About a decade ago I co-authored with David Byrne of Durham University. I noticed that he picked up the cudgel I had already raised against the Institute for Fiscal Studies and its absurd claim that the UK tax system is overall progressive in the letters page of the Guardian yesterday. His letter is well worth sharing:
One of the authors of the report discussed in your article (Tax system helps cut gap between rich and poor, says IFS report, 27 May) states that “contrary to the ONS claim, taxes do also reduce inequality”. No they don't! The IFS study is a study of individuals, not of households. Households are the significant economic unit for receipt of income and expenditure. It is inequality among households which matters, and the tax system is more or less flat across deciles of households — with the exception of the lowest decile, who pay the highest proportion of income as all tax of any decile. Also the IFS report asserts that indirect taxes are progressive. They base this on calculations of indirect taxation as proportions of expenditure “because [indirect taxes] are levied on expenditure”. That is how they are levied, but they are paid out of income, and in relation to income indirect taxes are regressive. The UK taxation system is not progressive for households. Regressive taxes are regressive if assessed in relation to the incomes out of which they are paid. The tax system does not help cut the gap between rich and poor.
David Byrne
Emeritus professor of applied social sciences, Durham University
David is right.
The IFS is wrong.
And the only explanation for their error is political choice as far as I can see.
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“They base this on calculations of indirect taxation as proportions of expenditure “because [indirect taxes] are levied on expenditure”. That is how they are levied, but they are paid out of income, and in relation to income indirect taxes are regressive. ”
This very telling, but it reminds me that this is essentially a matter of measurement. The problem of measurement is a recurring one when economists opine. Measurement is a serious problem in economics, and perhaps compounds the insurmountable difficulty economics has had in demonstrating the scientific credentials it, almost embarrassingly, craves; its inability to provide accurate predictions. Instead it “forecasts”: badly.
I suspect the reason for that, at least in part is that economists do not appear to have spent much of their time grappling with the technical problems of measuring economic phenomena. No physicist would believe he was equipped to do physics if he was not highly skilled in understanding the complex problem of measurement, and confronting the problems of applying it to phenomena. It would not be exaggerating to say that the problem of measurement is most of the content of physics. What part of the economics discipline currently addresses the very difficult and demanding theory and application of measurement, of economic phenomena?
It’s hard. and so not many people talk about it
Unusually I actually do a lecture on the problems of data – but not any more, as I am leaving City
Yes, and it’s not just government taxation either which is regressive.
Privatised ‘taxation’ through the utilities for example also is highly regressive. Daily standing charges make it impossible to reduce consumption to zero and discounts are all for increased levels of consumption and such as direct debit payment which is extremely difficult to mangae on low incomes and benefits which are paid in multi-week increments rather than monthly. The monthly payment of UC is, as far as I can see, the ONLY sensible thing about it. And that suits many of its recipients very badly because they have not been accustomed in their entire lives to monthly income.
Energy regulators regulate the industry for the convenience and profit of the industry and not with any regard to consumers or the desirable aim of reducing overall consumption of energy.
The supposedly independent IFS is significantly funded by the ESRC which is predominately funded by the UK government which is controlled by the Conservatives. We have a saying in Scotland; he who pays the piper calls the tunes.
Every time a think tank is quoted by the media, there should be an obligation to clearly state, directly and indirectly, where they get their money from.
Richard
I came across this disturbing article this morning on this subject – it may interest you?
UK: Child poverty the “new normal,” as oil industry gets billions in subsidies
http://priceofoil.org/2019/05/17/uk-child-poverty-the-new-normal-as-oil-industry-gets-billions-in-subsidies/?fbclid=IwAR1qI-IiAm4YTYWypuLumE-1fZYndI4Qu2_b5H-kDL8InS6X1ph-raBxXF8
Thanks
This comment is only indirectly related to the thread. Douglas Fraser, Business and Economy Editor for BBC Scotland has posted this piece on the BBC website: titled “Holyrood tax: the devil’s in the data” https://www.bbc.co.uk/news/uk-scotland-scotland-business-48484264
It seems Mr Fraser has just discovered that the devil is in the data (including VAT). We may wonder where he has been. This time, however it is Income Tax. Fraser believes “it’s more about Scotland joining the world in which governments have to make choices about taxation and to live with the consequences.” I find this remarkable conclusion to draw from the premisses of his argument.
Fraser is is wrong on two counts. For some of the devil in the data, Scotland has no choice in how the UK data affecting is produced; and has no control over it. All governments are not handicapped in this way. Second, even where the devil in the data is caused by timing differences or routine forecasting problems, Scotland does not have the financial flexibility to make provisions to cover any timing shortfall as it sees fit, as other governments are able to do. This is a problem of ill thought-through devolution – because financial devolution has been reluctant, half-hearted, insincere, foot-dragging and thus also very inefficient. This consequence of the Income Tax change has been waiting to happen. The VAT problem is well established. Where have the critics been?
I was already planning to blog on this
“For some of the devil in the data, Scotland has no choice how the UK data affecting the country is produced” and “I find this a remarkable conclusion to draw from the premisses of his argument.”
Two sentences with missing words corrected. I must not make excuses for my careless drafting errors, but I am utterly astonished it is still necessary to make these points; because the matter of “dodgy data” as Fraser now calls it, has been raised by critics endlessly for years now; without any support whatsoever either from the representatives of the mainstream media, or politicians; and yet still the fundamental issue appears simply to be missed.