As ever, the problem with Richard Murphy is that he has no knowledge of the subject under discussion
This is just a lovely example of what's so wrong with the various pronouncements of Richard Murphy, the confused soul behind Corbynomics:
And this opens up the space for him to suggest a wealth tax, in his imaginary budget. “It was inconceivable in the past. But as a result of the work that the Tax Justice Network has done opening up the world’s secrecy jurisdictions, now if people move their assets offshore, we can find them again.” He has other specific proposals – a tax to replace national insurance, which was designed around jobs that don’t exist any more, and “we would need to explore new taxes for the 21st century, which are largely untried. A progressive consumption tax, so people with very few transactions would have very low tax. We have to discourage conspicuous consumption, which is eating up our planet.”
He's just entirely unaware of all the other stuff that people have been thinking about economics and tax. The progressive consumption tax for example: it's generally thought of as a very good idea indeed. But not because it would reduce consumption, as he seems to assume. Rather, because it would make the future richer: that is, it would over time encourage more consumption.
The essential insight behind it is that investment increases the future size of the economy, consumption might provide that short term boost to demand, but investment is what really grows economies. And we also know that if you tax something then you get less of it: thus the progressive consumption tax aims to not tax investment, capital, or the returns to either.
What really happens is that anyones' savings end up inside a giant ISA or IRA style vehicle. Any additions to savings are not taxed in any manner. Any returns to such savings or investments that are reinvested are not taxed. Any income which is consumed, or any drawing down of savings which is then consumed (or, obviously, returns to capital which are then consumed) are taxed in much the same manner that income tax works now, at rising, progressive, rates.
The observant will note that this is not compatible with a wealth tax. Even the half awake will note that the effect of such a system is to not tax wealth. In fact, the entire point is to not tax wealth, but to allow it to roll up while invested so as to increase the wealth and income of the future society: and thus to increase the consumption opportunities of that future.
And this is the basic problem with all of Murphy's ideas. Other people too have thought about these various points and problems. And Murphy's entirely unaware, startlingly ignorant in fact, of the evidence found, logic used and conclusions reached by those others. Turning on the free money tree of Peoples' QE is monetisation of government spending and we know how that turns out. Capital allowances are in the tax system for good reason: because we tax businesses on their profits, not their turnover. A certain amount of both tax avoidance and tax evasion are going to be there simply because a society without either will have no liberty. And the point and purpose of a progressive consumption tax is so that we do not tax wealth, rather than that we do: and it is to make the future richer, encouraging more future consumption too.
It is this that really grates. Not just that we disagree with Murphy's assumptions and between dislike and abhor his suggestions, but that he proceeds without noting that tens of thousands of very clever people have ploughed these same furrows over the centuries. And he's simply flat out ignorant of the truths they have uncovered.
Much as it pains us to say it, Tony Blair was actually right about the Third Way
Not that we agree with the goal: a high tax and large welfare state society is not something that we desire. Rather, a low tax and richer one where welfare isn't needed to the same extent. But we do find ourselves agreeing with Tony Blair in a manner that we don't with the Corbynites or the Sanderistas. If a higher, or large, welfare state is what you desire it is that third way that can deliver it. Other options, from predistribution through to market rigging just don't work. Another way of putting this is that if National Review have got it then Scott Sumner's message is being heard:
Socialism has two relevant features: Central planning of the economy by political powers and the public provision of ordinary goods (as opposed to public goods such as national defense and judicial systems). This is distinct from welfare-state policies such as those found in the United States, Canada, and Europe. Sweden has a large and expensive welfare state, but it has a robustly capitalistic trade-driven economy that in many ways is more free-market than our own, with lower corporate taxes and fewer trade barriers. The difference between welfare programs and socialism is the difference between food stamps and the state-run groceries that were the bane of the common people’s existence in the old Soviet Union and in modern Venezuela. The former is imperfect, the latter catastrophic.
We would, of course, prefer perfection, as far as that is possible in any human endeavour. A low tax, low welfare society in which the general level of wealth makes public provision for any other than the truly incapable unnecessary. But our message to those who disagree with that idea is that Tony Blair really was still right about that third way. If you do want to do it then you really do have to do what the Nordics have done. Let markets rip (entirely different from allowing capitalism to run amok) and then tax it to produce the transfers.
Another way of putting this is that those who insist that others should have more of what they have should be put to the test. Are you willing to give up what you have that others may have it? If not then perhaps you don't quite believe your rhetoric then, eh?
