Archive for category Taxes

Lies, damn lies and certain economists

Paul Krugman, the economist of choice for all socialists, keynesians and big spending governments everywhere, wrote an article in the New York Times (H/T American Spectator) providing support for Obama’s latest push to tax the ‘millionaires and billionaires’.  

 The United States already has one of the most ‘Progressive’ income tax systems in the world.  It’s estimated that the top 1% of Americans pay nearly 40% while the bottom 50% contributes only 3% of personal income taxes collected.  So providing evidence to support Obama’s class warfare requires some serious playing around with the numbers.  Hence this chart which he highlighted in his article.

Just look at all those nasty rich people living off the backs of the hard working middle class.  

 However, the Australian economist blogger, Catallaxy Files, points to the creativity of the chartist along the x-axis. Quintiles for the lower income groups, followed by smaller and smaller divisions as incomes rise.   He then calculates the same chart but using uniform divisions for each income group.

As the man said, it’s the way you tell ’em.

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The lunacy of mixing a budget, an energy policy, historians and global warming.

Living where I do, I get to call myself an “Economist”.  I know that it was over 20 years ago that I got the degree – but here you are what you studied.  Scraped a Third in Psychology at Slough University?  You are a Psychologist.  Degree in Bungee Jumping?  You’re a Bungee Jumper. 

I know that studying something doesn’t necessarily make you good at it, but at least it gives people some idea that you are aware of the basic principles of the subject.  Which is why I never understood why the ‘Socialist’ and ‘Historian’, Gordon Brown (PhD on the Scottish Labour Party, 1918-1929), was ever considered remotely able to run the UK’s economy for eleven years – especially as he had never so much as run a haggis stall.  Never had to make payroll, make a profit, or find the money to pay his company’s taxes.   

I am then unclear why we would now think that ‘Historian’ George Osborne (BA Modern History, Oxford) would be the one to turn around the dogs breakfast the last one made of the economy.  Especially given that he has never so much as run a chippy.  Never had to make payroll, make a profit or find the money to pay his company’s taxes.                                                   

 One of those basic principles is that Government’s actions have consequences.   In Osborne’s ‘Business Friendly Budget’ he has gone for the popular vote, taking 1p per litre off  the fuel duty, and then paying for it by gouging the North Sea exploration companies.  Now I am all in favour of reducing taxes – but that is not what this is.  It is, as Jeremy Warner says in the Daily Telegraph, robbing Peter to pay Paul.  Now Peter, or in this case, ‘Big Oil’ may be close to the Bankers as being a popular figure of hate, especially among the eco-wing of the Lib-Cons.  However, in terms of purely economics, the policy doesn’t make sense.  The £9.4bn the treasury loses over five years from the 1p cut in fuel duty, is spread over millions of consumers and its miniscule impact on each consumer is then disguised by the natural volatility in petrol prices.  It will do very little to change consumers behaviour.  On the other hand the £10bn tax increase on the oil exploration companies is targeted on a small number of entities and so its effect will be clearly defined and felt.    

 Cityam.com reports that the tax hike on UK oil profits from 20 to 32 per cent in last week’s Budget has pushed the effective tax rate on some older oil fields to 81 per cent. Statoil has put their huge £6.4bn investment on hold and others are rethinking and re-analyzing the returns they are getting on their exploration projects.  Rowena Mason writes that:

It comes after smaller companies such as Valiant Petroleum warned that they are re-evaluating new projects, since the Chancellor increased tax by 12 percentage points to more than 62pc.

There have also been reports that oil majors have withdrawn plans to sell billions of pounds in North Sea fields nearing the end of their lives, leading to fears they will be abandoned with oil still in the ground.

 Industrial production fell unexpectedly in February, driven largely by a sharp decline in utilities output (-2.1%mom) and oil and gas extraction (-7.8%mom) and it’s going to be interesting how this develops going forward.

