As the Guardian reports this morning:
I entirely agree with the committee. A review of these allowances and reliefs is long overdue. Many are open to abuse. Far too many reinforce privilege. And the benefit of a great many is I open to doubt.
The question is, how to systematically do this? There is no system designed for this purpose in common usage.
That is not to say that there is no such system. The tax spillover methodology that I have developed with Professor Andrew Baker of Sheffield University is suitable for this purpose.
In an academic context, we explained tax spillovers in this paper.
Our detailed explanation is here, and a UK-worked example of how tax spillovers might help the development of better tax policy is here.
As I have explained in a paper I am now working on relating to wealth taxes:
A tax spillover is a loss arising within and between tax systems, whether domestic or international, as a result of one part of a tax system undermining the effectiveness of another part of the same tax system, or that of another state. The tax avoidance industry exploits the opportunities that tax spillovers create. Unless tax spillovers are properly understood that industry cannot, as a consequence, be appropriately challenged, with its activities being brought to a close.
As some readers will be aware, I have long proposed the better estimation of tax gaps to explain the failure to collect appropriate tax revenues. My theory on that issue is here. It tales the issue further than most governments are willing to go at present, precisely because I cover the weaknesses now highlighted by the Treasury committee.
Tax spillovers take this much further still. Tax gap analysis says what is lost. Tax spillover analysis explains why it is lost and is also much easier to do whilst simultaneously offering a plan for overcoming the issues identified.
I would suggest that tax spillover analysis is one of the pre-requisites for any political party seeking to answer the question 'how are you going to pay for it?' precisely because it sets out to answer that question by showing where the opportunities to plug leaks in the tax system are. It needs to be used.
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The true problem is the “imperialism” within market capitalism that needs to be addressed. James Galbraith dealt with this in his 2008 book “The Predator State” as he did with Chinese currency rigging another form of “imperialism” (his wife Ying Tang by the way is Chinese).
The EU itself is subject to a large degree of “market capitalist imperialism” (why else take away individual government’s fiscal powers beyond the 3% collar?) and I believe Chinese “market imperialism” was the underlying and hidden cause of Brexit because deindustrialisation in the West meant less well paying manufacturing jobs as Western countries switched to less well paying jobs in the service sector.
The predation of capitalists on the state to seek subsidies and inequitable taxes by the owners of capital is all part of the “imperialism” inherent in market capitalism. All of this is not really recognised in the UK and the one party you might expect to tackle it Labour has turned a blind eye to it indeed such is Starmer’s ignorance it’s highly unlikely he knows there’s an issue or if he does quite frankly doesn’t care!
Richard,
Is the correct understanding of the tax gap/spillover that the ‘lost’ revenue undercuts the principles of why you would have a taxation regime in the first place (reduce inflation, reduce inequality, incentivise certain economic actions, et cetera) rather than ‘because then Government services lose funding’?
Not making the argument that ‘if MMT is true you needn’t tax anyone’, but seeking a greater understanding. Tax avoidance ‘feels’ deeply wrong, so seeking more logical structure to that feeling.
Signed,
A relatively newly minted accountant undoing the dogma within his education.
Tax is an instrument of govermment policy delivery
If it is not paid the governmment cannot delover its policy via tax
The result is a cost to society
Does that make sense?
@ Richard Smout
From 25 years ago and still not widely understood revealing how backward human societies are:-
https://moslereconomics.com/wp-content/uploads/2019/02/Full-Employment-AND-Price-Stability.pdf
Here’s the backwardness created in the UK 27 years ago:-
https://www.dmo.gov.uk/media/ofgpmxsr/report95.pdf
I notice that the Daily Mail (and the Tory Party) is working very hard to try and stir up a national hysteria about lawyers who help migrants to game the immigration system in order to stay here.
Presumably they feel that this is morally totally different from lawyers who help the rich to game our tax system out of 100s of billions of pounds that could be spent on children, education and all the other public services that this country desperately needs.
Certainly the tax system needs over-hauling and one immediate area to tackle is the obscene profits being made by energy companies in a monopolistic supply situation as reported in the Guardian today for Shell and British Gas. An automatic windfall tax should be mandatory. Where is Sir Keep Samer on this issue to provide any hope for British consumers?
Why we do not have tiers of corporation tax baffles me
Taking a leaf out of George Lakoff’s advice on framing: calling it tax “relief” also needs to change because this implies tax is a negative burden from which to be relieved.
“Plugging gaps” and “leaks” on the other hand creates an entirely different conceptual frame which delivers a different message: gaps and leaks aren’t generally perceived as being good or desirable, e.g. they are easily be connected to the concept of something precious, like water, leaking out of holes and gaps in the pipes, which is not good or desirable.
So continuing to use those words instead of relief will help us perceive tax as something that is in need of saving, protecting, help and repair, which implies it’s a good thing. Because why else save, protect, help or repair it?