Tuesday, September 19, 2006

Tax, the principled argument.

Well, why tax people? Anyone look forward to seeing just how much tax we have paid? Thought it was too low and demanded to pay more?

As far as I can see there are three things people think tax can achieve.

  1. Raise money government spending.
  2. Alter behavior.
  3. Redistribution of wealth.
Raise money government spending

Well, hopefully this is not controversial. Government needs money. Want to defend the realm? Pay tax. Want universal education? Pay tax. Want unemployment benefit? Pay tax.

What ever you think government should, or should not be doing it should be doing something, which does need paying for, which means we have to levy taxes to get the money.

Alter behavior

Well, you can change behavior a bit by taxing things. For example as the tax on cigarettes has risen so more people have given up. (Well not me but quitters!) You can also encourage behavior by giving tax breaks for things like research and development. Currently green taxes are proposed to make us greener.

This approach works a bit, but has limitations. Fuel is smuggled in Northern Ireland and indeed agricultural fuel is cleaned to remove the red. As taxes on cigarettes rise so does smuggling.

Redistribution of wealth

Here I have to ask questions. Redistributing what from whom and to whom? More importantly, does it work?

As they say on ABC, lets take a closer look.

Firstly one of the founding principles of communism is "from each according to their ability to each according to their need". I have to say that is a fantastic ideal, and in small communities it can and does work. Unfortunately it seems that it does not scale well.

I presume that the intent is to redistribute from the wealthy to the poor. This does raise the first question, which is, who is rich and who is poor? Sounds daft but I thought I'd ask. Do we mean the city banker who has just earned £1,000,000 or do we mean the old person who's houses value has just doubled because house building is at an all time low?

The first is easy to hit because you can just up his PAYE, oh no you can't. Our tax system is so complicated that Philip Green gave his wife £1.3 billion with remarkably little tax. (I wonder if he donates money to the Labour party, and if he does, is he cheaky enough to want a peerage too?)

Well at least the old folks are easy to hit, it is after all hard to hide a house.

The next issue is to whom are you going to redistribute this wealth, why, and what will it achieve?

Hopefully, (although some might be forgiven for thinking it doesn't works like that) the wealth is being redistributed to the poor.

What are we doing? If taxes can both encourage and discourage behavior, this seems to me to be paying people to be poor, and if you encourag behavior people will follow. Paying people to be poor ensures that you have poor people. So we give people on low wages benefits (As opposed to removing them from the tax system) to do jobs that do not pay a living wage. Surely that is subsidising people who want to employ people at unrealistic wages? I know some New Labour fans want to keep service sector inflation low, but why should the tax payer subsidise cleaners for those who want them, whilst keeping the jackboot of poverty over people? (The worst offender is bizarrely the public sector especially in cleaning).

So do we take money from his nibs who pays his butler a handsome sum to subsidise someone who does not want to pay for a cleaner but will if they don't have to pay the going rate?

I hear the social justice argument, but I can't see the point of paying people to be poor. If some one really wants a cleaner, they can pay for it. The only true way of lifting people out of poverty is by giving them opportunities through education and raising their expectations. All else is an illusion.

All that said, the tax burden does need to be reduced on the poor, and we do need welfare state.


Ben Redsell said...

Well done Benedict, 41 in Iain Dale's list of Conservative Blogs!

Benedict White said...

Many thanks Ben. I was quite pleased as well.

Did you sort out that spam on your blog?

Any thoughts on the waste disposal suggestion I made?