 All economics operates at the margin.  Raising taxes won’t shut down the North Sea over night.  But it does reduce the return obtained from the more difficult and marginal projects to the extent that investors are encouraged to put their money elsewhere.  The treasury loses out on the future tax revenue from these unrealised investments, and thousands of sub-contractors and suppliers never get to benefit from increased order books.

In politics, the argument goes, sometimes you have to hold your nose and do stupid things.  Right – but this now seems to be par for the course with the current government.  For I see that they also think it would be a great idea if the UK becomes the first country in the world to be saddled with a carbon tax.  I love that term carbon tax.  It gives the impression that Osborne is really concerned about all that nasty black stuff that comes out of chimney stacks when in reality it is PR spin for Carbon Dioxide – the invisible stuff that we all breathe out.  To Big Government Statists, a carbon tax is the mother lode of central planning.  For when a government gets to tax and regulate the air you breathe, it gets to control everything.  From a liberty point of view, it’s distinctly dubious, but as an economic policy it really sucks. 

 In the budget Osborne said that he will impose a “£16 a ton floor price for carbon”. Christopher Booker writes that:

What it means is that for every ton of CO2 emitted by British industry, and by our electricity companies in particular, we shall all indirectly have to pay what is in effect a hidden tax of £16, rising over the next nine years to £30.

………thus increasing them (electricity bills) by a total of £3 billion a year, rising to £5 billion by 2020. This will add more than 25 per cent to the price we presently pay for electricity, or £200 a year for every household.

 So not only is George Osborne consigning even more people to fuel poverty, he is also making it a lot more expensive to produce goods and services in the UK.  People’s purchasing power will shrink, demand and production will fall and economic growth will be negatively affected.  And as energy costs rise by 25%, investors will seek to locate their factories to more favourable locations elsewhere. 

The thing is, that apart from making the pound worth the same as a Weimer Republic Papiermark, there are only two ways the Government can dig us out of the debt hole we are in – slash spending or grow the economy.   The carbon tax does neither.   Over in the United States big government liberals have been trying to push a Carbon Tax for years.  Obama before the election boasted that he wanted to drastically raise the cost of carbon dioxide-producing energy production and redistribute the money to green energy.  But despite owning the Senate, the Congress and the White House, even he couldn’t find enough suicidal Democrats to back the policy.

Yet our Conservative Government seems to think it’s a great idea. If this was all about just using the green brand to sell an old fashioned tax raid, then I could understand it.  Want to widen the tax base by gouging the poor and middle classes because there aren’t enough rich people to tax to oblivion?  Call it “Green” and the BBC will love you for it.  I may not agree with it, but I get the concept.  However, it really does appear that the government actually believes that these green policies do work, and are therefore a good thing for the country, despite real world evidence to the contrary.

A fine example of this was in 2010 when the last great UK steelworks, Corus, was closed by its owner, Tata.  Cashing in on £100’s of millions of EU-Carbon-Credits, they closed down the UK plant and then used the proceeds to build a bigger one in India.  Effect on the UK economy?  2000 jobs and hundreds of millions in lost tax revenues and economic growth.  Effect on CO2 emisions? Zero. 

And that’s not all – more from Christopher Booker:

This is on top of the price we will have to pay for all the Government’s other “green” dreams, such as the £100 billion it wants spent on 10,000 giant wind turbines, plus another £40 billion to hook them up to the grid. The 100 per cent subsidies for onshore wind power and 200 per cent subsidies for offshore will add further billions to our bills, in return for what will still be only a fraction of the electricity we need.

Already we have seen one estimate, from analysts at Matrix Group, that Mr Osborne’s new “carbon tax” will so skew the economics of coal-fired electricity that four of our larger French- and Spanish-owned power stations at Kingsnorth, Didcot, Tilbury and Cockenzie will have to shut down by 2013, even earlier than their forced closure under the EU’s Large Combustion Plants Directive. This will knock such a hole in our generating capacity that we can look forward to the first of those long-predicted power cuts and blackouts.

