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Sunday, November 01, 2009


Not being a complete libertarian I do accept the desirability of some taxation. The destructive effects of various taxes vary. Corporation tax is the single most damaging one because it directly cuts into & deters new investment money.

Mark Wadsworth on his own blog & here has gone on at length about how tax on land value does not hurt the economy because the tax is on the inherent value not the buildings on it so that tax is irrespective of the development of the land & hence doesn't discourage it. Indeed it has a positive effect since it discourages land hoarding & thus keeps the land in use.

I also approve of taxes on things we know to be harmful to us - eg smoking, alcohol & drugs. I blogged yesterday on legalising drugs but do support taxing them. Tax is a method of pressure which does not deprive us of the freedom of choice that criminalisation does. That it makes a profit is not something to be despised.

I have previously done a poll on what proportion of the economy should be government spending & the result came out at under 20%. I am happy with that & would see 10% (historically a tithe in the days when the social services were a branch of the Church) going for welfare. I would wish that to come from income tax/national insurance ring fenced to particular welfare programmes. That means they are effectively a form of insurance but, unlike private insurance, when everybody is charged a flat rate the administration costs are very low - this is one area where the state can be more efficient than free enterprise.

Currently we raise taxes like this

The total of alcohol, tobacco & custom duties comes t0 18.7 billion Taking VAT on top of that comes to £22 bn. The world drugs business was estimated in 2003 as $322 bn. Change that to pounds, update it for 2009 & take the UK portion as 1/20th (higher than our share of world GNP but we have a more serious problem than most of Europe & richer countries can afford more than their proportion) gives about £18 bn. So taken together is about £40 bn.

10% of national GNP is £140 billion. Council tax comes to £24.9 bn. Add the same again for land value tax (I am not going to include business rates because, though there is a good theoretical basis for them I don't want to include anything that hurts growth. Lets keep half of fuel duties to pay for transport infrastructure - £13 bn. Betting tax £1.5bn. Despite the Tories I rather approve of inheritance tax at £3.2 bn - after all the beneficiaries haven't worked for it. Lets keep capital gains tax which is largely a way of filling an inheritance loophole - £5 bn. Total £109 bn. Lets keep some of the stamp duty, vehicle excise etc simply because registering ownership is a valuable service government provides.

That is about £120 bn. If anything more than that is needed we can let tobacco/alcohol/drug taxes rise. Letting them rise at 9% would bring in another £20 bn in 5 years & if the country achieved 9% growth which I have long said would be easily achievable with a truly free market economy, would merely maintain the current cost as a proportion of pre tax income (quite a lot less in post tax income :-)

That means the abolition, or in a few cases large reduction in the aggregates levy, climate change levy, landfill tax, petrol revenue tax, air passenger duty (a lot of small eco-fascist taxes which don't come directly from us so we don't notice them) insurance premium tax, much of vehicle, stamp & "other taxes", business rates, corporation tax & VAT. Taking 10% for the welfare state paid out of income tax & national insurance which currently raises £260 bn we save £120 bn or £4,000 more in the average wage packet.

None of this is complicated it simply requires making the decision to cut the state down to its non-parasitic function.

UPDATE In comments Mark has said that "other taxes & royalties" is licencing of licences on monopolies (like airport landing slots, radio spectrum etc) & presumably licences for oil exploration. As such they are a useful state function & like LVT are dealing witrh a fixed quantity so taxation is not economically destructive. That means another £15.7bn. Hmmm - that means government can clearly reach 10% of GNPharmlessly. The troll is looking rather easy to feed.

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Thanks for link.

Land Value Tax should apply to all land, including commercial premises, but Business Rates should be scrapped.

The next least bad taxes are, as you say, petrol duties*, taxes on drugs, booze, fags, licences on monopolies (like airport landing slots, radio spectrum etc).

And yes, my own fag packet says that the state could easily do what it is doing for 30% of GDP (with no negative impact on 'frontline services') and that the other 20% or 30% of GDP that the government chews up is just waste.

I suppose we'll never agree on corporation tax, so I'll shut up now.

* This is not anti-motorist, my point is that the higher they are, the more we are cushioned against fluctuations in oil price.
Petrol duty is an inexpensive one to collect which should be a major factor. It is also a tax where the money would otherwise largely go abroad. On the other hand low transport costs do cross over into making almost all economic activity easier.

Thanks for correcting me on the "other taxes & royalties" section - I agree licencing is a valuable state function & that bandwidth, like land, is a resource which taxation cannot increase or reduce.

I don't think we disagree about low CT being a growth factor or in low Nat Ins, particularly at the bottom, being a job creator. It is merely that growth is my fetish, for which I would sacrifice short term wealth & job creation. I am fairly clearly in a minority on this.
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