And a third way of putting this is that redistribution has to be redistribution: the taking from some to the giving to others. And our intuition on this is that those being redistributed from tend to object when it's put in such stark terms. When members of the 1% change their minds on this perhaps we will too.
Or, you know, maybe we won't.
Ruth Davidson speech to Adam Smith Institute
This week the ASI hosted the feisty Ruth Davidson to deliver a lecture on lessons from Scotland's founding father of economics - Adam Smith - as she outlined her vision of an alternative to the SNP's statist agenda.
Good Evening Ladies and Gentlemen.Thank you for the opportunity to speak to you this evening.
It seems to me that there is a rather long and – if I might say – inglorious tradition of Scottish politicians hanging speeches round the neck of Adam Smith and his legacy.
I’m sure you’re familiar with them, but – for me – there seems to be two main types.
The first type is what I would refer to as the Gordon Brown method.
The Brown method is where you examine Smith’s philosophy from three hundred years ago and demonstrate that, astonishingly, it coincides almost exactly with your own policy agenda here in early 21st century.
Yes, it turns out that Adam Smith was a kind of New Labour prophet, just waiting to be discovered all this time.
Which shows your current policy platform isn’t a tricksy wheeze to triangulate left and right, all the better to scoop up the votes of middle England. Oh no!
It turns out that it has a “golden thread” linking it right back to the heart of the Scottish enlightenment where, before the words “Tony Blair” were ever heard, it was first discovered that liberal economics and social justice could go hand in hand.
The fact that Smith actually came from Kirkcaldy is just the cherry on top of the cake.
I can only say that if I was Gordon Brown looking for some kind of ballast to hold my political beliefs together, I probably wouldn’t have been able to resist either!
But that isn’t the only type of speech of course. There’s a slightly shabbier version of the Brown method which adds a great dollop of parochialism mixed with hubris.
This is the one where Politician B seeks to assert that pretty much everyone has got Adam Smith wrong from Day One. Apart, of course, from the speaker himself.
And why have they got him wrong?
Broadly speaking, continues Politician B, this is because they are not Scottish.
And, in not being Scottish, they therefore fail to understand the true meaning of Adam Smith.
Target number one is, of course, the Adam Smith Institute.
...
If even business doesn't get this then what hope?
One of the standard bits of economics that we need to explain again and again is the incidence of taxes. Corporations don't pay profits taxes, shareholders and workers bear the burden. similarly, business, in the form of a business that uses commercial property, doesn't pay business rates: they fall upon the landlord. But if business itself doesn't manage to grasp this point then what hope of getting everyone else to grasp it?
The Government’s “business tsar” has backed an emphatic call from the nation’s retailers for a fundamental reform of business rates to boost Britain’s productivity. Sir Charlie Mayfield, chairman of the John Lewis Partnership and president of the British Retail Consortium (BRC), has thrown his weight behind a chorus of complaints from the bosses of Britain’s high street traders that the hefty business rates tax is hampering investment in the sector. An overwhelming 95pc of 100 UK retail bosses surveyed by the BRC said that a reform of business rates would boost the nation’s productivity. “Business rates bills have continued to rise when property values have fallen,” Sir Charlie said. “Retailers are now paying £2.40 in business rates for every £1 in corporation tax. Reforming the rates system would be a welcome boost for retailers and help drive investment in training and technology,” he added.
The level of business rates makes no difference at all to the operating costs of those who rent buildings or space. The total rental value is determined by what people are willing to pay to occupy such space. How that is split between landlord in rent and government in rates is irrelevant to that price the occupier will pay. Thus the incidence of the rates is not upon the operating business but upon the landlords.
And reducing taxation upon landlords is not going to make any difference at all to the adoption of technology nor productivity.
What this is is a rather more naked call from landlords that they should be taxed less: any reduction in the rates bill will lead, as above, to their being able to increase rents. And of course there's a few retail chains that own their properties, rather than lease them.....such a reduction in rates would privilege those businesses over others.
We're not so naive as to believe that any part of Britain's taxation system is perfect but business rates are one of the better parts of it as is. Taxing landlords and their rent is closer to a land value tax than anything else and as such is one of the least distortionary taxes and one with the lowest deadweight costs. Don't reduce it.
Public economic discourse is reduced to this?
We fear for the future of the nation if this is the level of public economic discourse:
Fiscal austerity has become such a staple of conventional wisdom in the UK that anyone in public life who challenges it is written off as a dangerous leftist. Jeremy Corbyn, the current favourite to become the next leader of Britain’s Labour party, is the latest victim of this chorus of disparagement. Some of his positions are untenable, but his remarks on economic policy are not foolish and they deserve proper scrutiny.