So hey, we will have no coal power stations, but we will have lots of eco-friendly windmills right?  Well yes, but as a recent report shows, they don’t work.  They either don’t produce electricity when the wind doesn’t blow, or they produce too much when it does.  Lewis Page in The Register writes:

It gets worse too, as wind power frequently drops to almost nothing. It tends to do this quite often just when demand is at its early-evening peak:

At each of the four highest peak demands of 2010 wind output was low being respectively 4.72%, 5.51%, 2.59% and 2.51% of capacity at peak demand.

And unfortunately the average capacity over time is pulled up significantly by brief windy periods. Wind output is actually below 20 per cent of maximum most of the time; it is below 10 per cent fully one-third of the time. Wind power needs a lot of thermal backup running most of the time to keep the lights on, but it also needs that backup to go away rapidly whenever the wind blows hard, or it won’t deliver even 25 per cent of capacity.

That means that you need to have a carbon belching power station on hand to take the slack from wind power.  As you can’t keep firing up and turning off a power station, you need to keep it going whilst it waits to help out when the windmills stop turning.   Utter lunacy.  He goes on to write:

Quite often windy periods come when demand is low, as in the middle of the night. Wind power nonetheless forces its way onto the grid, as wind-farm operators make most of their money not from selling electricity but from selling the renewables obligation certificates (ROCs) which they obtain for putting power onto the grid. Companies supplying power to end users in the UK must obtain a certain amount of ROCs by law or pay a “buy-out” fine: as a result ROCs can be sold for money to end-use suppliers.

Thus when wind farmers have a lot of power they will actually pay to get it onto the grid if necessary in order to obtain the lucrative ROCs which provide most of their revenue, forcing all non-renewable providers out of the market. If the wind is blowing hard and demand is low, there may nonetheless be just too much wind electricity for the grid to use, and this may happen quite often:

The incidence of high wind and low demand can occur at any time of year. As connected wind capacity increases there will come a point when no more thermal plant can be constrained off to accommodate wind power. In the illustrated 30GW connected wind capacity model [as planned for by the UK government at the moment] this scenario occurs 78 times, or three times a month on average. This indicates the requirement for a major reassessment of how much wind capacity can be tolerated by the Grid.

Or in other words, it will blow the grid.

So here we have a government whose stated aim is to massively raise the cost of energy in the UK, force a large section of our fossil fuel burning electricity generators to close down and then transfer our nation’s reliance for its energy needs onto a technology which only works when the wind blows. 

I think the economic illiteracy of the Government is neatly illustrated by James Dellingpole, who notes how pleased they are with themselves for having set up a ‘Green Investment Bank’.  They intend to bung £3bn of tax payers money (£2bn from the sale of publicly-assets and £1bn from taxes) into the bank, which will then be run by a bunch of Government cronies whose job it will be to waste invest the money in green projects.  I’m sure that it will do swimmingly given how good government is at looking after other people’s money (the taxpayers) and what a great investment opportunity the alternative energy market has been.

My proposal to the Green Investment Bank would be the Bank of England sending bank notes off to be used as fuel in the generators.  It may help to cure inflation and it would perfectly illustrate what the government’s energy policies are effectively doing.  I’ve included a video clip below that they might also be interested in and in the meantime, I might send my CV off to No.10.  I am an ‘Economist’ after all and surely I couldn’t do much worse than Osborne.

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Of Ozymandias, Detroit, the unions and spending cuts

   My name is Ozymandias, King of Kings:

   Look on my works, ye mighty, and despair!’

   Nothing beside remains. Round the decay

   Of that colossal wreck, boundless and bare,

   The lone and level sands stretch far away”.

