I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible. The reason I am is because I believe the big problem is not taxes, the big problem is spending. The question is, "How do you hold down government spending?" Government spending now amounts to close to 40% of national income not counting indirect spending through regulation and the like. If you include that, you get up to roughly half. The real danger we face is that number will creep up and up and up. The only effective way I think to hold it down, is to hold down the amount of income the government has. The way to do that is to cut taxes."
Which is fine as far as it goes. However, the problem is a little more fraught than that, because governments like having money—money enables whichever party is in power to lavish gifts on its favoured groups, thus ensuring that they will continue to vote for said party.
At the same time, however, said government doesn't want to annoy the other parties favoured groups too much, so it does cut their funding or raise their taxes too much—or else they will never get the votes from those few people who are likely to switch allegiance (and thus win the election for the party).
Let's use a very basic illustration...
- Party 1 spends £1 billion on the unions and the poor before it is unseated by Party 2. Spending is now at £1 billion.
- Party 2 spends £1 billion on large corporations. However, it doesn't want to unduly piss off Party 1's supporters, so they only cut spending on these groups by £0.2 billion. Spending is now at £1.8 billion.
- Party 1 wants to restore the funding to its favoured groups, and more—so, it spends another £1 billion on them. And, like Party 2, it doesn't want to piss off the corporates too much—so it only cuts their funding by £0.2 billion. Spending is now at £4 billion.
- Party 2 gets in, etc. etc.
This is the basic mechanism by which government spending increases—it's why the state spent 8% of GDP in 1880, and now spends about 50% of GDP now. Another reason is, of course, that the state did far less in 1880 in terms of interference in home markets: about half of that 8% was military spending.
But, you see, once you start giving your voters money, it becomes very difficult to take it away again: and so, the more the government spends on benefits and other sweeteners, the more difficult it gets to cut those costs.
The mechanism that is supposed to curb taxation—or spending—is that of democratic elections. If taxes get too high—so the theory goes—then the voters will simply vote out the high-taxing government. This is what is supposed to keep the state in line.
Unfortunately, we don't need Jonathan Aitken to point out that "one vote every four or five years in not tremendously important" because we already know it.
Politicians can get into government promising all sorts of things—such as low taxes—but, as we also know, "manifesto pledges are not subject to legitimate expectation". So, politicians tell a few big lies every four or five years, and then do not have to deliver on them.
But surely, if a government wants to get re-elected, they will have to enact some fiscal restraint immediately before a general election? No.
What tends to happen is not that governments cut taxes just before an election—no. What they tend to do is simply increase spending to their favoured groups (in this case, nearly everyone) because they can borrow the money to do so: and, if they don't get elected again, well, then it's their rivals' problem, eh?
And the trouble is that there are upper limits to the amount of tax that a government can raise—not simply before voters get really pissed off, but also because people start finding ways in which to avoid said taxes (one of the factors that give rise to the phenomenon known as the Laffer Curve).
One of the ways to avoid taxes is to work less; another is to employ fewer people or to make less profit—these are just some of the reasons why higher government spending leads to lower GDP growth—in fact, according to the OECD, every additional percent of GDP taken by government is to reduce per capita GDP by 0.7%. And that, of course, makes everyone poorer than they might be.
So, the government cannot raise enough tax, and so they have to borrow to keep the ever-increasing funds flowing to their voters. And so we find ourselves in the current mess: the governments can't raise tax anymore because they would mightily piss off one bunch of voters, but they can't cut spending because they will piss off the other bunch of voters. And so governments of all stripes have simply borrowed more and more and more in the vague hope that something will turn up.
Or—like some ever more frantic game of pass the explosive, shit-filled parcel—the respective governments hope that, should nothing materialise, at least the whole shebang will blow up whilst their rivals are in power rather than them.
All of which—plus our current travails—goes to show that whilst Milton Friedman is not wrong, his statement quoted above does not tell the whole story. Because holding down taxation has not stopped our governments overspending: not even the very real threat of "bankruptcy" is doing that.
The basic premise was right: as one episode of Yes, Minister pointed out, governments do not work out what they need to spend and then raise that amount of tax—they work out how much tax they can raise and then work out what to spend it on.
But I don't think that it even works that way any more.
I think governments work out how much they want to spend; then they work out the maximum possible that they can raise from tax, and desperately hope that they can borrow the deficit.
And since all of our major political parties operate in this way, our choice of who to vote for at a general election is not particularly different or wide. Which is a problem.
It is a problem because even a general election ceases to be meaningful as a curb on spending: if you have three main parties and they are vowing to spend much the same amount of money, then it doesn't matter who you vote for—the spendthrift, GDP destroyers always get in.
And then, of course, we are subject to another five years of profligacy which we all must pay for—not only directly in taxes and deferred taxes (which is all that government debt is) but also through lower incomes and lower growth. (And, quite apart from anything else, lower incomes and lower growth means that there are more poor people who require (or desire) more government spending, etc.)
And we haven't even covered the perverse incentives that government spending creates.
So, here is the big fact—money is power. In theory but not, it seems, in practice.