Corbyn has proposed two alternatives to the UK’s current policy of austerity: a national investment bank, to be capitalised by cancelling private-sector tax relief and subsidies;
Very well, let us take this seriously.
The £93 billion in "private sector tax relief and subsidies" that Corbyn is talking about is a number made up out of the aether by a sociologist from a third rate university. Farnsworth, for that is his name, has decided that depreciation allowances for companies investing in capital equipment are in fact equivalent to the taxpayer paying for that capital investment. And that is by far the largest component in that £93 billion.
That is, the suggestion is that we will get more investment by taxing investment more heavily. This is of course ludicrous, economic insanity of the highest order.
And here is where we get worried about the nation. Robert Skidelsky, that is, Baron Skidelsky, Emeritus Professor of Political Economy at Warwick, is describing this as something not foolish, something we should take seriously?
Shouldn't we worry about the future of the nation when the supposedly sensible, the adults in the room, get swept up in this sort of mania?
The case for abolishing Inheritance Tax
Posthumous taxation is no different to Victorian style grave robbery, only done on a much larger scale. Morally- the inheritance tax should be abolished. As well as the moralistic argument, there are also serious economic consequences of the tax- chiefly that it makes the tax system incredibly complicated. Abolishing the tax also means that those who are about to die will have the security of knowing their loved ones will have enough to live comfortably- a worry most parents have in common.
Some say this will lead to more inequality of opportunity. However this may not necessarily be the case. Take the case of the Walton family. Sam Walton grew up very poor. Through innovation and enterprise he founded Walmart and grew it to be the biggest retailer in the world, and when he died in 1992 Walmart was worth roughly $45 billion. His six children have no such experience in building a business. They are better at spending money than making it, and so their fortune will decline over the generations even without inheritance tax. This happens across the economy in Britain and the U.S. Of all the Fortune 500 companies that existed in 1955, only 11% remain. The average life expectancy for a Fortune 500 firm is now 15 years old. Family owned firms are usually sold by a less competent individual family member to another firm or individual, one with a better talent for enterprise.
So, without inheritance tax, the market still distributes resources to ensure maximum efficiency. The inequality of outcome cannot be attributed to lack of opportunity, but to inequality in entrepreneurship, something which builds capitalist society. Additionally some wealthy individuals like Bill Gates, choose to give away their wealth voluntary on their death, Gates choosing to leave his three children with just $10 million each of his vast fortune so they can “find their own way”. Taxing this fortune would probably result in less social good than would result from it going to the charities of Bill Gate’s choice, given how efficient government is.
Of course some hereditary inequality will occur, but this is the case when parents hand down good parenting skills, or good genetics or good education. Why should hereditary property be regulated by the government? Inheritance tax is unfair, predatory and economically harmful. The UK economy would benefit from Inheritance tax being scrapped.
Theo Cox Dodgson is winner of the Under-18 category of the ASI's 'Young Writer on Liberty' competition. You can follow him @theoretical23.
Keynesian infrastructure spending might not be the answer you know
This story of the Don Quijote airport in Spain is instructive about one of the delusions of our times.
Spain's "ghost airport" - that cost hundreds of millions of euros to build and which became a notorious symbol of the excess of the country's bonanza years has been sold to a group of British and Asian investors for just €10,000 (£7,000). Ciudad Real airport airport, in the central Castilla-La Mancha region, has been closed since 2012, despite opening only four years prior to closure. The regional authorities raised an estimated €1billion in private investment to build it. They had hoped it would draw millions of visitors each year to Ciudad Real and the surrounding area, which is known as the home of Miguel de Cervantes’s fictional knight Don Quixote. But the airport itself soon became seen as a quixotic venture, drawing just 33,000 travellers in 2010.
This is of course a symbol of the investment excess in Spain in the boom years rather than of government infrastructure spending in a slump to boost the economy. But it faces exactly the same problem as all other such spending. Whether it is being done to boost the level of demand in the economy or not it is still necessary for the thing itself being built to add value. An airport (and this is not the only one in Spain) that no one wants to use is just a very expensive piece of tarmac with no other actual value. This thus makes all poorer.
Which produces a problem for those who would use infrastructure spending to boost the economy in recession. If the project itself would add value then it should be built, recession or no. And if it doesn't add value then it shouldn't be built, recession or no. There is no room left for the argument that it should be built because recession.
