The principles of taxation
Robert Henderson
The principles of taxation
Robert Henderson
Taxation is inevitable
Extreme libertarians claim that "taxation is theft" and envisage their
ideal society as one in which every necessary social expenditure -
even extreme libertarians tend to grudgingly admit that the public
provision of defence, justice, diplomacy and suchlike are necessary -
should be funded from voluntary contributions. Pleasing as the idea of
a world without taxes is, all of history is resolutely against it and
our experience of human nature tells us that altruistic behaviour has
severe limits.
No society beyond the tribal has ever survived without some form of
overt forced contribution and even tribal societies place onerous
social obligations on people, such as sharing food and the provision of
hospitality to strangers, which are scarcely voluntary because of the
fear of social ostracism. We also know for a fact that where people are
left to make voluntary contributions, for example to charity, the vast
majority either contribute nothing or very little.
Most societies which have ever existed, and that includes most which
currently exist, have had no state sponsored welfare provision and
in such societies voluntary aid has always proven to be completely
inadequate. The first country anywhere to avoid serious and regular
famines was England, which was also the first country to have national
welfare provision as a legal obligation as a consequence of the 1597
and 1601 Poor Laws.
It would take an optimist of Herculean faith in the malleability of
human beings to imagine that a society of any sophistication would work
if it was solely based on voluntary contributions to promote those
things necessary for the general good.
The tax people will bear
The vast majority of people (at least in the First World) accept that
taxation is necessary, not merely a burden which cannot be avoided. For
them the question is not whether there should be any taxation, but at
what level taxation should be set.
The level of tax people are willing to tolerate is dependent upon six
things: (1) confidence in the government to tax fairly; (2) confidence
that the money raised is being used for the public good; (3) the
general level of tax; (4) the nature of taxes levied; (5) the
efficiency of the state in collecting taxes and (6) the personal
circumstances of the individual.
People may claim to be influenced by ideology when it comes to taxation
and public expenditure, but in practice their behaviour is determined
by mundane considerations of personal advantage and the degree of
material freedom already possessed by an individual.
Generally, the richer a man is the less likely he is to be inclined to
favour high taxation and public expenditure. This makes obvious sense.
Human beings seek strategies which maximise their advantage. The rich
can buy their safety and comfort, the poor ensure their survival by
mutual action. Ostensibly, there are exceptions with rich socialists
and poor conservatives, but when their behaviour is examined it is
generally at odds with their supposed ideology. Rich socialists very
rarely give away their wealth to the extent that it seriously
constrains their manner of living, while poor Tories are only to happy
to demand and take state help. In other words, their behaviour is
essentially that of the population at large, whatever their
"principles" may be.
Those who doubt this somewhat stark view of human nature, should
reflect on all the people they have known personally and then ask how
many of those people actually live up to altruistic principles.
What counts as taxation?
Forced contributions may not be taxation as we think of it. They may
be slave labour, the provision of labour by serfs, military service or
payment in kind or service, but these exactions are still doing what
taxation does today, namely, those in authority are taking from men and
women that which they would not voluntarily give.
Even in the modern industrial state there are elements of
non-monetary extraction, for example, conscription for military
service, or its civilian equivalent for conscientious objectors, and
labour for the unemployed such as workfare.
But people do not really think of such things as taxation, even though
they are. What the ordinary voter means by tax is simple, the taking
of a part of the value of incomes, capital and the price of goods
and services, and administrative taxes such as Council Tax (based
on property values) and the television licence fee (a poll tax) which
have something of the nature of a charge for services.
Taxation in a command economy
In an unashamed command economy such as that of the Soviet Union, the
line between taxation and income is seemingly notional because what
each person officially earns is determined by the state (what they
earn through bribes and the black market is another matter). However,
tax in its broad sense is there if one looks hard enough. It is the
amount which the state takes from the individual in terms of labour
and product. Although the detail of state financing in a command
economy is complicated, the principle is as simple as that: the
individual works and the state takes whatever it chooses to take and
leaves the individual with that it chooses to leave.