You see, the government has, seemingly, all the power but doesn't have any money of its own: that money is ours—we earn it. So, why don't we have the power?
Because the state has the one thing that trumps money: it has guns and, additionally, a monopoly on legal force. If you don't pay your taxes, you go to prison.
I think that it is important to emphasise this point, which is why I consistently point out that taxation is extortion with menaces. Some, mostly on the Left, argue that this is not the case and that, by voting whichever political party into power, we—as a nation—acquiesce to this theft.
Which, as I have argued above in pointing out the similarities between the parties' economic policies, is a something of a fallacy because we are not, actually, presented with a choice. The only way we have of registering our disapproval of all of them is not to vote—a choice that increasing numbers of people take each year.
Besides, there are any numbers of policies that people vote on that are not directly to do with money (although most of them require money to be fulfilled).
So, what we really want to do is to be able to separate the money side from any other policy; and we want to do it more often than every four or five years.
Which is where EUReferendum's campaign for Referism comes in.
The executive (the former king) must refer to parliament each year for approval of its budget. Without that, it runs out of money. Our problem is—and the heart of all our problems—is that this process has become an empty ritual. No parliament has rejected a budget in living memory, and none is likely to.
So each year we see this great ritual, where the government of the day pretends to ask us for money, and we have to watch the empty charade of approval being given—only then to see vast amounts being spent on things of which the majority of us do not approve, such as the European Union.
This must stop. The ritual must turn back into substance, and there must be real control over the annual budget. The politicians cannot be trusted to discharge this duty. They have their fingers in the till and a vested interest in maintaining high levels of expenditure. The power must go to the people who pay the bills—us.
Indeed. But how might this be achieved (I think that you can guess)...? [Emphasis mine.]
The means by which must be achieved is through the ballot box, with an annual referendum. The budget must, each year, be submitted to the people for approval, and comes into force only once approved. The politicians must make their case, put their arguments, and then ask us for the money... and they have to say please. We, the people, decide whether they get it. We, the people, have the power to say no.
If you want politics—you got it. Do you want out of the EU? Fine, build up a caucus and vote down the budget. Make it plain to the politicians that no money will be forthcoming until we withdraw. Simples... and it is that simple. Starve the beast, rather than risk everything on an all-or-nothing rigged ballot, given at the discretion of our masters. And let's do it at local level as well.
Logically, there might have to be a fall-back position, where the executive can draw down maintenance funds, pending approval, to keep basis services going—or not. If Congress does not approve the budget in the US, it falls. That tends to concentrate minds. Only, in this case, it is the people who stop the money. And money talks.
As Richard points out, the real value in this is that it provides a continuous process of control. We already know, because a judge has told us, that manifesto pledges are not subject to legitimate expectation—that means that political parties can lie and lie again in order to get into office and there is no way in which we can hold them to their promises.
However, if they have to come back to the electorate every, single year—regardless of party or manifesto promises—then the government will not only need to justify the next year's spending, they will need to show that the last year's actually achieved what they claimed it would.
It is that which makes the big difference—we are talking about a continuous process of control. By contrast, a one-off referendum, agreed (or not) by the government, on a grace and favour basis, for its own tactical advantage, is to concede the power to the government. We, the people, still have to go to The Man, and ask him "pretty please" can we have a referendum. When we hold the purse strings, The Man says "please" to us.
Which is all very well, but how do we achieve this aim?
So how does this become an "ism"? Well, in my earlier piece, I wrote about the need of society to communicate to its government its "wishes and needs", to make it perform and yet prevent it from taking over, swapping the master-servant relationship.
We do it by controlling the purse strings, and we do that by making the government refer to us for permission to raise and spend funds. Our tool is the referendum, our philosophy is thus "referism" and we are "referists" or, in colloquial terms, "reffers". If we want a political party, and I would not advise it, then we set up a Referist Party.
Better, I thought, we work with the existing parties. We build a movement and make it clear that the first party to offer an annual referendum on the budget gets our vote. We could, tactically, even pick on one of the parties, and tell it that it will never get into power unless it agrees to our terms. We have the power to do that, if we mobilise and then use it.
After some experience of attempting to get bloggers together to do something in the real world, I am heavily sceptical that it can be achieved—as I pointed out on the EUReferendum forum. Richard's reply was confident...
One must not ask too much, too soon. All revolutions have to have an intellectual base ... their own "ism". The blogosphere ... if it cares to do so, can build brand recognition for an "ism", cocking a snoot at the MSM. That in itself it a worthwhile and necessary task ... great fun, and doable.
We need to believe in our own strength and power ... but it does take time. From the start of the publication of the Chartists' "six points" (1838) it took them ten years to reach London with a major rally ... but they changed politics forever. What has been lacking so far is focus ... our "ism". Now, have ism, will travel.
Very well then, your humble Devil will happily throw what weight he has left behind this concept of Referism—it is an interesting idea and, if achieved, would shackle the politicians to the will of those who pay for the government's profligacy.
Indeed, the idea that the government—and local authorities—must come grovelling to beg us for their funds each and every year is enough to make the entire exercise worthwhile...