How much can the Institute of Economic Affairs get wrong about tax? In the blurb for a new book it is publishing, written by its long-time associate Dr Eamonn Butler, it says in the first line:
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- Taxation may be necessary to fund public services, but policymakers must consider its moral and economic costs.
As opening howlers go. that's a good one. Tax never funds government spending. Money creation by a central bank does that. It has to in a fiat-money economy or there could be no government-created money in existence. Tax then exists to control inflation and for social purposes. Publishing a primer on tax in which you reveal you do not understand what tax exists to do is pretty good going for a supposed educational charity.
But then, this is not about education at all. As the IEA notes:
In An Introduction to Taxation, economist Dr Eamonn Butler investigates the moral case against excessively high taxation.
Most charities exist to relieve poverty. The IEA goes out of its way to prove it is all about increasing the concentration of wealth. For example:
Butler is particularly critical of capital gains tax, which reports indicate the new Labour government could increase in a forthcoming budget. He says taxing capital gains discourages savings and investment, resulting in lower productivity, wages, and growth.
Most of these claims are totally unproven. All abolishing CGT would, for example, actually do is reduce the tax rate on the wealthy, and cut government tax revenue, which the IEA claims must then be matched by reduced government spending. Increasing wealth for a few whilst denying services to the many is the very transparent agenda in this book, and never more so than when the IEA says:
The book challenges the notion that progressive income taxes are always fair or beneficial. Butler points out that high marginal rates on top earners can reduce tax revenue through avoidance or decreased economic activity. A study found that raising the top income tax rate would reduce total GDP by almost three times the revenue raised.
The argument here is that of the utterly discredited Laffer curve. How can they still be banging on about that when the effect does not exist at any known tax rate, except, maybe that on moving from universal credit into work?
And finally, they note:
The book concludes by exploring alternatives to taxation for funding essential government services, such as user fees, private provision, and better utilisation of state assets.
So, privatisation and US-style healthcare, which is utterly inefficient and fails to provide a service to vast numbers of people, is their prescription.
It is time the IEA was put in the museum for obsolete thinking.
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Obsolete thinking or politicised thinking?
“politicised thinking? “.. thinking? perhaps you are being too kind.
Grooming. An early attempt by neolibtards to keep their show on the road.
In the unlikely event it is stocked by bookshops – perhaps it needs to be put on the top shelf?
I was about to suggest sticking it in the Fantasy section, but I’m thinking that the Horror section would be more apposite.
Very useful book for politicians who want to serve the rich and in so doing enrich themselves. Lots of simplistic arguments (lies) no doubt for gullible voters.
Most charities exist to relieve poverty. The IEA goes out of its way to prove it is all about increasing the concentration of wealth. For example:
Butler is particularly critical of capital gains tax, which reports indicate the new Labour government could ” He says taxing capital gains discourages savings and investment, resulting in lower productivity, wages, and growth. Most of these claims are totally unproven. All abolishing CGT would, for example, actually do is reduce the tax rate on the wealthy, and cut government tax revenue, which the IEA claims must then be matched by reduced government spending. Increasing wealth for a few whilst denying services to the many is the very transparent agenda in this book”
“Unproven” is the existence of deadweight costs of tax, which vary by type of tax. There are several Nobel Laureates who would disagree. Vehemently disagree with a retired accountant from Ely.
So, you think that studies that cobsider the ‘cost’ of tax without the bebefits they provide prove anything?
And you even think that the non-Nobel prize in this subject is about anything but maintaining right wing thinking?
You really do belong in the same Museum as the IEA
It would appear Paul Maddeley that you have no idea that a society’s use of money involves the redemption of money created. Secondly, you appear not to understand that how much redemption and by who is determined by the democratic choice of voters who most decide on the level of government spending. I doubt that your argument voters must allow a version of highway robbery where market based controllers of capital should be allowed to minimise (even evade) paying tax would receive many votes!
Thank you, Paul.
Are you aware of the difference between the Nobel prizes awarded for science and literature and that right wing con from the oligarch influenced Swedish central bank?
Thank you, Richard.
One is lost for words.
Butler has had to go some to exceed the performances of the Orange Order Liberal Mark Littlewood, ordoliberalismus fan boy Kristian Niemitz and colonials Kate Andrews, Divya Chakraborrty (not be confused with the far more sensible namesake at the Grauniad) and Chloe Westley. Perhaps, bonuses are awarded for the most outrageous output.
