Adam Smith Institute

View Original

If only Polly Toynbee actually understood

But then if she understood then she’d not be Polly Toynbee of course. For Polly tells us of a new tax explainer from the IFS and insists that it will be a glorious addition to the progressive’s armoury:

Thatcher said you will always spend the pound in your pocket better than the state will. This remains the key political divide: the left believes our taxes buy everything we value beyond price – health, security, education, beautiful parks and public spaces, fine stadiums and leisure centres, museums and galleries. In a country to be proud of, burdens are fairly shared and no one falls below civilised living standards: that requires fair taxes, fairly raised. The right relies on fiscal ignorance. The IFS is impeccably neutral, but its TaxLab will be a great asset for progressives.

Up to a point Lord Copper, up to a point. Take this about corporation tax:

However, economic theory and evidence strongly suggest that the incidence of corporation tax is not exclusively on shareholders. In some cases, companies will set higher prices, or pay lower wages, than they would in the absence of corporation tax, such that part of the burden of the tax will be felt by customers or workers respectively. Evidence shows that corporation tax affects how much companies invest and where they locate their real activities. To the extent that companies respond to corporation tax by doing less investment in the UK, a lower capital stock and associated lower productivity will leave UK employees with lower average wages.

Quite so, entirely reasonable estimates for the US have shareholders and workers carrying 30/70% of that corporation tax burden, others equally reasonable 70/30. One UK estimate is 50/50. Further, we know what determines the split and it was Joe Stiglitz along with Tony Atkinson who pointed out that for a small economy reliant upon foreign investment - so, a developing country - it could be the workers hauling more than 100% of the costs of corporate taxation.

Don’t tax profits because you’ll lower the workers wages isn’t, quite, what the progressives want to hear.

But there’s another point here as well.

A mouse-click shows that people in Britain pay less tax (in 2019 figures), at 33% of GDP, than the EU average of 39%, while in Denmark it’s 46%.

...

Democracy depends on citizens understanding what they vote for; ignorance breeds dangerous misconceptions.

....

Voters are unreasonable, demanding Scandinavian services on US-style low tax rates.

Well, OK to each individual point there. But this is to miss that what government spends on those services is very much less than the tax revenue government collects. Denmark spends some 17.5% of everything on such things, the UK some 15.3%. We agree, that’s a difference, but it’s not anything like that of the tax collection. Near all of the rest is redistribution of incomes, not the provision of public, state or government services. That is, it’s entirely possible to have those Scandinavian levels of service without having to have their tax bills. Why, that might even be good idea:

Tax is not a “burden”, but the price we pay for civilisation.

The price we pay for something is the burden we must carry for having that thing. That’s the very definition of price. But we do come to an interesting place here, don’t we? We can have those services which Polly describes as civilisation for very much less than we currently pay for them. Gaining civilisation at less cost sounds like a good idea to us. Why don’t we try it?

All of the things we gain from government - whether they’re done well or badly, could be done better in other ways - in terms of goods and services can be had for 15 to 20% of GDP. Everything else is just shuffling bits of paper between citizens. A state limited to those necessary goods and services has its attractions. This not being something we expect progressives to be interested in hearing.