Thursday, March 13, 2008

When a tax cut isn't a tax cut

One way of looking at the measures to tackle child poverty is that they are like a £1 billion tax cut. After all, the result is that the government is giving money back to taxpayers so that the people can decide how to spend their money, rather than the government deciding it for them. A victory for those who complain about the 'tax burden', I thought.

So I went to visit the Taxpayers' Alliance website, because as a non-partisan campaigning group, not in any way aligned with the Conservative Party, campaigning for lower taxes, I was sure that they would share my pleasure at this tax cut.

But what is this? They've done a spreadsheet with levels of tax for every different model of car, but no celebration of the billion pound tax cut! Instead they call it 'welfare spending', which is bad, apparently, because if poor families have more money to spend as they choose, it creates 'dependency'.

And then I turned to the Guardian, and an article which claims that 'middle income Britain' will lose out from rises in National Insurance. This will affect people earning more than £35,000 per year. But people earning more than £35,000 per year aren't 'middle income earners', they are earning significantly above the national average.

It's been a very clever trick to redefine tax cuts for lower income people as 'welfare spending', and tax rises for above average earners as 'more tax for middle earners'. But people interested in fairness, economic growth and social justice shouldn't be taken in.

9 Comments:

At 12:53 pm , Blogger Cassilis said...

A little disingenuous surely?

By definition taxing something involves appropriating part of it for some (usually collective) purpose. 'Cutting taxes' means doing less of this.

Simply channelling some of those funds back to the individuals in the form of benefits can't seriously be compared with not appropriating them in the first place, particularly since some of those benefits are ring-fenced in respect of certain things (housing benefit etc.)

I wouldn't dispute that organisations like the TPA have a political agenda (and one people on the left would have well-founded objections to). But while the characterisation of welfare spending as a tax cut might make for a funny and mischievous post it's clearly not serious political debate.

 
At 1:30 pm , Blogger donpaskini said...

Yes, indeed.

Apart from making mischief, my point was to note that much of the rhetoric used by the likes of the TPA about why tax cuts are good (they let people spend their money as they wish rather than the government doing it for them) also applies to an increasingly large proportion of welfare spending, tax credits in particular.

In practice (though I take the point about the difference in theory), deciding which taxes to cut is about channelling money to particular groups of people, be they people who inherit wealth, motorists, or poor families. All are taxpayers, but some exercise more concern in the hearts of the Taxpayers' Alliance than others.

 
At 2:39 pm , Blogger ejh said...

For my money I'd like to have fewer people discussing what the "Taxpayers' Alliance" say and a few more asking "who the fuck are the Taxpayers' Alliance and why do the media find it necessary to report their every word?"

Because if we do the former, we're basically doing what they want: giving over a large amount of time to their views despite the fact that they don't actually represent anybody but themselves.

Whereas if we do the latter, we might not only find out that they're just a handful of people who mostly used to be in at Imperial College together - we might also start asking (as Nick Davies might have us ask) how much else in contemporary political news is actually opinion generated by people rich enough to spend the money generating it.

 
At 6:59 pm , Anonymous ad said...

Greenpeace do not represent anybody but themselves.

Do you think that a damning indictment of Greenpeace?

The TPA is not any less "representative" than any other advocacy group.

 
At 7:31 pm , Blogger Matt Sellwood said...

I must admit that I am still not a big fan of tax credits, but there you go.

Where I do agree with you is on the definition of 'middle income' earners. Both the Guardian and the Independent had articles today which seemed to assume that the average wage in Britain is about £40,000 pa. Which it clearly, clearly isn't.

Matt

 
At 9:35 am , Blogger ejh said...

Greenpeace do not represent anybody but themselves.


Themselves, and a very large number of contributing supporters.

 
At 6:53 pm , Anonymous Anonymous said...


Apart from making mischief, my point was to note that much of the rhetoric used by the likes of the TPA about why tax cuts are good (they let people spend their money as they wish rather than the government doing it for them) also applies to an increasingly large proportion of welfare spending, tax credits in particular.


True. Governments aren't very good at spending money sensibly. You get a better response by letting people direct their own spending (whether of "their own" money or of benefits.) The exception is probably spending on insurance for potentially catastrophic but unlikely things. You could certainly count NHS A&E services in this category, and possibly things like long-term care for the elderly and unemployment benefits. We won't count pure public goods like a justice system, police force and army, where only collective provision makes any kind of sense.

The reason that it is better to give people money rather than stuff is that people usually know better than you do what stuff they want.

The reason that tax cuts are good is that they increase the marginal incentive to do more work. (In addition, obviously, to the reason above.)

The people who face the highest marginal tax rates right now are poor-to-middle income working families with children, who can face tax rates as high as 95%.

 
At 7:18 pm , Anonymous Anonymous said...

One way of looking at the measures to tackle child poverty is that they are like a £1 billion tax cut. After all, the result is that the government is giving money back to taxpayers so that the people can decide how to spend their money, rather than the government deciding it for them.

Not really. The government doesn't have some moral right to a big pot of discretionary spending cash that it can just decide, out of the goodness of its heart, to give to taxpayers. The money that the government has is morally the taxpayers' money, held in trust by the representatives of the People in order to fulfill the necessary governmental functions that we ask it to do.

Your statement only makes the slightest shred of sense if you assume that the government had a billion quid, which is was planning to use to - I don't know - build free bowling alleys and refectories for the children of poor families, but chose instead to hand over the cash.

This billion quid isn't a "tax cut" - it's a direct financial transfer from people who pay tax to poor people who have children. For a given desired level of welfare, this is probably better than providing free stuff.


In practice (though I take the point about the difference in theory), deciding which taxes to cut is about channelling money to particular groups of people, be they people who inherit wealth, motorists, or poor families.


Were I to write a political manifesto, it would include a complete restructuring of the tax system. It would contain a small number of broad-based taxes, which would be the only taxes allowed by law to fund any of the functions of government. Something like a land value tax for local government and an income tax for national government. All other taxes would be fiscally neutral, where fiscally neutral here means "give all the money back via special universal tax credits", not "spend it all on some government project that is vaguely related to the tax."

So if there are 30 million taxpayers, and alcohol taxes generates 300 million quid, everybody gets a tenner off their next tax bill.

Governments shouldn't micromanage.

 
At 6:01 pm , Blogger ejh said...

The reason that it is better to give people money rather than stuff is that people usually know better than you do what stuff they want.

Well, sometimes they do and sometimes they don't. People are very good at knowing what goods they want to buy now, which the market is very good at providing. They are much less good at knowing what may be required in the future and what sort of infrastructure (of various kinds) will be required in order that these things be available. This is so when it comes to health, education, defence, a healthier environment, transport systems, street lighting, sewage treatment and disposal and so on. In short, all the vital functions of society, which need to exist and work properly before most jobs can function, and therefore most individual spending decisions can take place.

There are a number of obvious reasons why this is so, but of one them is that society is a complex organism and not a neatly-organised system of private individuals in which individuals having money is good and governments having money is bad. And this, is turn, is possible because society - and real life, for most people - does not work quite the way that libertarians and other low-tax advocates would have it, nor do markets, nor governments.

 

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