  

As the Public Sector Unions marched through London this weekend I thought I would highlight an article I spotted over the water in the Wall Street Journal.   This week the Mayor of Detroit received the latest census figures which showed that the population of Detroit had declined by 25% over the last 10 years.  Shocked, he asked for a recount as these numbers matter – the fewer people he has in the City, the less he receives in Federal and State Government handouts. 

 Detroit at its peak in the 1950’s was the fifth largest city in the United States.  Even in the 1970’s it still had a population of 1.8 million.  Home of Motown music, its big three auto manufacturers, GM, Ford and Chrysler dominated the car industry worldwide.  Today though, the population of Detroit is down to just 713,000 people and its car companies are on life support. 

An article in the Investors Business Daily explains that while bad management played a part in this dramatic decline in the city’s fortunes, the real blame lies with the unions. 

As a parasite sucks the life blood out of its host, the unions over the decades negotiated more and more benefits and restrictive work practices for their members.  Innovation and efficient production was stifled by 5000 page union rules and ludicrous arrangements such as the infamous Job Banks in which laid-off workers signed on, spent all day doing crossword puzzles and then collected 95% of their pay.  The car companies evolved into organizations which were nothing more than huge health-care, pension and make-work programs which just happened to also produce cars.  By 2006 the labour costs for a GM auto worker was about $75 per hour compared to $48 in the Toyota car factories situated in the non-union Southern States, and each GM car came loaded down with $2000 worth of health care and pension costs.

So why do I relate this to the public sector unions march against the Tory cuts?  Well, in economics if something is clearly unsustainable in the long term, then it will be unsustainable in the long term.  In history, nations rise and nations fall.  They become wealthy, but they can also become poorer and the fact that we are born Western and British does not mean that the world owes us a wealthy lifestyle.  We become wealthier, if we produce the goods and services at the price people want to pay.  If we don’t we become poorer.  And if the Government spends more than it takes in, it will in the long run bankrupt the nation.  Taxes and interest rates soar, and the Government has to default on the promises it made to its people.

Yet we continue to pile costs on to the producing sector.  Energy costs are rising due to the government’s ‘Green’ taxes and feed-in tariffs, and feel good employment regulations such as enhanced maternity and paternity benefits make it more costly to produce in the UK and ultimately make us all poorer.  Christopher Booker in the Sunday Telegraph writes that next October, an EU Directive will give temporary workers the same rights as full time workers, costing British Industry an extra £2 billion a year.

 And what of these savage Tory cuts?  Well the spending review last October showed that the government was actually increasing spending rather than reducing it.  What it was merely doing was reducing the amount of increase in spending that the previous Government had planned.  In fact, last week in the Chancellor’s Budget, planned spending for 2014-15 had crept up to £743.6 billion, up from £739 billion proposed a mere five months ago. 

 The Government is in a serious bind.  It has a massive non-producing sector which the producing sector cannot hope to fund.  From millions of public sector workers, to health care, state pensions, entitlements and welfare, it can only keep the whole thing going by paying for it through ever increasing amounts of debt.  It could try to grow its way out of the situation, but that would mean unleashing the private sector by effective deregulation, lower energy costs and low taxation.  A virtual impossibility without leaving the EU and really slashing spending.  

On Saturday the Public Unions marched proclaiming that cuts in spending were neither necessary nor compassionate.  Well last year the Bank of International Settlements put out some very sobering figures about the UK economy, which saw the UK debt soaring to unsustainable levels in the near future. Here thay show Governemnet Debt as a percentage of GDP under a number of different scenarios.

  

 

 

This though is an optimistic picture if you take a look at how Burning Our Money analyzes the true situation of government liabilities.  The official gross National Debt is about £1 trillion, or around £40,000 for every single British household. However, he points out that this doesn’t take into account PFI, public and state pensions, network rail and so on.  The real extent of Government liabilities he argues are currently about £7.5 trillion or £300, 000 per household.