Are you being rude about my long term Radio 2 broadcasting partne, Comrade Littlewood? He doesn’t seem to like the name…
And I think you nmay be right about the IEA
Thank you, Richard. :-).
Here’s the Work and Pensions Secretary Liz Kendall mouthing off about the need to do the sums before the two-child benefit cap is lifted :-
“Liz Kendall says government needs to do ‘the sums’ before scrapping two-child benefit cap ahead of potential Commons rebellion”
https://www.theguardian.com/politics/live/2024/jul/23/conservative-leadership-james-cleverly-labour-keir-starmer-uk-politics-latest-news-updates
You know full well she won’t personally involve herself in doing the “sums” which identify whether the taxation system in the UK is equitable which in turn will help determine whether lifting the cap is feasible. As such she is simply a shill doing the work of the rich like Eamonn Butler in her utterances!
“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”
@ Mariner. Thanks I’d forgotten this definition of a shill by Upton Sinclair. Indeed Sinclair wrote a book describing how the right-wing of the Democratic Party used insidious means to defeat him in his run for the Californian governorship in the Depression Era 1930’s (History now repeated in the UK with the current Labour Party!).
https://www.amazon.co.uk/Candidate-Governor-How-Got-Licked/dp/0520081986/ref=tmm_pap_swatch_0?_encoding=UTF8&qid=&sr=
https://en.wikipedia.org/wiki/Upton_Sinclair
It’s a very good quote. I vaguely remembered it and had to search the internet to find the exact wording, but it is very much relevant to pretty much anything that comes out of Tufton Street! Or Fleet Street, for that matter.
One of the reasons for CGT was of course to deter attempts to convert income to capital and exempt it from tax completely. Abolishing CGT would no doubt cause a rise in such behaviour again and reduce the income tax (and presumably CT too) take until such time, if ever, as HMRC might get on top of it.
As the IEA is, to put not too fine a point on it, opposed to the overall concept of civil society, no wonder Butler proposes this.
CGT is an essential backstop to IT
IT = Income Tax?????
Yes
Sorry….
“the utterly discredited Laffer curve”
What the Laffer curve says, all the Laffer curve says, is that there’s an optimal point for taxation. It’s bleeding obvious that there is. At a 0% tax rate, you’d get no tax and at a 100% tax rate virtually no one would bother working and you’d get virtually no tax. Somewhere between those rates is a tax rate where work is worthwhile and tax maximised. It’s going to be different for different people. I see it in practice every day. Clients who limit their income to £100k where they can so as not to go into the penal tax band that operates between £100k and £125,140 where the personal allowance is withdrawn. That’s a practical effect. They don’t mind 40% tax, they don’t like an effective 60% tax rate. You’d raise £4k extra on £10k of £110k if the rate was 40% but you raise £0 at 60% because people don’t take that £10k salary. Some people don’t have a choice. Whether more is raised than lost is one of the nuances you seem incapable of grasping.
Would you take a toll road that cut a 50 mile journey to a 30 mile journey if the toll was £1? Yes, you probbaly would. If the toll was £5,000? No you wouldn’t. There will be a price point at which the toll raises the most amount. Even you should understand that that’s a simplistic example of the Laffer curve in action.
Laffer never claimed to have invented the concept. Nor did he ever say “if you lower taxes you will always raise more”. The concept dates back to at least the 14th century and has been written about by many economists people have heard of, even if some virtually no one has heard of don’t get it.
What’s ‘utterly discredited’ are people who mangle what Laffer was saying either because they don’t understand it or because they deliberately misinterpret it.
I have debated Laffer with Laffer and won in front of a decidedly right wing audience
Politely, I know what I am taking about
https://www.taxresearch.org.uk/Blog/2021/10/07/the-day-i-took-on-arthur-laffer-and-won/
Since Laffer, apparently, no longer believes in his curve..that must have been a fairly short ‘debate’
But Butler (also a vocal advocate of SEZ’s etc…doyen of Heritage and the ASI) does give his game away…
“Taxes cause harm. The first principle for successful tax reform is to acknowledge that some (or even most) taxation will inevitably cause harm. People enter into voluntary transactions, exchanging goods or services for money, because both sides benefit. But taxes diminish the value created because they impede and distort those transactions.
