Piffle about the costs of HMRC

This is wildly wrong:

Britain’s “increasingly complex” tax system is costing businesses £15.4bn a year just to comply with, the public spending watchdog has warned.

Companies are paying at least £6.6bn per year on accountants, £4.3bn on internal administrative staff and £4.5bn on software and postage to satisfy increasingly difficult tax rules, according to a report by the National Audit Office (NAO).

The NAO said the figures were produced by HM Revenue & Customs and likely to be an underestimate. The watchdog said these “significant” costs were rarely considered when making decisions about tax.

Out by at least one order of magnitude and possibly as much as two.

Now, agreed, these are direct costs - the costs of hiring accountants and so on, as listed. But the cost of taxation is what we lose by having taxed.

Yes, yes, we agree, the tax revenue can then be spent upon lovelies. But it is still true that the cost of taxing - as opposed to the joy of spending - is what we lose by having taxed.

There are deadweight costs to taxation. Economic activity that does not happen simply because we have taxed some amount of activity out of existence simply by having taxed. One estimate of this cost by Tyler Cowen* suggests 25 to 33% of all economic activity doesn’t exist given the US taxation system. For us, with a substantially higher tax take that’ll be higher. A little ameliorated by us using consumption taxation (ie, VAT) to collect a portion for consumption taxation has lower deadweight costs than income, capital or corporate.

But, to be more than a little handwavey about it, an estimate of one third to one half of all economic activity just does not exist because we tax. Tax is currently one third to one half of all economic activity in the country. Thus the deadweight costs of taxation are about the same as the sum raised. Or, you know, in that £ trillion to £1.2 trillion range.

It’s wholly true that some - some - of the things that revenue is spent upon then make us richer again. Keeping the French at bay is worth confiscating anyone’s paycheque after all.

But it really is true that the costs of Britain’s taxation system are not some piffling £15 billion being paid by companies. It’s the loss of a £ trillion and more of economic activity. Activity that simply does not happen as a result of the simple existence of taxation.

Yes, yes, you can argue that it’s all worth it if you wish. We most certainly don’t think all of it is. But we do insist that if we’re going to work out the costs and benefits of doing something then we’ve all got to tot up those costs properly. The cost to the British economy of taxation is around, about, 100% of the tax collected. That cost being economic activity that does not happen simply because we are taxing.

Tim Worstall

*It is possible that 25% of the sum raised is meant, if so adjust as necessary. Still a lorra lots even so.