Now given that our entire annual GDP is only around £1.5 trillion, the government has amassed debts of 4-6 times our annual income. You try borrowing that kind of multiple from your friendly high street bank – they’d laugh at you, knowing you would never ever be able to pay it off.

And neither will the government.

Burning Our Money then unhelpfully points out that not only will we be handing over huge bundles of cash, paying interest to Chinese bondholders, we will also each year have to pay the unfunded pensions of all of Brown’ Public sector workers (32bn by 2015-16), make the payments on his PFI contracts (10bn pa by 2015-16), as well as pay the unfunded state pensions (79bn pa by 2015-16).

In a report for the TPA he illustrates this in a graph which takes these payments out to 2015-16.

I am not sure I would want to see what his chart would look like if he took it out to 2030, as did the Bank of International Settlements or what it would look like if interest rates were to rise to any great extent.  The unions say that cuts in spending are neither necessary nor compassionate.  Well, maybe like that Detroit Mayor, a future Prime Minister could one day be staring at a bunch of charts, wondering whatever happened to a once great country.

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More Non-Doms. Time to break out a bit of Thatcher

I remember a couple of years back on one of my stays in the UK, the talk around the dinner table was of “Bankers” and some people called “Nom-Doms”.  How it was shocking how much they earned and how they should all just pay their FAIR SHARE in taxes.  I didn’t really know who the “Non-Doms” were at the time, but to me it just sounded like an attempt to create a stage villain.  A group of people the Government could point at and say “look this mess is nothing to do with us.  It’s them, it’s all their fault”. 

So my interest was tweaked when I read on the Adam Smith Blog , that the Government is to again raise taxes on the Non- Doms. 

“non-domiciled individuals, especially those who have been resident in the UK for many years, (must) make a fair tax contribution” – and, in this case, ‘fair’ means “increasing the existing £30,000 annual (remittance basis) charge (RBC) to £50,000”, regardless of a particular taxpayer’s actual level of income.

What’s more, it turns out that the government’s decision isn’t a revenue-raising manoeuvre; as Eamonn pointed out in the Wall Street Journal earlier this month, “the non-dom tax raised £162 million in its first year; but … the exodus of those 16,000 (non-doms) cost the Treasury £800 million,” a fact that will not have escaped Whitehall policy planners. Why, then, would the government increase the RBC by nearly 70%?

The creation of stage villains for the populace to throw rotten tomatoes at is a political tactic as old as government itself and wealthy foreigners have always been easy targets.  As envy is one of the vices which afflicts all people to a greater or lesser extent it is easily exploited by politicians who want to appropriate money and power in the name of redistribution and fairness.  It permeates much of Socialist / Marxist thought which divides the world into the oppressed and the oppressor, the haves and have-nots.  In this view the economic pie is fixed, and therefore someone with a large portion of the pie can only have it at the expense of the rest who necessarily must have smaller portions.

The Big Government redistributer takes £100 from A’s slice of the pie and gives it to B.  There is no change to the overall size of the economic pie as it is fixed.  The only consequence is that B now has a FAIR SHARE of the pie. 

Of course, those of us on the on the Free Market side of the fence don’t see the economy in terms of being a fixed pie and sees the unforeseen consequences that Governments’ actions can have.  The Government is grossly inefficient at distributing resources and ‘A’ may have used that £100 in a far more productive way than ‘B’.  ‘ A’ may also change his behaviour.  Why work so hard when the Government can come along and take away your hard earned money?  All this will negatively impact the economy and both A and B will be worse off.

Putting the Non-Doms in the fiscal equivalent of the Public Stocks didn’t just mean that the Treasury lost £800 million.  The reduction in the number of rich Non-Doms in the country mean that there are now 16,000 Saville Row suites that haven’t been made, 16, 000 less gardeners that haven’t been employed and 16,000 Land Rovers still left unsold in the UK Dealers.  And as many of these Non-Doms had businesses in the UK, that’s a lot of receptionists, graphic designers and sandwich makers out of a job or with a reduced order book. 