Moreover, taxes take value from individuals and transfer it into a bureaucratic process that may well use resources less efficiently than individuals themselves.” [p.107]
https://iea.org.uk/wp-content/uploads/2024/07/Taxation-Interactive.pdf
It’s doubtful if any spads (of either hue) will bother to read that far
The churnalists certainly won’t
Yeah, well if tax is 0% you’re unlikely to raise any revenue from it. And if it’s 100% you’re unlikely to raise any revenue from it. Don’t you think that somewhere in the middle there might be a sweet spot?
Presuming you are the author, as it seems is implied by details I can see, the answer to your question is that you entirely miss the point.
We do not have 100% taxes.
And research shows we rarely have marginal tax rates of the 70% or so that might have an impact for some in the incentive to work, and I stress the words marginal and some. What is more, such rates only exist over small bands of income.
So the point you make is utterly irrelevant in reality. So why make it?
In contrasts, your other chains are all about your desire to redistribute wealth upward in society, which no one who understands life itself, let alone the relationship between wealth, growth and the marginal propensity to consume would ever do.
You should also learn that tax does nit fund government spending and that tax on wealth is about distributive justice whilst rates of tax on CT and CGT equal to those on IT are simply necessary for anti-abuse reasons.
What you reveal is a total lack of understanding of tax and a good grasp of the dogma of greed.
I have deleted all your other multitudinous comments for violation of my comments policy. Being relative, rude and not offering an argument are all advertised reasons for deletion. You tried them all.
HI Simon,
” You’d raise £4k extra on £10k of £110k if the rate was 40% but you raise £0 at 60% because people don’t take that £10k salary”
So what you are saying is that those people are turning down an extra 4K? not very financially astute, are they
Regards
That is exactly the point. It is claimed that some people would rather be £4k poorer (a bit less, actually, allowing for NICs) than spend time working to increase their gross income by 10% from £100k to £110k.
The take home pay of an employee earning £100k after income tax and NICs is £68,557.40 but for £110k is £72,357.40. So that is actually a 5.5% increase in take home pay for 10% more effort.
I suspect there are some people like that but I doubt there are very many. Such people should be encouraged to earn the higher amount and make a larger pension contribution, or pay some to charity, and claim tax relief at their 60% marginal tax rate.
The evidence suggests there are significant numbers of self employed people (plumbers, electricians, etc) who stop working when they get close to the VAT threshold at £90k because it is a cliff edge and would increase their future sales prices by about 20% (allowing for some input VAT recovery) not just the sales above the threshold.
Thanks Andrew
Laffer presented a single tax model to fit a multi tax environment.
That some people choose to manipulate their tax affairs by juggling tax thresholds does zilch to justify this Jackanory plaything for neoliberals.
@ Simon Lingfield. You talk nonsense! Of course Laffer was pressing for tax cuts as a means of increasing growth! The experiment he recommended was tried in the state Kansas and failed resulting in the experiment being abandoned! As for motorway tolls you could drive on Interstate 70 the East to West motorway across America and never encounter a toll on this important route until you hit Kansas. The Kansas tolls were to put it mildly a “pain in the butt” to use an American idiom!
https://en.wikipedia.org/wiki/Kansas_experiment
I wonder if everybody is getting the spelling wrong… Laffter surely?
“…..where the personal allowance is withdrawn.”
I’ve never understood this. The personal allowance should be sacrosanct.
(Shouldn’t it, Richard?. What’s the justification?)
I agree with you
I say so in the Taxing Wealth Report
HI Richard,
I presume this book will be found in the Fiction section of bookshops, along with all the other fairy tales
Regards
You know, it’s been a while since the last time I saw such a high concentration of fallacies in a text. But I no longer bother about debating leftists. You can give them as much data, empirical evidence, studies, historical examples, models, and even plain logic as you like. They will simply ignore it, throw out another fallacy and speak as if they had debunked everything you said. And, if you continue exposing the fallacies in their arguments, they just get angry and accuse you of defending the rich, hating the poor, being a racist, a fascist or whatever else they are and accuse others of being. But I’m pretty sure you will keep finding lots of useful idiots to believe your cult and continue ignoring the reality.
If you no longer debate leftists, why turn up here with literally no argument on offer at all?
Is it you have none?
Augusto sounds like Reform Party supporter who just fancied a day out slinging ad hominems!
Augusto… as in Pinochet…
Some hero worship
There seems to be quite a lot of projection going on here.
That has to be a parody, surely. When your whole post is doing exactly what it complains about?
