Tag: Tax

This talk of a £2 million mansion tax is arbitrary nonsense

There’s a poll doing the rounds asking how people feel about a tax on properties worth more than £2 million. Not surprisingly, as most people do not own a property worth over £2 million, and are never likely to, the majority of respondents supported the idea in one way or another.

This is where absolute democracy leads – to the abuse of minorities by majorities. It’s why we have traditionally regarded ourselves as a liberal democracy, which is a form of democracy that recognises the danger of majorities behaving like mobs. Liberal democracy asks for restraint. But then we decided to become a social democracy instead, which is a form of democracy that doesn’t really understand the meaning of the word restraint, especially when it comes to taxing people and spending their money.

Anyway!

42% ‘strongly’ support the idea. This figure is depressingly large and suggests our democracy is becoming rather envious and vindictive. But when added to the 30% who ‘tend’ to support the idea, we are left with 72% of the poll sample supporting the arbitrary idea of lumping an envy tax on those lucky enough to own a property worth over £2 million.

Well, why not? These people are obviously rich, so squeeze the Tory scum. They’re going to be Tory as well, aren’t they, being rich? Tax them all – that’ll sort out the £100 billion deficit.

In theory and in practice the rich should pay more in tax. Adam Smith laid down that principle a long time ago, and I have never heard anyone, even the most devout of libertarians, suggest they should not. But this is not what we are talking about here. This proposed tax is often called a Mansion Tax, which tells you all you need to know – it’s an arbitrary, vindictive, nasty tax. We know this because it uses the word mansion pejoratively, to get the hackles rising on the necks of those who rather like living in a capricious country.

Advertisements

Politicians, presentation and the subversion of integrity

What sort of politician do you prefer: a conviction politician led by a clear sense of what is right and wrong, or a perception politician led by the public mood? Should a politician rely mostly on their political philosophy or on the deliberations of various focus groups?

Perhaps these things are not mutually exclusive. Perhaps the former is too autocratic and the latter too weak, and perhaps the best sort of politician is the one who knows what he or she believes but is not so self-obsessed as to be blind to fallibility.

These questions arise because of a recent post by Alex Massie on his Spectator blog. Labour and Conservative politicians, he writes, ‘are both wrong on the politics of the 50% rate of income tax.’ We might wonder how they can both be wrong. Surely 50% is either the right rate or it is the wrong rate? What does he mean?

The telling word here is politicsWhen various characters ask why so and so is playing politics over this or that issue, they are criticising their political opponent for not treating the issue with the impartial respect it deserves. In this context, it is a pejorative term: to play politics is underhand, ignoble and contrary to the interests of the country.

And yet politics is their game. It is what we elect them to Westminster to do, and it is a serious game that affects people’s lives. Political decisions are necessary in a civilised society: they determine the occurrence of war, the level of public services and the degree of public intervention in otherwise private matters. No-one is exempt from their effects. It just so happens that politics has two meanings: the functional process of deciding policy; and the political process of ingratiating oneself with the public.

In this example, Mr Massie is saying Conservatives and Labour have both blundered: the Conservatives because, by reducing the income tax rate from 50 to 45%, they have reinforced the wrong political message – that they look to the interests of their ‘rich chums’ first; and Labour because, by arguing for a return to the 50% rate, they are reinforcing their negative image as the tax and spend party. They are, in short, reinforcing negative stereotypes.

This is a good point. Perception really does matter. But there is another side to this. What happens if one of these positions is right: ‘right’ in the sense of being in the long-term interests of the country as opposed to the short-term interests of the party? What then? We have subordinated conviction to perception. There might be very good electoral reasons to do this, but the country has lost out. Politics, as one might say, is more than mere politics.

It brings us back to the question: what sort of politician do you prefer? Should they act in the interests of the country or their party? We could get into the circular argument that a party needs to win an election before it can implement its otherwise terrific policies, thus making a bit of politicking an essential precursor to doing good. But what if this analysis is also wrong?