Unsurprisingly, true command economies have only existed where
democratic forms are absent. However, they have been true command
economies only in as much as the state decreed that was how things were
meant to be. In fact, very healthy black markets have always existed
in such economies. The old Russian joke during the latter years of the
Soviet Union - "We pretend to work and they pretend to pay us" - was
not that far from the truth.
Taxation in a market economy
This is a somewhat problematical concept because all advanced market
economies have elements of the command economy within them, not least
because of necessity they must have large bureaucracies and because in
practice no government can resist the pressure to interfere with the
market, for example by passing safety regulations and having
anti-monopoly laws. However, even in the non-communist states with the
most heavily modified market economies - Britain under Attlee for
example - the large majority of economic activity is private activity,
which in practice if not in theory is effectively without state
interference. So it is not unreasonable to speak of them as market
economies, although it is important to understand that market economy
does not equal free trade economy - a domestic market may be subject to
either free international trade or protected from it.
Taxation in a market economy has two masters - ideology and
practicality. Ideology divides between the simple need to finance
government and the desire to use taxation as a means of social and
economic engineering.
The practical principles of tax collecting in a market economy are
three. Is a tax easy to collect? Is it cheap to collect? Does it
produce sufficient money?
Louis XIV's finance minster, Colbert, had a dictum any tax raiser
should heed. The taxpaying sheep said Colbert, "should be shorn
lightly and often. " How right he was. Taxes are subject to the laws of
psychological supply and demand. Set a tax at what people think is
reasonable or more trouble than it is worth to evade, and tax revenues
will be strong. Set it too high and tax revenues will diminish. A good
example of this occurred during the 1980s. In the 1970s income tax
rates reached very high levels - even basic rate tax peaked at more
than 30% The Thatcher government gradually reduced the basic rate to
23% and the upper rate to 40%. Income tax revenues rose afterwards.
A example of a practical tax and an impractical tax
Until the late 1980s the only tax raised on private individuals by
local government in Britain was the domestic rate. It was levied on
property. The rates were related to the value of the property. It was
not a progressive tax because it was levied without regard to a
person's ability to pay, although for the poorest rate relief was
available. Nonetheless, there was a certain rough and ready justice in
it, because generally the more expensive the property the better-off
the resident. It was also an ideal tax to levy because although people
can easily disappear, property cannot. Its main drawback was
political. During periods of rapidly rising house prices, the
valuations on which the rates were calculated were soon out of date. By
the late eighties the valuations were severely below the true values
of properties. A new valuation was needed, but that would mean greatly
increased valuations and from that would come much higher rates. It was
this looming electoral albatross which persuaded the Tories to scrap
rates and replace them with something called the Community Charge,
which very rapidly became universally known as the Poll Tax.
The Poll Tax was introduced at the whim of Margaret Thatcher. It was
the tax from Hell. Just about everything which a tax should not be it
was, being difficult and expensive to collect, it paid little heed to
a person's ability to pay and was genuinely too great a burden on
large numbers of people. As it was a most visible tax, ie unlike
indirect taxes such as VAT people were only too aware that they were
paying it, these were disastrous disadvantages.
Incredible as it may seem, Thatcher made the commitment to introduce
the tax casually during an interview without any understanding of what
she was doing. The wise thing would have been to quietly repudiate
the commitment, as Blair's various extempore commitments during
interviews, such as the one to ensure that NHS spending was raised to
European levels within a few years, have been repudiated.
Unfortunately, by that time Thatcher had such a dominance within the
Tory Party that it proved impossible to do that without her agreement,
which she was unwilling to give. Her refusal was part personal vanity
and part ideological fixation. She was attracted to the tax because it
fitted in with her political philosophy of people paying their way.
Thatcher saw it as more a fee for services than a tax, hence the rather
odd name of Community Charge.
