{"id":42160,"date":"2018-06-12T15:10:07","date_gmt":"2018-06-12T14:10:07","guid":{"rendered":"http:\/\/www.taxresearch.org.uk\/Blog\/?p=42160"},"modified":"2018-06-12T15:10:07","modified_gmt":"2018-06-12T14:10:07","slug":"achieving-fairness-in-the-tax-system","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2018\/06\/12\/achieving-fairness-in-the-tax-system\/","title":{"rendered":"Achieving fairness in the tax system"},"content":{"rendered":"<p>These are the slides I used for a talk at De Montfort University this morning on achieving fairness in the tax system:<\/p>\n<ul>\n<li>A talk for the Taxation and Social Policy Group Launch Event - 12th June - De Montfort University, Leicester by Richard Murphy, Professor of Practice in International Political Economy, City, University of London<\/li>\n<li>Some theory\n<ul>\n<li>Most of us are here because we are aware of austerity<\/li>\n<li>This is the idea that, in formal terms<\/li>\n<li>G = T<\/li>\n<li>Where G = government spending<\/li>\n<li>And T = tax revenues<\/li>\n<\/ul>\n<\/li>\n<li>But we know that austerity has not happened\n<ul>\n<li>G \u00e2\u2030\u00a0 T<\/li>\n<li>Instead the government has borrowed<\/li>\n<li>G = T + \u00e2\u02c6\u2020B<\/li>\n<li>Where B = Total government debt<\/li>\n<li>And \u00e2\u02c6\u2020B = the change in government debt in a period, or total government borrowing<\/li>\n<\/ul>\n<\/li>\n<li>But this is not the whole story\n<ul>\n<li>The government has also created \u00a3435 billion of quantitative easing funding since 2009<\/li>\n<li>As the Bank of England says:<\/li>\n<li>\u201cQuantitative easing involves us creating digital money. We then use it to buy things like government debt in the form of bonds.\u201d<\/li>\n<li>Which means that QE funds government spending instead of debt in that case<\/li>\n<\/ul>\n<\/li>\n<li>To give the whole story\n<ul>\n<li>Now<\/li>\n<li>G = T + \u00e2\u02c6\u2020B + \u00e2\u02c6\u2020M<\/li>\n<li>Where M is the stock of government created money<\/li>\n<li>And \u00e2\u02c6\u2020M is the change in that stock in a period<\/li>\n<\/ul>\n<\/li>\n<li>Why explain this?\n<ul>\n<li>What it means is that tax does not fund government spending<\/li>\n<li>All government spending can be funded by money creation (not printing, I stress)<\/li>\n<li>Or by borrowing<\/li>\n<li>And the only reason why a government does not do this is because of the risk of inflation<\/li>\n<li>In other words, the reason governments tax is to control. inflation - and not as such to fund government spending which can be and is all done by money creation in the first instance by overdraft at the Bank of England<\/li>\n<\/ul>\n<\/li>\n<li>This matters because it fundamentally changes our view of tax\n<ul>\n<li>I argued in The Joy of Tax that there are six reasons to tax:<\/li>\n<li>Reclaiming the money the government spends into the economy to prevent inflation<\/li>\n<li>Ratifying the value of money - because the government only accepts its own currency in tax payment it has value - which is what the \u2018promise to pay\u2019 now means<\/li>\n<li>Redistributing income and wealth<\/li>\n<li>Repricing market failure<\/li>\n<li>Reorganising the economy - or fiscal policy<\/li>\n<li>Reinforcing democracy - people who pay tax vote<\/li>\n<\/ul>\n<\/li>\n<li>This theoretical diversion has, then, been for a reason.\n<ul>\n<li>Social purpose is not a tack on extra<\/li>\n<li>Tax is a fundamental instrument of monetary policy<\/li>\n<li>And fiscal policy<\/li>\n<li>And social policy<\/li>\n<li>As well as industrial, environmental and every other policy you care to mention<\/li>\n<\/ul>\n<\/li>\n<li>But most important of all\n<ul>\n<li>If tax is not primarily about funding government spending then its role in creating social justice is more important than ever before<\/li>\n<\/ul>\n<\/li>\n<li>So what can make the tax system fairer?\n<ul>\n<li>First, we need to define inequality<\/li>\n<li>And then see how tax exacerbates it<\/li>\n<li>And then see what can be done about tackling those faults in the system<\/li>\n<\/ul>\n<\/li>\n<li>Inequality\n<ul>\n<li>Income inequality<\/li>\n<li>Wealth inequality<\/li>\n<li>Market access<\/li>\n<li>Security\n<ul>\n<li>The social safety net<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<li>Income inequality\n<ul>\n<li>The tax system is notionally progressive<\/li>\n<li>But\n<ul>\n<li>Those with excess income can take it out of income tax and take it into lower rate corporation tax<\/li>\n<li>Or lower rate capital gains tax<\/li>\n<li>And even offshore - sometimes