We do not need much reminding that politicians have a pretty low reputation at the moment, and that this was caused by not only the fiddling of expenses but also a growing sense that they lack political integrity. How many times does a vox pop survey turn up a verdict of ‘I don’t trust politicians?’

People vote for various reasons, and perception is no doubt one of them. But in this context, perception is a negative reason to vote, especially if it is based on a set of policies that seem to contradict the overarching political philosophy of whichever politician happens to be standing before us at the time.

For Conservatives to argue for higher tax and Labour for lower tax seems to run against everything we think we know about these parties. When they start arguing for things contrary to their philosophy, it merely reinforces the thought in the public’s mind that politicians lack integrity. To the electorate, it looks like the politicians are simply gaming them. The damage done to Nick Clegg over his promise on university tuition fees comes to mind.

Mr Massie is right to attach importance to political perception, and no doubt he attaches equal importance to integrity. But there is an inevitable trade-off when political philosophy is subordinated to presentation. Political parties will always have an eye to the next election (and also think that this requires a lot of ‘politics’), but they need to ask themselves why people are reluctant to vote for them. Is it because they don’t spend enough time ‘signalling’ and combating ‘negative stereotypes,’ or because the public don’t really trust what they are being told anymore?

Is the Minimum Wage the best way to increase take-home pay?

The Conservative Party sometimes appears to be suffering from Stockholm syndrome. This is the psychological condition where hostages start defending their captors, sometimes to the point of agreeing with their grievance and thinking the kidnapping was in some way justified. As should be obvious, I am being more metaphorical than literal; but there the Conservatives are, happily minding their own business, thinking conservative things, when along comes a bunch of thugs to take them captive and they find themselves thinking that the only way out is to start agreeing with their captors views on all sorts of issues.

I refer, in this instance, to the Conservative Party’s flirtation with an increase in the minimum wage. It might sound like a good idea, but it’s a policy that trades people’s jobs for small increases in the pay of those fortunate enough to still have one, which is not so good. Some argue that there is, in fact, no link between minimum wages and unemployment, but their evidence is so convoluted and dependent on other mitigating factors that it is meaningless, or at best unverifiable. Until someone can adequately demonstrate that increasing the cost of something does not, as a general rule, reduce demand for it, then I’m sticking to orthodox economic theory. And so should anyone else who agrees with the scientific method.

There are two basic reasons why people advocate minimum wages, both of which are unsatisfactory yet sadly prevalent: first, if of a general Labour persuasion, it is to further the concept of the client state, which encourages parts of the electorate to vote for their party out of fear that benefits, usually economic, will be lost to them if they do not; and second, if of a general Conservative persuasion, it is to protect themselves from people only too willing to denounce them for being nasty, uncaring and generally immoral and in love with the idea of grinding ordinary people’s noses in the mud.

As such, there is another definition for Stockholm syndrome that is perhaps more apt: the formation of traumatic bonding between two parties, one of whom harasses, intimidates, abuses and threatens the other. As far as the minimum wage is concerned, one party expresses concern that an increase, while helping those in work, runs the risk of keeping others out of work, and the other suggests that this is just another example of heartless toryism. To avoid such denunciation, the rational response is to convince yourself that perhaps you are wrong and that an increase in the minimum wage only has an upside.

So when Conservatives start admitting that there is a ‘strong case’ for raising the minimum wage, they are in a sense speaking the absolute truth, as they see it. Though it is tempting to say that it is politics that has convinced them, not economics. It is politically expedient to agree that minimum wages are just great, because in so doing they remove one of the sticks with which their political opponents can beat them. But this is not how we should want politics to be conducted: one side making policy out of fear rather than rationality and conviction.

The sad thing is that there are legitimate arguments for and against increasing the minimum wage; indeed, for its very existence. On the one hand it really does increase the take-home pay of the low paid. This is to be welcomed. We accept that the poorest households could all do with a bit more money. But on the other hand, there is the negative of some people somewhere not having a job because of the rise other people have received. It is a simple choice as to whether we think higher pay is worth a bit more unemployment, which we might try to mitigate in other ways. That should be the debate, not the crude bully-boy spectacle we have of one side decrying the other for being immoral and nasty. Indeed, where Stockholm syndrome is strongest, the aggressive party doesn’t even need to say anything – it’s a simple psychological truth that your life will be easier if you go along with them.