The Laffer Curve appears in Ferris Buellers Day Off
https://www.google.com/search?q=laffer+curve+ferris+bueller&oq=laffer+curve+fer&gs_lcrp=EgZjaHJvbWUqBwgAEAAYgAQyBwgAEAAYgAQyBggBEEUYOTINCAIQABiGAxiABBiKBTINCAMQABiGAxiABBiKBTINCAQQABiGAxiABBiKBTIKCAUQABiABBiiBDIKCAYQABiABBiiBDIKCAcQABiABBiiBNIBCDc5MjBqMGo3qAIAsAIA&sourceid=chrome&ie=UTF-8#fpstate=ive&vld=cid:fff5f34e,vid:X_wHBlouFSc,st:0
Best place for it
Just DONT watch the film, its dreadful
It’s a classic film. It probably triggers some lefties though as it features a Ferrari.
This review is a load of incoherent bollocks.
As incoherent bollocks goes, you offered a great example.
I sincerely hope that like Simon above, Murray is just having a Laff!
Sorry, Richard, I couldn’t help that, but as far as the Tufton St. crew are concerned, one cannot laugh hard enough after taking due care of the ignorance and nonsense they produce and rely on.
https://www.theguardian.com/commentisfree/article/2024/jul/23/landmark-book-spirit-level-cost-inequality-fifteen-years-later-worse-labour#comment-168702798
Just read the comments on this article to get a run-down on taxation arguments.
Here’s but one:-
Take the gap between FTSE CEO to average wage earner ratio, in:
1980 it was £115,000 – £6,500 18:1
1998 it was £1,000,0001 – £17,400 57:1
2012 it was £4,500,000 – £26,500 170:1
Thanks
Funny how the free market trolls, and especially the truly sanctimonious, pre-identify as such by using pseudonyms of their heroes.
As telegraphed zealotry as that fakery with retired football strikers and managers.
Maybe the next step is a hybrid…
Mises Rapid Vienna…..
Friedmans Chicago Bears
Tax also establishes the legitimacy of the sovereign currency issuer, standing behind the money of account. Only the ultimate issuer has the authority to tax, and the power to execute it.
We do not discuss the importance of legitimacy, but it is fundamental; and we will see this soon enough, with the rise of digital money and (so-called) cryptocurrency.
I referred to it in a book proposal, today
The BoE seems to me very unconvincing on digital currency; which they seem keen to experiment with. The BoE is the least xpable institution to handle something like this. they know not what they do. They have a tiger by the tail, and do not appear to understand their predicament. Big Tech is more innovative, than wise.
Agreed, John
@ John S Warren
“….Only the ultimate issuer has the authority to tax, ”
In theory that is so, but when natural monopolies are privatised I think the case changes somewhat.
They extract rents, not tax
Oooooooooooooh this makes my blood boil!!!
Honestly, why do they bother?
Let’s discuss the moral hazard of having too much money instead for change shall we?
Now wouldn’t that be novel!
But why would the IEA discus that, since they are the beneficiaries of rich people’s largesse?
Bloody hypocrites.
Agreed
Hello Richard, I recently read a book called ‘Taxopia’ by the Rebel Accountant. In it he shows how the tax system is designed by the wealthy to benefit them and how we all suffer as a consequence. He ends by saying all we need is 3 taxes,one on incomes,two on sales and three on wealth sent abroad. His idea is not to increase taxes but to create a tax system that is equitable and simple to understand. What’s your opinion
Anyone who thinks we can survive with just three taxes is talking nonsense and does not in anay way underatand tax
Thank you for replying, I believe the ‘Rebel Accountant’ as a chartered accountant worked in an area where tax avoidance and evasion is rampant. It was this aspect that disgusted him and due to the complicated tax system this enabled these things to occur. I like you would have liked him to flesh out a more simpler tax system instead of just three taxes,but I believe he has a point a tax system that is complicated is open to abuse!
Simple tax systems are usually even more open to abuse because there are no backstops e.g. capital gains tax exists to backstop income tax, as does corporation tax
Hello Richard I believe the best argument for public ownership was given on a podcast called ‘Gary’s economics,where he explains it in terms of owning your own house. Most people seek to own they house so that in future your not lumbered with rents your unable to afford. Likewise a system that buys hospitals say and then rents them back to the state is eventually going to become a growing burden for any government. I am no expert on public finance but when I see how much is spent on the NHS I wonder how much of that money is going to private asset companies.
Thanks