13 Comments

• jedibeeftrix 20th Sep '12 - 3:47pm

  There is a lot to like in this document, and it is admirably open minded in not predetermining the morality of questions therein, but do please be VERY careful with the following question:

  “How do we create a tax system that is fair?”

  Who determines what is fair? I ask because Lord Clyde’s eternal wisdom stands firm:

  “No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer’s pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue”

  That said, i wholeheartedly approve of seeking a tax system that is efficient and simple, and hope that people responding to this discussion document are fully acquainted with the Mirlees Report.

  And if they want a shorter summary on the reality of a progressive taxation system then the parable as told by Max Kind is illuminating:

  “Suppose that once a month, ten men go out for beer and the bill for all of them comes to £100 – it could just as easily be $100 but I will stick to sterling for now. If they paid their bill the way we pay our taxes and claim State benefits, it would go something like this;

  The first four men (the poorest) would pay nothing. The fifth would pay £1.
The sixth would pay £3.
The seventh would pay £7.
The eighth would pay £12.
The ninth would pay £18.
And the tenth man (the richest) would pay £59.
  So, that’s what they decided to do. The ten men drank in the bar every month and seemed quite happy with the arrangement until, one day, the owner caused them a little problem. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your weekly beer by £20.” Drinks for the ten men would now cost just £80.

  The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free but what about the other six men; the paying customers? How could they divide the £20 windfall so that everyone would get his fair share? They realised that £20 divided by six is £3.33 but if they subtracted that from everybody’s share then not only would the first four men still be drinking for free but the fifth and sixth man would each end up being paid to drink his beer.

  So the bar owner suggested a different system. The fifth man, like the first four, now paid nothing.
The sixth man paid £2 instead of £3 .
The seventh paid £5 instead of £7.
The eighth paid £9 instead of £12.
The ninth paid £14 instead of £18.
And the tenth man now paid £49 instead of £59. 
Each of the last six was better off than before with the first four continuing to drink for free.

  But, once outside the bar, the men began to compare their savings. “I only got £1 out of the £20 saving,” declared the sixth man. He pointed to the tenth man, “but he got £10!”

  “Yes, that’s right,” exclaimed the fifth man. “I only saved a £1 too. It’s unfair that he got ten times more benefit than me!”
  “That’s true!” shouted the seventh man. “Why should he get £10 back, when I only got £2? The rich get all the breaks!”
  “Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!”

  So, the nine men surrounded the tenth and beat him up. Funnily enough, the next month the tenth man didn’t show up for drinks, so the nine sat down and had their beers without him.

  But when it came to pay for their drinks, they discovered something important – they didn’t have enough money between all of them to pay for even half the bill.”

  On a matter of general principle, if we are willing to consider the following:

  “Should the Liberal Democrats argue that the Income Tax allowance should be raised further than
  £10,000, perhaps to be equal to the minimum wage for a full-time employee?”

  Then the same method should apply to this:

  “The replacement of IHT with location value taxes, thus resolving the double taxation issue. For
  example a ‘Mansion Tax’ that would be less avoidable – collected via extra council tax bands.”

  Ooooh, lets say 100x the mininum wage for a full-time employee.
  How does that sit with you?

• Joe Bourke 20th Sep '12 - 4:42pm

  JBT states,

  “I wholeheartedly approve of seeking a tax system that is efficient and simple, and hope that people responding to this discussion document are fully acquainted with the Mirlees Report.”

  I echo his sentiment but note that only the most intrepid of members will have invested the time to become fully acquinted with the Mirlees Report. The consultation paper itself asks for responses to 74 questions – each requiring explanation and substantiation of the responses given. This is the nature of technical consultations.

  We need to keep in mind a key finding of the Mirrlees – that tinkering with the current system will make little difference – only wholesale reform of a fundamentally flawed system can do the job.

• jedibeeftrix 20th Sep '12 - 4:47pm

  God speed. 🙂

• Liberal Eye 20th Sep '12 - 5:53pm

  Good luck with this.

