Sunday 20 May 2012

Tax reform

Yesterday's post explained why it made sense to replace the overlapping systems of means-tested benefits, contributory benefits and subsidies to land ownership with a flat rate Citizen's Income. This of course raises the question of how this would be funded (the cost of the core functions of government - law and order, defence, refuse collection and road repairs is minimal - costing barely 5% of GDP).

1. Over the past century or two it has become majority opinion that taxes should be raised by taxing earned income and output:
2. The bulk of government revenues used to be raised from the rental value of land, to eliminate the inbuilt subsidies to land ownership. Nowadays, less than a tenth of government revenues are from the rental value of land, leaving land owners to collect the subsidies, i.e. the rent they can charge - or the benefits they can enjoy without paying for them - thanks to the efforts of everybody in the productive economy and the income tax revenues spent on improvements which then push up the rental value of land etc:
3. Somebody starting out in life therefore has to pay two layers of tax - direct tax on his income, which is used to pay for the core functions of the state and other things which push up rental values; and then the rent he has to pay privately in order to be able to live somewhere - if he moves to an area with higher wages to try and earn more, nearly all the extra wages are soaked up in income tax or the higher rents in high wage areas:
4. Taxes on earned income are not only morally questionable but have huge dead weight costs. The average rate of tax on incomes, taking income tax, VAT, National Insurance, corporation tax and Working Tax Credit withdrawal into account is about fifty per cent, and this depresses the size of the economy by something like ten or twenty per cent. Taxes on the rental value of land - to claw back the inbuilt subsidies - do not have dead weight costs, so replacing taxes on income with taxes on land would allow the economy to grow by ten or twenty per cent within a few years:
5. So instead of paying two layers of tax (one publicly collected, and one privately collected), workers and businesses would only pay one layer - being the rent (which would then be clawed back from the land owner as tax). For most owner-occupier households or businesses, the tax they would pay on the land they occupy would be much the same as the tax they currently pay on their earned income. After paying for the cost of the core functions of government, the rest of the tax revenues would be repaid to everybody as a flat rate Citizen's Income (or vouchers for merit goods such as education or health) and so the median household in a median home would be a net zero taxpayer: the Citizen's Income it receives would be equal and opposite to the land value tax it has to pay:
6. So who 'loses out'? Those people who currently derive the bulk of their income (whether in cash or non-cash) from the rental value of land. They will have to return to the productive economy or accept a more modest lifestyle. Further, the purchase price of land would be significantly reduced, and ultimately, there is no reason why the purchase price of any plot of land (after deducting the cost/value of improvements thereon for which the owner has paid) should be any more than its cost of production, which is of course more or less £nil:

Saturday 19 May 2012

Welfare Reform

1. People clearly have different levels of income and assets and the welfare system is an attempt to redistribute this somewhat, or to alleviate poverty:
2. For some reason, people like 'contributory benefits', where those who have earned most and paid most taxes are paid higher old age pensions or seen as more deserving recipients of unemployment benefit, despite this is just like a belated tax rebate and it would have been better to simply not collect the tax in the first place. Most pernicious of all are subsidies to certain assets, in particular land ownership (manifested with things like cash subsidies for buying a home; Housing Benefit payments which only benefit landlords in the long run and the fact that land ownership generally is nothing more than a state-sanctioned transfer of wealth, i.e. a subsidy):
3. Then there is a strange coalition of a) Socialists who think that people with low or no incomes deserve more than those who have (or have had) higher incomes and have built up some savings; and b) right wingers who like means-testing because they think it saves money (what they don't realise is that means testing is like a stealth tax on incomes and non-land assets which are taken into account for means testing):
4. So as things stand in the UK, we have a mish mash of subsidies to land ownership, means tested and contributory benefits, so the Socialists, right wingers, authoritarians, bureaucrats and land owners are all happy. The effect of having two overlapping and parallel systems means that people actually receive pretty much the same whatever their level of income or assets (ignoring the net subsidies to land ownership which are lightly taxed and not taken into account for most means-testing):
5. So why not merge the two systems with all the huge administration costs, fraud and error and traps and loopholes with a flat rate Citizen's Income, payable in cash. The cost of which can be largely funded by clawing back the subsidies to land ownership, i.e. by imposing a land value tax such as Domestic Rates, which would mean that the Citizen's Income received by a median household in a median home would be equal and opposite to the Domestic Rates due on that home?

Wednesday 16 May 2012

Policy statements: Same-sex marriage, minimum alcohol pricing

We see absolutely no reason why UK legislation refers to marriages between gays and lesbians as 'civil partnerships' but then treats them, as far as we can see, in exactly the same way.

As far as we are concerned, the term 'civil partnership' can be abandoned, and whatever statutes there are covering marriages can be amended to make it clear that a marriage can be between any two consenting adults, male, female or otherwise. Stonewall have already published their own draft Extension of Marriage to Same-Sex Couples Bill, which seems perfectly sensible.

Their Section 3 seems far too timid to us. Agreed, all religions except the Church of England and the Church of Wales are ultimately private organisations (most of them exhibiting various degrees of homophobia) which are not under the control of the UK government which has no right to dictate terms, but those two Churches are official, state religions (their bishops sit in the House of Lords; coronations etc are held in a Church of England cathedral) and there is no reason why they cannot be told to name at least a certain number of churches in which same-sex marriages can and will be held, should the couples so wish.
We are appalled by the Scottish government's imposition of a minimum price for alcohol of 50p per unit and mumblings by the UK government that the same will be imposed in England and Wales.

Firstly, there is no binge-drinking epidemic; even if there were, such a price hike will do absolutely nothing to reverse it; and finally, the only real beneficiaries of this will be the large supermarket chains who will be able to increase their prices accordingly.

Alcohol duties themselves push up the price of booze. These are not the worst kind of taxes, but they - especially when combined with VAT on top (a tax we would seek to scrap as soon as possible) - are pretty much at the upper limit of what can be collected. Any higher and all we see is more smuggling and illicit distilleries with no further increase in revenues.