I suppose this is the logical consequence of the ‘fairness agenda.’ Fairness is entirely subjective, and as such tends to ape religious faith: it’s just something you believe, like, really strongly, and if you don’t agree with me then you’re a heretic and burning at the stake is probably too good for you. What is saddest in this spectacle, from all parties, is that the interests of the poor, rather than being the primary motive for their politicking, is the last thing on their minds. What happens instead is that too many politicians contort policy to show how fair they are, while actually being nothing of the sort. It might be fair for the poor to get more pay, but it is not fair for other people to be put out of work to achieve that aim.

And there are other ways to increase people’s take-home pay; for that is the objective of the minimum wage, is it not? We could increase the personal income tax allowance to cover all those on the minimum wage, necessitating an increase from £10,000 to £11,400, which the Liberal Democrats seem to support, as does the Taxpayers’ Alliance. We could also try controlling immigration which puts downward pressure on wages. In time, with fuller employment and a controlled labour market, wages would naturally rise to make the argument for a national minimum wage defunct.

This is now leading into a wider-ranging argument as to why wages are low in the UK, which is for another time or, better still, for someone not writing from a position of ignorance; but whatever decisions the government takes over the minimum wage, it is worth remembering that it is an issue with just a little more complexity than the good guys in favour and the bad guys, the heartless, the tories, not in favour. This might be naive, and perhaps overly charitable, but most politicians, of whatever colour, would like to see the condition of the low paid improve. It’s not a matter of objective, rather it’s a matter of method.

Not a Review of the Autumn Statement

Treasury statements, whether of the Budget or Autumn Statement variety, are so full of detail and minutiae and political misdirection that it’s difficult to make sense of them. And I don’t propose to start now.

But if one thing is clear, it’s that almost nothing upsets a politician more than low tax revenue. Apart from personal scandal, of course; although we seem to be free of that sort of thing, for now.

Low tax revenue means not enough money for politicians and their projects, and oh how they love their projects and schemes. Without them they feel uncomfortable and impotent, no matter how useful they are to the public that pays for them.

While there is something appealing in the concept of impotent politicians, it’s not in their nature to leave things alone. There’s always a problem, and it’s a problem, as luck would have it, for which they have the unique competence to solve. They didn’t go to all that effort to get elected in order to not do things in Westminster; and that includes many on the Right. They do, however, realise that tax revenue is dependent on economic activity; more activity means more things to tax. And, when we consider the extent of the deficit, we know we need more of it.

But how?

While a certain sort of grabbing politician sees an increase in tax as a moral good in its own right, they are obliquely aware that taxes can have a negative effect on demand. They ignore the problem, however, by exhuming John Maynard Keynes, the economist, and claiming that demand is best encouraged by governments spending stimulus-money. The circuitous nature of the argument is lost on them, but it is fortuitous that the moral imperative for governments to spend money legitimizes yet more taxation.

But there comes a time when people will not accept ever-increasing levels of taxation. When that happens, and when they realise that targeting the rich doesn’t raise the revenue they imagine, politicians fall on the second method of raising tax revenue: growth.

Growth is now the watchword because that is the second side of the spending-reduction coin. While deficits are reduced by converging the spending and revenue lines, the democratic system prefers, for obvious reasons, to increase spending even if revenues are concurrently decreasing. And in the face of sluggish tax receipts, growth is the most favoured way out of the predicament. Growth increases the size of the pie, and thus the size of each slice, which in this instance refers to the tax take; get growth, get more tax.

Yet none of this answers the question of how we get growth; where does it come from, and is there anything governments can do to encourage it? Again, this seems to depend on your political and economic perspective. On the one hand, there are those that see demand as the key to growth, arguing for government intervention to get money flowing and people spending. Yet on the other, there are those that see supply as the key to growth, who are less taken with monetary stimulus, preferring to concentrate on measures like deregulation and tax reduction.

