that all these three combine to create a perception that tax is poor value for money, and so is resented. This is explained by the fact that as services are cut tax is not falling as much and therefore value for money is declining and so resentment is increasing about having to pay more for less, and no one likes this. What is more, many will be perplexed as to why we do need to cut when it is so obvious that there is so much capacity within the economy to do more and yet the government is refusing to do it. Saying we can't afford social care, for example, makes no sense to most people when it so obviously saves money in the NHS and there are people willing to provide the services if only they were funded. Instinctively people know austerity does not work and yet they know that they are being asked to pay for it. Of course they don't like tax right now in that case. And of course they feel alienated from government as a result.
So they don't say happy new tax year. And the reason why, I suggest, is that completely counter culturally they're not paying enough tax to really enjoy the benefits of it. Buyer regret is always high when we pay for a barely adequate product. That's exactly what the government is supplying at present. And we could change that by having more of a good thing. The good thing is more and better government services. And the fact is that if they were made available we'd all be able to pay more tax because we'd both be a lot better off, and we'd have the capacity t0 do so.
Happy new tax year.
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Richard, I don’t understand this phrase:
“A long term political shift, from left to right, saying that the role of government is vital if society is to survive is the critical factor in changing this sense of alienation”
It seems you’re saying we need to shift further right, yet the Right, certainly the extreme Right (just look at the Republicans), actually wants to deconstruct the state in its entirety.
I hope the phrase “from left to right” therefore means “across the whole political system”, or “across the whole of society” or some such.
Sorry to nitpick over an otherwise excellent post. How right you were to say Corbyn and McDonnell should say they would restore ALL the cuts since 2010, so putting petrol back in the car engine, when the Tories have been trying to get it to run on no, or low, or inferior fuel. With real, and sufficient, petrol in the engine, tax could then do its job -that of a throttle or choke, to reduce the richness of the mix, and get the engine purring
But back to JC and JMcD, the fact that they refused your advice on this, means they’ve made to same sort of error as the two Ed’s made over rebutting the Tory lie about “Labour wrecked the economy” that I complained about recently.
Frankly, the two J’ are either stupid, or they bottled it, for fear of mayhem at the hands of the MSM. Had the two J’s taken your advice, they could have coupled the promise to restore all the cuts with a robust programme of public education on the nature of government spending and tax – above all that it’s “spend and tax” and NOT “tax and spend”. That would have been a REAL service to society.
I will change it to say ‘across the board from left to right’
Much as I like James Meadway as a person, his economic advice to John McDonnell is seeped in the mainstream neoliberal economics of structural adjustments and balanced budgets. Most politicians are pretty economically ignorant and rely on the advice of those who are supposed to know. However, I agree that the LP leadership have backed the wrong horse in not taking Richard’s advice/understanding but there are plenty of us in the grassroots who are acquiring the knowledge to push for change and all we can do is keep on challenging.
I am astonished by James’ advice
It is so unlike NEF, so unlike his own supposed past and candidly so weak
But don’t ignore that John may simply be ignoring James and he is the real problem
I found he was – he is steeped in all the usual nonsense and has not a shred of left wing economic thinking in him that I could find
As spotted on the Labour Party National Policy Forum website – a comment by an NPF member: “… every opposition party experiences the problem of not being able to evidence spending resources as the treasury ‘works’ for the Government and much information is not available to us.” I think all of you underestimate the problem which John McDonnell has in overcoming the well promulgated perception that Labour cannot be trusted on the economy.
It would be nice to think that true
But we have to include John McDonnell in the equation and I know something about that element and the weighting to be given to it
This is an excellent piece and addresses the core of what is wrong today in the UK and with centre-left thinking. The complexity of reworking our taxation system and moving it from right to left is significant. Rather naïvely here is an attempt at creating a budget that tris to achieve that. There are many unknowns and please remember it has been written by somebody without that much knowledge of the complexities of the system but at least it’s something we should start to look at. Without an attempt to look at the overall balance in the broadest sense to make sure that it does to some degree add up and has the potential to deliver what we need we can make little progress. The post is at: http://outsidethebubble.net/2017/04/06/2893/
This will please you (?)
http://www.zerohedge.com/news/2017-04-05/euro-saves-germany-slaughters-pigs-feeds-blics
Not a lot…
Hmmm interesting research (if it stacks up).. below’s another from the same author, poses some pertinent questions. It unsubtly infers a ‘shadowy’ form of financial engineering of some sort … ??
https://econimica.blogspot.co.uk/2017/04/if-fed-sells-treasuryswho-will-be-buying.html
The author has no idea how Treasury’s work
That’s nut a good starting point
For me, this where I’m currently at in relation to Government deficit spending (and you may enlighten me further on this when I read your books or read something here)..
I reflect on the following two points made by Paul Krugman:
1. “The problem instead is that deficit spending does lead to a large government debt, which will if large enough start to raise questions about solvency.
