Monday, March 03, 2008

Rebutting The Dude

A Very British Dude is not impressed by LPUK's proposal to abolish income tax—in fact, "lunacy" is the word that he uses—but I think that he misses several important points.
Abolishing income tax makes them seem off the map. The reaction to this, their first policy is going to be

however well thought out it is.

Possibly. But then, if we just get people thinking about it, that will be a good thing. The usefulness of income tax is that it was introduced not too long ago and for a specific purpose: to fight the Napoleonic Wars.

It was abolished in 1802, having been in force for three years, and had to be levied again in 1803: again, because hostilities against France recommenced. It was abolished in 1816, a year after we won the Battle of Waterloo, and wasn't levied again until 1841, when Sir Robert Peel reintroduced it.
Peel, as a Conservative, had opposed income tax in the 1841 general election, but a growing budget deficit required a new source of funds.

Or, to put it another way, the government had been so profligate with its funds that it was forced to take more money off the hard-working people of Britain so that the state could continue to expand. Who would have thunk it?—a state, unable to balance its books, shakes down the taxpayers in order to pay for the state's failure. I've never heard of that being done before...

Some people, of course, have said that the state didn't need income tax then because it was much smaller. My reply?

And a replacement: local sales tax is ridiculous - tax competition between counties would be extremely unpopular. Just look at the reactions to "postcode lotteries" in health and education, imagine what it would be like if there were major differences in the cost of living - Labour shit-holes would have high taxes and the poorest would be unable to go to the next town. Think "Poll-tax" but with extra anger.

This entirely misses the point. The problem with pricing services according to the so-called postcode lottery is that they are based on where you live. It is difficult to up sticks and move to somewhere more favourable (though it doesn't stop those who can afford it from doing so); it is easy to hop on a bus over the county line to buy cheaper clothes, or stationery, or whatever. People do it all the time.

But so stupid is the idea of funding services at a local level through a local sales tax that this group of utter lunatics have proposed something similar. Direct Democracy are "a movement of MPs, MEPs, activists and candidates committed to making localism the core of the Conservative Party's platform" and who advocate raising almost all funds locally: in fact, the person who convinced me that a local sales tax was feasible—as we were returning home from a stint on 18 Doughty Street—was one Douglas Carswell MP. Indeed, Dave Cameron seems to approve of this group...
"I passionately believe we need to localise power, as recommended by the Direct Democracy movement of Conservative activists and MPs" - David Cameron

But a local sales tax is, according to The Dude, just crazy talk!
Government, even a minarchist one acting in a "night watchman" role needs money.

Indeed it does, and there are many ways in which to raise that money and to do so almost painlessly. Mark Wadsworth talked, quite sensibly, about a Land Value Tax.
At the very least LVT could and should replace all property-related taxes, such as Council Tax, Business Rates, Stamp Duty Land Tax, Inheritance Tax, Capital Gains Tax and the TV licence fee, net of Council Tax Benefit and subsidies for agricultural landowners (total net revenues, about £50 bn, or 10% of the UK's total tax receipts).

** The 'single taxers' believe that ultimately, the amount of LVT that would be collected (whether you call it ground-rent or call it tax is by-the-by) would be sufficient to fund all State spending - including welfare - so all other taxes could be abolished. This would be a feudal system with redistribution, so to speak.

But despite all of this, apparently proposing the abolition of income tax is "lunacy".

I would suggest—should our idea be dismissed out of hand—that the problem here is not with our radical policy, but a massive paucity of thinking on the part of others.

UPDATE: I forgot to say that the Dude does make one very good point.
If there is to be a Libertarian party (director of communications - DK), why don't they start with some policies which might have some public traction? Like repealing oppressive legislation such as the criminal offence of "failure to kneel before someone in a high vis vest with intent to be free", or Being "in possession of a beard with intent to be Muslim". Maybe they could suggest that 24 hours is quite long enough for the police to hold anyone without charge, Thank you very much.