This last measure, ironically, has a positive effect on demand as well as supply. While firms have more money to invest and reduce their costs, thus improving competitiveness, people also have more money to spend. Both demand and supply are helped. The stumbling block, however, is the short-term reduction in revenue and the worry that increased economic activity will not cover the new gap between spending and revenue caused by the new tax cuts.

But that is another issue. Politicians are now mostly arguing for growth, despite lingering calls for the rich to bear an even ‘fairer’ burden. Though it’s not clear that anyone has worked out when an acceptable level of fairness is reached. Politicians now seem to realise that the best way to raise tax revenue is to increase the size of the pie, which is good because tax increases are mostly counter-productive. No doubt this is why the Autumn Statement has just ruled out the so-called Mansion Tax.

It’s interesting, however, that Budgets and Autumn Statements no longer seem to be statements on budgets alone (if that was ever the case), but overarching statements on economic management. How easy would it be if the Treasury returned to simply raising the revenue it needed to meet government spending commitments, leaving the economy to manage itself through the invention and ingenuity of people and businesses? How easy indeed, but unlikely considering the never-ending supply of politicians with their little but expensive projects and their conviction that only through their endeavours can we be saved.

It’s a government minister’s job to speak to the media

Last night Chloe Smith, MP and Treasury Minister, appeared on Newsnight to answer Paxo-questions on George Osborne’s decision to delay the 3p fuel duty rise.  And she didn’t do too well.

‘When were you told of the change of plan?’ asked Paxman.

The answer should have been something like: ‘today’, or: ‘I knew of the Chancellor’s decision earlier today.  It’s something we’ve been considering for several weeks now and the final decision, I think, is right because it will ease the financial burden on motorists just at a time when they need it.’

But she went for the other option and came across all defensive.  She tried to tell Paxman that she was definitely inside the wigwam of important decision making and hadn’t only that second found out about the change of plan as if she was just some insignificant functionary.  But it didn’t really work.

Evasion is like a red rag to Paxman when he’s imagining himself a bull, and he went for her, deploying that well-tried tactic of asking the same question over and over.  And things didn’t improve much after that, and by the end she was coming across as one of two things depending on the viewers’ mood or prejudice: evasive or incompetent, neither of which looks good on a government minister.

But these things happen, and it is something else I find more interesting.  All too often, it is the fallout from a political decision and the subsequent bickering that becomes the real story.  The substance, it seems, is not important.  And so it was today.

Among others, Nadine Dorries MP contributed to the debate in a not entirely helpful way (she really doesn’t seem to rate Osborne or Cameron).  ‘If Osborne sent Chloe on re scrapping 3p,’ she tweeted, ‘he is a coward as well as arrogant.’

Now, this may or may not be the case, but it doesn’t seem like something an MP should say about her own side, even if they think it.  It just comes across as petulant, and I’m sure she is worth more than that.  Daniel Knowles has a suggestion why she might not be too keen on the current Conservative leadership.  I wouldn’t know.

But it’s also worth noting that, according to the plan, the 3p tax is not being scrapped, only delayed.  And Chloe Smith is a minister, in the Treasury, and it quite clearly says on the Cabinet Office website that she: ‘Leads on: Environmental issues including taxation of transport.’  But perhaps what this really means is that the 3p fuel duty has nothing to do with ‘taxation of transport’ after all.

It may well have been preferable for Osborne to face Paxman on this occasion, but it’s stretching it a little to conclude he is a ‘coward’ and was being unfair to one of his ministers.  Chloe Smith is a grown up, a member of parliament no less.  Are MPs to be so molly-coddled?  It’s her job to talk to the media.

Yet I can’t say the government has handled this (and some of those other issues) particularly well.  It’s getting a bit of a reputation for incompetence, and it doesn’t help when other ministers, notably the Transport Secretary, Justine Greening, defend the tax rise while under the impression it’s government policy, only to have it reversed without their knowledge.