One might ask why government debt matters if the interest rate is zero in any case. But the liquidity trap, at least in the version I take seriously, is not a permanent state of affairs. Eventually the natural rate of interest will turn positive, and at that point the inherited debt will indeed be a problem.
So is fiscal policy a temporary expedient that cannot serve as a solution to a liquidity trap? Not necessarily: there are two circumstances in which it can work.
First, if the liquidity trap is short-lived in any case, fiscal policy can serve as a bridge. That is, if there are good reasons to believe that after a few years of large deficits monetary policy will again be able to shoulder the load, fiscal stimulus can do its job without posing problems for solvency. This might be the case if there were clear-cut external factors that one could expect to improve – say if the domestic economy was currently depressed because of a severe but probably short-lived financial crisis in trading partners. Or – a possibility argued by some defenders of the current Japanese problem – temporary fiscal support might provide the breathing space during which firms get their balance sheets in order.
If you listen to the rhetoric of fiscal policy, however – all the talk about pump-priming, jump-starting, etc. – it becomes clear that many people implicitly believe that only a temporary fiscal stimulus is necessary because it will jolt the economy into a higher equilibrium. Thus in Figure 5 a policy that shifts the spending curve up sufficiently will eliminate the low-level equilibrium; if the policy is sustained long enough, when it is removed the economy will settle into the high-level equilibrium instead.
If this is the underlying model of how fiscal policy is supposed to succeed, however, one must realize that the criterion for success is quite strong. It is not enough for fiscal expansion to produce growth – that will happen even if the liquidity trap is deeply structural in nature. Rather, it must lead to large increases in private demand, so large that the economy begins a self-sustaining process of recovery that can continue without further stimulus.
None of this should be read as a reason to abandon fiscal stimulus…….But fiscal stimulus is a solution, rather than a way of buying time, only under some particular assumptions that are at the very least rather speculative. ”
and
2. “a central bank that tries to promise future inflation will be more credible if it puts its (freshly printed) money where its mouth is. “
I am afraid Paul Krugman is a very unreliable guide on this
He really does not understand money. In that sense he is a very conventional economist
This video discussion may be of interest if not seen already …
As China and Russia adopt their own variants, the reign of capitalism seems absolute. Yet there are many who wish for an alternative and some who claim a final crisis is in the making. Is there a radical alternative that we have not yet discovered? Or is the reality that capitalism is the only viable economic system?
The Panel
Former Secretary of State for Health Stephen Dorrell, Nobel Prize-winning economist Paul Krugman and Marxist political theorist Alex Callinicos reimagine capitalism and the current economic system.
https://iai.tv/video/rethinking-capital?gclid=CNrVppzZkdMCFUg8Gwod53EPOA
You have elsewhere suggested a round of green QE in regional infrasture which sounds interesting and has been supported by Blackrock recently in Europe. Would you recognise that there would be some uncertainty around the value of Stirling…. that one possibility would be further depreciation, putting inflationary pressure on the consumer dependent on imports? Or are you looking at a long term game here regardless?
I don’t recognise that at all
Increasing income rarely depreciates a currency
Any substantial increase in imports (from core materials to cheap consumer products) could lead to currency depreciation, no?
Temporarily
A price worth paying
An since expectations matter more, also unlikely
When in 1752 the United Kingdom adopted the Gregorian calendar, it formally moved its New Year from the Annunciation (25th March) to 1st January, and it cut eleven days from the calendar. Many people grumbled over this, but in the end everyone adapted to the change.
With one exception.
The antecedent of HMRC refused to change its year end, and when the days of the year were excised, it promptly moved the year end around twelve days to 5 April. Not one inch would it budge, and not one penny would it yield.
With an attitude like that (the unreformed Zaccheus would have been proud of it), it is no wonder that resentment festered! 🙂
🙂
Roll on the day when Richard’s explanation of taxation and basic economics becomes mainstream – by which I mean understood by politicians, journalists and the wider public.
Unfortunately, many in Scotland (and I think all journalists) think having “power” over income tax should allow the Scottish Government to improve the economy. Richard’s explanation of how tax works would not be understood.
Scottish Labour want to raise income tax to increase spending on public services. On the other side, the Scottish Tories want to reduce income tax to attract business to Scotland. The most vehement advocate of the Scottish Government using their “vast new powers” to improve the economy is the Secretary of State for Scotland (David Mundell) – whose knowledge of economics is nonexistent.
This is the Scottish “Joy of Tax” (apologies).
The reality is that the Scottish Government has no real economic power. It has minimal borrowing power, no control of money supply or the other taxes, and can have no influence on savings or consumption.
I’m not sure if the SNP government understands this fully. Even if they do, they would suffer the usual media onslaught if they said so.
I hope to be explaining some of this in Holyrood on April 19 when I will be giving evidence to the Finance and Constiutiin Committee