Kid's Company seems to not quite get this idea we call "charity"
An amusing little tale from the third sector as we're supposed to call these things these days:
The charity she founded, which specialises in therapeutic support for severely abused and traumatised children, is likely to halve in size, making £14m of cuts and sacking hundreds of staff in an attempt to survive a serious financial crisis.On Thursday night, she said: “Some ugly games are being played. The facts are that the vulnerable children of this country remain largely unprotected. There’s no point in shooting the messenger if the message is uncomfortable. I am being silenced.”
Kids Company predicted that the proposed restructuring, which it said was triggered after the government signalled that it was to end £5m annual funding, will leave thousands of vulnerable youngsters without support.
That's umm, interesting, isn't it? A £5 million grant cut leads to a £14 million crisis? We can't help but feel that there's a little more, possibly even £9 million more, going on here that just the grant cut.
However, where the plot really seems to get lost is here:
Batmanghelidjh warned that without a regular source of state funding, Kids Company would be reliant on fundraising: “We are doing the most serious work [funded] by cupcake sales and cocktail parties, and I don’t think that is right or sustainable.”
As a result, the charity
Err, yes, that's what charity means. Over here we have a series of things that both must be done and can only be done by government. It is righteous and just that the populace of the country chip in, perhaps in some portion related to their means, to pay for these things through taxation.
Then there's another group of things over here. Which some to many of said populace would like to see done. Which require perhaps coordinated and collective action. But which do not require the power of government to achieve. And there's many ways of organising those things. Corporations do some of them, mutuals others, charities yet another set. But the defining point about these forms of organisation is that they do not have the power of the State to demand, at gunpoint or threat of prison, the money to find them. They must be run in a manner able to persuade people to voluntarily cough up the cash. This is as true of Sainsbury's trying to sell us a banana or two as it is of Ms. Batmanghelidjh suggesting that we might wish to aid deprived children.
This is one of the defining points of a charity, one of the things that differentiates it from said State. And if you're running a charity and you've not quite grasped this point as yet then perhaps you should be doing something else?
If only Steve Hilton knew what he was talking about
It's not looking good for the idea that Steve Hilton is well informed, is it?
My meeting with Luiz was arranged by Citizens UK, the brilliant community organisers who have been such a powerful force in campaigning for a living wage. But my real conversion to this cause was brought about years previously by an unlikely protagonist: Polly Toynbee.
Gaining your information from that source is never going to work out well, is it?
And yet he does get close, only to reject the correct solution:
Some might say that the minimum wage was deliberately set so low that it wouldn’t affect business very much. An increase to the living wage would be a completely different proposition. It is to counter this argument that in my book, More Human, I advocate what I describe as “business-friendly living wage” that requires companies to pay a living wage but cuts their employers’ national insurance by roughly the same amount to neutralise the overall impact. But to be honest, this is letting businesses off the hook. There are plenty that could perfectly well afford to pay the living wage. It’s a choice.
The actual answer is to, as we have been saying here for near a decade now, reduce the amount of tax charged to those on low incomes. We will have more on this later in the week but seriously, what is so difficult to understand about the following? If you want the working poor to have more cash then just stop taxing them so damn much.
Well of course companies dictate corporate tax rates
How else does anyone think this happens? The point being not that the head of the CBI phones George up and dictates what the corporate tax rate would be (not that George would give much mind to the CBI anyway), but that the rate of tax that can be charged depends upon the reaction to it of those the tax is being levied upon. All of which makes the vapours that people are having over this comment somewhat mysterious:
The UK’s tax policy is effectively dictated by companies and not ministers, according to a leading barrister and adviser to the treasury on its recent “Google tax”.
Philip Baker QC said policymakers and tax experts had learned over recent decades that the mobility of companies and jobs meant there was “no question [countries] have to be competitive to survive”. As a consequence, governments had to provide the tax policies that international corporations wanted.
So, why do we not have 100% income tax rates on pay over £7.00 an hour? Because we know that just about everyone would bugger off out of the country making being the politicians running it really no fun at all. why don't we have VAT at 100% on everything? Because that storm for the ferries would be just the same as most fled such an extortionate tax regime. If, of course, we didn't all just ignore it and deal in cash.
so, why do we have a reasonably reasonable corporate tax system and rate? Because it's easy enough for a company to leave the country and go and try to make a profit elsewhere. Therefore their mobility really does tax our ability, dictate to the government, to tax them.
There's really nothing mysterious about this at all. We all realise that a restaurant where they ceremonially spat on the soup at each and every table would get very little customs (not none as there's nowt so strange as folk) for we would be dictating our rejection of the practice by staying away.
Why would anyone think that taxation would be different?