This is one of the reasons we are supposed to have Cabinet government.  You know.  Discuss the issue, make a decision and brief accordingly.  Perhaps the PM should look at his procedures again and include the whole of government a little more in decision-making.  That way the government might come across as being a little more joined up and his ministers might be better placed to face interviews with convincing arguments for policy decisions.

Tax avoidance blah blah blah

The debate on tax avoidance is becoming rather tedious, not least because it isn’t really a debate at all.  Not so much a discussion where opposing arguments are made with consideration and logic, but a caterwauling of indignant bobcats.

It begins with entrenched positions.  The Left thinks in terms of Them and Us – Them being the rich and Us being the poor.  And of course it is the Left that speaks for the poor, and they must explain to Us that tax avoidance is a thing of the Right and represents some sort of oppression perpetrated on ordinary people.

Then it becomes a little more complicated, especially when their people start doing it.  Where Ken Livingstone leads, others follow.  And when popular cultural figures show their reluctance to pay Titanic proportions of tax they become very confused because culture is a thing of the Left and the people of the Left have no problems at all with paying tax.  None at all.

But this is the problem.  Tax avoidance isn’t really a Left Right thing.  It’s a human thing.  After the grandiose speeches in which politicians demonstrate how generous and moral they can be with other people’s money, the reality of human nature reasserts itself.  In this case the general wish of people to retain the fruits of their labour.

Give people the option of keeping more of their money, legally, and they will generally take it.  If that weren’t true, people would be sending regular cheques above their legal tax liability to the Treasury.  But they aren’t.  And it just so happens that the wealthy have more opportunity to keep their money because they can afford clever advisers.

But let’s not forget that the less wealthy avoid tax, too.  They put money in ISAs, they buy duty free and some do cash in hand work.  And yes, the tip you give the waitress she doesn’t declare as income is also tax avoidance.  In fact, someone could probably make a pretty good case that these last two are in fact evasion, but let’s not go there.  It’s hard to get indignant about the less wealthy trying to keep hold of what little they have.  It’s much easier to rile against the rich keeping hold of their much greater sums.

And the caterwauling also comes from the Right, or elements of the Right.  When the Left attacks avoidance, the Right reminds everyone that it is legal.  But while this is true, it is not of itself a convincing or appealing argument.  The politics of the matter is that ordinary people can’t work the loopholes available to the wealthy.  They become resentful.  And when the Left reminds them that the Right is only concerned about rich people paying less tax because, well, they’re rich and want to be richer at the expense of the poor, they begin to see their point.  And in response the Right says again that it’s legal.

Then some see that this argument is not quite good enough and say that it might be legal but perhaps it’s immoral.  And then everyone’s confused because people of the Right should not be thinking tax avoidance is immoral, and people of the Left should not be avoiding tax.

And it might well be immoral, in a way, to pay less tax because you’ve got clever lawyers or accountants working for you, especially when it’s clear that trusts and non-domicile and personal service companies were not originally designed for clever people to pay less tax than other people.

And we might well say that this is immoral.  But it really doesn’t help, and it probably isn’t true anyway.  The people doing this are not immoral; they are human.  And human beings, being what they are, when offered the chance to pay less tax in a totally legal way, are quite likely to say OK.

But what is really tedious about this matter is that no one really seems to be listening to these two basic points.  People, being human, whether they are of the Left or the Right, mostly don’t want to pay more tax than they have to – and neither do they want others to pay less tax than they do.  And if we want people to pay a certain level of tax then we should have a clear and simple tax system that reduces the incidence of confusion and ambiguity that provides the tax expert with such fertile ground.

Our tax system is overly complicated.  It is Byzantine.  Get rid of all those hiding places that exist in such a system, and the scope for avoidance will reduce.  And then we can concentrate a little harder on the evaders out there.  That’s the illegal bit.  And all political parties can probably agree that if they really want to call something immoral then it might be better to start there.