In an article by Allister Heath in Cityam (H/T Daniel Mitchell) he talks about the steady outflow of people and wealth from London.

Contrary to what has repeatedly been claimed by the monopolists, the City is losing out to other jurisdictions in the race for people. Even though there is very little office space, housing or vacancies in schools in Switzerland – the Swiss are reluctant to expand – there has been a relatively large influx of London financiers to that country, especially from hedge funds and energy and commodity trading firms. It is the wealthiest, most senior individuals who are leaving. Figures from the Swiss Federal Migration Office tracked down by Channel Four reveal 383 UK citizens working in banking and financial services moved to Switzerland in 2010, up 28 per cent on the previous year. Taking the overall banking, insurance and consulting sectors, including IT, 1,379 Britons were given permission to work long-term in Switzerland in 2010, up 29 per cent. This compares to a rise of 14 per cent for non-UK citizens, though a chunk of the latter will also have moved from London.

The Swiss Funds Association estimates that 20-25 UK hedge funds have set up offices in Switzerland over the past year alone. Switzerland has also witnessed an inflow of Russian oil traders, including Rosneft and Bashneft; several other teams have recently left London for Geneva or Zurich. TNK-BP is opening a trading arm in Geneva; it will be based a short walk away from the third, fourth and fifth largest trading firms in the world. This is a blow for London, which for the first time since the late 1980s is losing its lead in the trading of physical crude and oil products.

Globalisation is not just about buying cheap Chinese goods: it also limits the state’s powers to over-tax or over-control its citizens. Britain needs to wake up to this new reality, and fast.

 Now for some vintage Thatcher.  I love the word games of Simon Hughes who in his question to Mrs Thatcher made the claim that relative poverty had increased under her administration.  Much as if Warren Buffet taking up residence in your rather exclusive private road, would suddenly inflict severe relative poverty on the residents there. 

Enjoy.

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A small rant on bureaurcrats

As you may have noticed, I have been a bit non-existent with the blogging the last two weeks.  Unfortunately, my day job of trying to keep 120 employees gainfully employed got in the way.  But this just serves nicely to highlight one of my pet peeves.   That of the Vince Cable / ken Livingston Big Government type of politician who loves to bash the rich and prattle on about disparities in income. 

For It wasn’t the guy with the three swimming pools up the road who has been keeping me up at night the last two weeks.  Rather it was the rapacious government and municipal bureaucrat using an ever changing and expanding set of regulations to impose higher costs and threaten arbitrary closure of whole sections of my business.  They are the ones who have been giving me more grey hairs and forcing me to spend the last two weeks doing completely non-value added activities, instead of growing the business and employing more people.  And that is the thing with these Big Government types.  I provide an income for over a 100 families and yet I’m the bad guy who needs to be taxed and regulated up to my eyeballs.  Yet what hinders me from putting more money into the pockets of more employees are precisely those ever changing regulations and taxes.  Give me more guys with three swimming pools any day.  They pay my payroll – the bureaucrats certainly don’t.

Just had to get that off my chest.

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Child benefit – it was our money in the first place

I see that the Conservatives had a little messaging problem at their conference over the issue of child benefits, when it was leaked to the press that all those earning over £44,000 would no longer be eligible for the benefit.  Now this might have chimed well with their “the rich have broader shoulders” meme, but it turned out to be manna from heaven for BBC journalists.   Inconveniently, for the Tory spinmeisters, this change came with the inconvenient illogicality that a two income household in which both earn £44,000 would continue to receive child benefit, while a household in which one goes out and earns £45,000 and one stays at home to look after the children, would lose it.  Quite patently this is a ridiculous situation and I am sure that it will be corrected before the change becomes law.  However it did highlight certain absurdities of the current tax and welfare system in the UK.