To be honest, I think that we got slightly blind-sided here; to us it seems so utterly obvious that we would abolish such illiberal laws that we keep forgetting to mention it. But we will definitely be doing a drive on the civil liberties front.


Jackart said...

Quite... You've underestimated just how much damage has been done in the last 10 years to our once free country...

Pat said...

Why income tax particularly? We'd still be left with a tax on income (even if its called national insurance) so there'd be no saving on collection costs and no freeing up of talent. I'd start with corporation tax and the job tax (sorry employer's contribution to national insurance).

Guido Fawkes Esq. said...

Abolish it yourself. Self-liberation is a form of non-violent civil disobedience.

Why did the slaves cooperate in keeping themselves in chains?

Anonymous said...

dk if you got rid of income tax there would be a huge inflationary gap created through having a easy fiscal policy this would create overnight hyper inflation.

i think that people would find it more appealing if you found some other way of taking money out of the economy so that a inflationary gap is not created.

in short to resolve the problem of the inflationary gap created through this tax reduction you would either have to increase interest rate (this would create huge problems and repossessions), introduce another tax (kind of defeating the point) or find another way of taking that new excess of liquidity out of the market.

you will become an economic laughing stock if you do not at least explain how you would resolve this problem. however there are some ways of doing it so you should ask a macro economist.

also if you get rid of income tax and replace it with other taxes the other taxes may not be constant. for example if you want demerit taxes you will not always get the tax revenue that you need but income tax is more constant and is more secure for government revenue.

these are some of the economic problems that you will have to explain or solve.

if you want i have been working on tax and pensions and may be able to help you if you want email me and i will give you some advise

i suggest that if you are serious about dropping income tax you might introduce a pension system that increases saving and as a result would reduce the inflationary gap created through the tax reduction that would be created through fiscal policy. it would also increase pension saving and sort that problem out too.

if you want any free advice on this subject email and i am willing to help. i have just written a taxation model that you might be interested in and might be an alternative to the idea that you have. abolition of income tax might be too great a jump but a very low flat rate would be a great way of providing a similar stance and possibly very productive.

Mark Wadsworth said...

There is no need to bicker about all this. Milton Friedman, classic small government free market liberal said that the least bad tax is land value tax and beyond that a low-rate flat tax on all income.

Nowhere does he mention Sales Taxes as being a good tax. So let's apply logic. If you are in favour of free trade you are against import duties. VAT is exactly like charing import duties on every single VAT-able transaction, it is a truly bad tax.

Milt does mention that payroll taxes (i.e. national insurance) are a complete con-trick.

(So getting back to what I was saying, VAT and National Insurance should go first. That makes good economic sense rather than a gimmicky headline).

And as to keeping the State as small as possible, I think we are all agreed on that.

As to Anon's 'inflationary gap', yes that's why you'd need to introduce Land Value Tax at the same time to prevent a housing bubble.

Budgie said...

anonymous 3:02am said:
'if you got rid of income tax there would be a huge inflationary gap created through having a easy fiscal policy this would create overnight hyper inflation.'

Rubbish. 'Inflation is always and everywhere a monetary phenomenon' (Milton Friedman, I think).

Cutting taxes (provided the money supply does not change) simply changes the recipients of that money. In particular the money stays in the hands of those that earn it, rather than being confiscated by the state.

Mike Power said...

Would it be a bad thing, would it be a good thing, would the girls like it? Ooooh!

Well, thank fuck the UKLP are never, ever, ever going to in a position to have to make a decision about it.

Next! Free Cholcolate Hobnobs for all ? Those in favour....

Ade said...

There's one bit missing from the LPUK's calculation: Assuming you could chop income tax completely and - ideally - seriously simplify the remaining taxes, you should be in a position to save at least half of the annual HMRC bill - which is currently running at approx. £15bn/year.

So - halve the size of HMRC, save around an extra £7.5bn/year; and that's assuming you can't make the UK tax system simple enough to run on a ZX Spectrum (which should be possible).

Hmm, just reading about abolishing Income Tax has caused my laptop to overheat. How bizzare.