legitimately<\/li>\n<\/ul>\n<\/li>\n<li>So a progressive system is undermined by tax spillovers within the tax system that favour the wealthy<\/li>\n<li>Where a tax spillover is the way in which one part of the tax system reinforces or undermines the effectiveness of another part of that system<\/li>\n<\/ul>\n<\/li>\n<li>Income inequality (2)\n<ul>\n<li>The tax system is nominally progressive but:<\/li>\n<li>Of the hundreds of tax reliefs and allowances most favour the wealthy<\/li>\n<li>Pension tax relief costs more than \u00a350 bn a year and is intensely biased to the wealthy<\/li>\n<li>ISA relief costs billions and has the same effect<\/li>\n<li>As do many investment reliefs<\/li>\n<li>The annual cost is well over \u00a360n a year<\/li>\n<\/ul>\n<\/li>\n<li>Income inequality (3)\n<ul>\n<li>NIC is regressive - it starts at low levels of income and is reduced at higher levels of income<\/li>\n<li>All our indirect taxes are regressive\n<ul>\n<li>Council tax<\/li>\n<li>Licence fees<\/li>\n<li>Excise duties<\/li>\n<\/ul>\n<\/li>\n<li>VAT is regressive\n<ul>\n<li>Because the well-off do not spend all their income<\/li>\n<li>Things they tend to buy more of such as education, health, houses, travel and financial services all enjoy major tax advantages for VAT purposes<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<li>Wealth inequality (1)\n<ul>\n<li>CGT is not progressive\n<ul>\n<li>Each person gets a second personal allowance<\/li>\n<li>And the allowance if effectively transferrable within marriages and civil partnerships<\/li>\n<li>Rates are low<\/li>\n<li>Some incentives such as Entrepreneur\u2019s relief are absurdly generous at 10% on \u00a310 million of gain<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<li>Wealth inequality (2)\n<ul>\n<li>Inheritance tax is absurdly designed\n<ul>\n<li>It will capture the wealthy middle classes<\/li>\n<li>But most higher levels of wealth still avoid it by gifts in lifetime or the use of trusts<\/li>\n<li>But such planning requires there to be excess wealth - beyond that required to live upon or in (the family home)<\/li>\n<li>Some investments, like estates, farms and private companies, are favoured without reason being offered<\/li>\n<\/ul>\n<\/li>\n<li>Offshore only remains open to the wealthy<\/li>\n<\/ul>\n<\/li>\n<li>Access to markets\n<ul>\n<li>Limited liability has a cost to the user and is only available to those who can afford it but protects wealth against failure<\/li>\n<li>Having a single rate of corporation tax effectively lowers the cost of capital to large companies and creates unloved playing fields<\/li>\n<li>Only large companies can really use offshore<\/li>\n<\/ul>\n<\/li>\n<li>Security\n<ul>\n<li>The price of a private social safety net - and the saving for it - is a lot lower in net of tax cost for the wealthy because of subsidies e.g. to pensions and low tax rates on savings<\/li>\n<li>There is no such bias to those who use the state social safety net, from which the wealthy are not excluded<\/li>\n<\/ul>\n<\/li>\n<li>Action required\n<ul>\n<li>Education on the true nature of tax<\/li>\n<li>Promotion of the 6 Rs of tax<\/li>\n<li>Correct assessment of tax spillovers as they impact inequality and fairness<\/li>\n<li>Equalisation of tax rates<\/li>\n<li>Removal of subsidies<\/li>\n<li>The removal of bias within markets<\/li>\n<li>New taxes to create progressively - especially on wealth<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>These are the slides I used for a talk at De Montfort University this morning on achieving fairness in the tax system: A talk for<br \/><a class=\"moretag\" href=\"https:\/\/www.taxresearch.org.uk\/Blog\/2018\/06\/12\/achieving-fairness-in-the-tax-system\/\"><em> Read the full article&#8230;<\/em><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[35,147,33,97,12],"tags":[],"class_list":["post-42160","post","type-post","status-publish","format-standard","hentry","category-economics","category-inequality","category-tax-compliance","category-tax-justice","category-tax-management"],"_links":{"self":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/42160","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/comments?post=42160"}],"version-history":[{"count":0,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/42160\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/media?parent=42160"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/categories?post=42160"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/tags?post=42160"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}