1)      The first is how difficult it is to cut back existing state programs.  Once an entitlement is in place, then it is very difficult for a politician to remove it without being cast as ‘nasty’.  To remove child benefits, free milk or fuel subsidies for the retired means that you hate babies, old ladies and fluffy white lambs, and what politician looking for a quiet life wants to be labelled that way?

2)      Secondly, why should someone who earns twice the average wage, receive a welfare benefit in the first place?  A far better idea would be to include children as part of the calculation of support for those in poverty and then just let everybody else keep more of their own money by reducing taxes.  Taking it from them and then giving a portion back as child benefit, is typical Big Government nanny-state interference.  As though if they didn’t label it as, ‘for the kids’, then the plebs would spend it all on bingo, booze and burgers.

3)      In the same way, it highlights how politicians bribe us with our own money.  I know someone – ahem – who receives a winter fuel allowance.  Now just as with child benefits, the majority of people who receive the fuel allowance don’t really need it.  They are not going to freeze to death if they don’t get their fuel allowance.  Indeed Neil O’Brien at Policy Exchange says that 82% of those who receive it are not in ‘fuel poverty’.  Yet the fuel allowance perfectly illustrates the hypocrisy of the system.  The government imposes higher taxes and costs on the energy companies as well as forcing on them the government’s green agenda by cap and trade and making them buy over-priced electricity from renewable energy sources.  All these taxes and costs are then transferred onto the consumer through higher prices, from the heating bill to the price of the pensioner’s carrots because of increased transport costs.  The government is in effect indirectly taxing the pensioner.  It then blames the energy companies for the higher prices and earns political capital by giving a few quid back as the fuel allowance.  A bit like the pick pocket who steals your wallet and then pretends to be a concerned member of the public by buying your bus fare home.   

4)      Another peculiarity of this story is who sets the arbitrary line at which earning £44,000 means that you need a handout from the state, and £45,000 means that you don’t.  This again illustrates why the current system of progressive tax rates, allowances and benefits distorts earnings and the cost of labour because of high marginal rates of taxation.  If you earn £43,000, then there is no point in working to get a further pay rise if it results in losing your child benefit and going on to a higher tax rate.  It also makes it harder for companies to reward their workers for productive behaviour as the pay rise has to be big enough to compensate for higher taxes and loss of benefits.   A far better system would be to create a means tested safety net which always makes it more beneficial to work(as seems to be the direction IDS is going in),  then the first £10,000 is tax free and after that 20% no matter what you earn.  The more you work, the more taxes you pay, but then you get more in your pocket and what’s more important, YOU get to decide what to do with your money, not Gordon Brown. 

Yup that flat tax again!

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The Bogeymen are leaving

In the Telegraph today here and here, we have fine examples of the Laffer Curve in action.  Headline grabbing politicians looking for bogeymen to tar and feather raised the tax rate to 50% on high earners.  The result is not only fewer taxes collected but a shift in jobs and expertise abroad.  Much as I predicted in my post on the Flat Tax:

The real misery however of the Vince Cable type of class envy politics lies not just in the lost tax revenues. Higher taxes also leads to lower economic growth, less goods in the shops, less money to buy services, less innovation and more unemployment. This is always the problem with a modern democracy. A politician can get easy and immediate benefits making populist class-envy statements. David Cameron can splash all over the Sun that he will sock it to the bankers and impose a 50% tax on their bonuses. But the maintenance man and sandwich supplier will never know that the job they would have got now no longer exists because the hedge fund has moved to Switzerland. And how many life saving new medical devices haven’t been produced because the capital gains tax rate made it too costly to invest in the project? Politicians love to talk about increasing taxes on cigarettes and alcohol to reduce their consumption. Hence, the current concern about cheap supermarket booze and its impact on binge drinking and falling pub revenues. However, there never seems to be a connection made between raising the cost of work, savings and investment through taxes and regulations, and the fact that by doing so, you get less work, savings and investment.

Could we have the Flat Tax now please?

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