  Nothing has been more fundamental to the neoliberal makeover of the last 30+ years than their progressive reform of the tax system but so slowly and cleverly done that, like the proverbial slowly boiled frogs, few understood that what was going on was about to become life-threatening. A good place to start for an accessible overview is this Michael Hudson clip.

  http://michael-hudson.com/2011/01/why-america-had-a-90-income-tax/

  FWIW I hope you will take a long hard look at the FIRE sector, especially the TBFT banks. Andy Haldane of the BoE has made the excellent point that in their search for profit they create risk as an inevitable by-product just as cars create toxic fumes. The underwriting of this risk by taxpayers is a huge covert subsidy without which the banking sector would be very different – as would bonuses! So, taxing bank profits or bonuses as some propose is effectively an indirect tax on the citizenry which leaves the toxic system in place.

  For ‘fairness’ (with acknowledgement of the force of JBT’s comment) I hope you will look hard at the many loopholes in the tax system. Osborne et al always protest that tax cannot be raised because too much leakage occurs but the important thing here is that the loopholes are a feature, not a bug of the system. It is leaky by design and getting leakier all the time. Richard Murphy at Tax Research UK is very good on this.

  http://www.taxresearch.org.uk/Blog/

• Dominic 21st Sep '12 - 6:06am

  Sorry, Richard Murphy is absolutely *not* the place to look for anything on tax policy – it is pure agenda-driven polemic and has been comprehensively rebutted on numerous occasions on the members-only forum of this site!

• Peter Davies 21st Sep '12 - 8:24am

  @jedibeeftrix
  Right now, the price of beer is going up. In these circumstances, the friendship would surely be deepened by the richer guys paying most of the extra bill.

• Alistair 21st Sep '12 - 2:07pm

  Jedi – in your example – does the rich guy own the pub? Is most of his income taxed at a lower rate because its not classed as income? Does he get tax breaks not available to the other 9? Does the 1 employ a hatful of lobbyists to steer lawmakers? Does he actually sit with the other 9, or does he sit in his own section and argue that as he isnt sitting with the other 9, he shouldnt have to pay towards their drinking? Just wondered…

• Liberal Eye 21st Sep '12 - 3:44pm

  @ Dominic.

  Richard Murphy is indeed polemical which is part of the attraction. He provides a refresing counterpoint to the endless right-wing messaging on tax. As for “comprehensively rebutted” – what, all of it? He covers a wide waterfront and, although I don’t agree with everything, much of what he has to say on tax evasion and avoidance (to take just one topic) has much value.

• jedibeeftrix 21st Sep '12 - 4:32pm

  @ Peter – “Right now, the price of beer is going up. In these circumstances, the friendship would surely be deepened by the richer guys paying most of the extra bill.”

  Rather depends whether the oher nine turen around and inform he tenth that the price of their continueing friendship is him picking up ever more of the tab.

  @ Alistair – ” does the rich guy own the pub? Is most of his income taxed at a lower rate because its not classed as income?”

  All good questions – i merely suggest caution against getting all moralistic about you would like to do with other peoples money. 😉

• Alistair 22nd Sep '12 - 1:27am

  Jedi, I’ve been that 1, does this mean I have earned the right to have an opinion in your world? Don’t assume that everyone in the top 10% of earnings is a Tory.

• Jedibeeftrix 22nd Sep '12 - 11:35am

  As someone who has contributed an enormous amount of revenue to the exchequer of course you have a right to an opinion.

  Your tory’ness, or lack thereof, is utterly irrelevant.

• Jeremy Hargreaves 23rd Sep '12 - 8:37am

  Thank you everyone for your comments, which we will discuss. We also had an excellent three hour consultation session in Brighton yesterday.

• Yellow Bill 23rd Sep '12 - 10:57am

  On the £10,000 personal allowance

  This has not yet been implemented in full. Can the Treasury afford to carry out its plans and give away a further £1800 per working person in the climate it finds itself, given the way it’s current plans are going awry? I personally don’t think so. Further, this allowance is universal and so is not, in itself, favouring the less well off in society.

  Now we know that there are many hugely rich people out there who are avoiding much more than £10000 a year, and there are still many of them paying less in tax than their cleaners. Now we have heard much about the team which is supposedly stopping tax evasion. Have we seen how much this unit has brought into the treasury, how many have been prosecuted? Much more telling is that it has not even addressed tax avoidance – have the offshore accounts been forcibly closed down?

  There is no fairness in the tax system and under this government there will not be any moves to make it more fair