The tax was a certain failure because it took no account of the
administrative difficulties it entailed. To obtain its projected tax
revenue, 95% of the adult population of the U.K. had to be identified
with 90% of them paying the tax in full, a quite absurd assumption.
Collecting from individuals is always the most difficult and expensive
form of tax collection because a substantial proportion of the target
population are mobile and difficult to identify.
But if the Poll Tax was damned before it began on simple
administrative grounds, it also broke the rule that taxes should not be
too high. The old domestic rates had their faults, but at least they
were related to properties people owned, leased or rented. Whether ten
people or one lived in a property, the rates were the same. With the
Poll Tax, the inhabitants of identical properties could attract
vastly differing tax demands because the tax was attached to the
individual not the property. The situation was made worse by the fact
that the old domestic rates had not been uprated for many years. This
meant in practice that the Poll Tax levied on even a single person
living alone was frequently substantially more than what they had paid
under the old rates.
The Tories were soon faced with a widespread tax rebellion as pensioner
couples suddenly found they were being asked to pay a combined amount
three times or more than they had paid in rates and young couples
wondered how they could meet the massive mortgages they had just taken
on as well as paying the new tax. Even the comfortable middle classes
balked at the charges. The justice system threatened to come to a dead
halt as tens of thousands of people were summoned for non-payment and
the revenue from the tax fell dismally short of what had been
projected. People who had never previously dreampt of joining a
protest march took to the streets. Matters came to a head after a
violent protest in Trafalgar Square. The Government caved in and
withdrew the tax. It was the nearest Britain came to general civil
disobedience in the twentieth century. Within a year Margaret Thatcher
was out of office.
The Poll Tax is a dire warning to politicians of any colour. It tells
them two things: do not introduce a tax without understanding the
administrative details and never allow ideology to override
practicality. However, politicians being politicians, they rarely if
ever learn this lesson.
Social and economic engineering
Taxing for the purposes of social or economic engineering rarely if
ever works. If you try to tax the rich severely (or for the very
rich, at all) because you disapprove of wide differences in wealth,
they will simply put their money out of the reach of the government of
the country in which they are resident. Put up the tax on tobacco and
alcohol to reduce their consumption to "improve" the nation's health
and you tax the poor disproportionately because demand for these
products is inelastic. Increase tax on petrol because you wish to
restrain the use of private cars and you increase the costs of
commercial transport and make your commerce and industry uncompetitive.
The law of unintended consequences operates ferociously in the world of
taxation.
Economic engineering through taxation has an equally woeful record. My
favourite failed attempt in this category is the Selective Employment
Tax introduced by the first Wilson government in the 1960s. This tax
was designed to encourage employment in manufacturing at the expense of
service industries. The service industries paid a levy on each of their
employees which manufacturers did not pay. The result was to depress
employment in the service sector without increasing it in the
manufacturing sector. There was an excellent and entirely foreseeable
reason for this: it did not change the general economic circumstances
of manufacturers. Their costs were not reduced. They still had to
compete with foreign competition on the same basis as before. All that
happened was that service sector employers had an additional cost. They
not unnaturally cut jobs and did not create new ones. The tax was
quietly dropped after a few years.
Fairness in taxation
It is difficult to say exactly what fairness in taxation is. Is it
everyone paying the same or people paying according to their ability
to pay? Should the manner in which people make their money be taken
into account? Is inherited wealth more worthy of taxation than earned
wealth? There are no certain answers to such questions, although most
in Britain would probably choose "ability to pay" if asked where
justice lay.
In fact, taxation in a modern Western state is always a balance between
what seems fair and what can achieved. In Britain we have ostensibly
ability-to-pay taxes such as income tax and ostensibly pay-the-same
taxes such as VAT. In fact the dividing line is nothing like so clear
because of both the inherent qualities of taxes and their practical
operation.
British indirect taxes with one exception (the TV licence Poll Tax) are
all related directly or indirectly to either wealth or income. A rich
man pays more than a poor man in VAT and excise duty because he spends
more. Those items deemed necessities such as food are either taxed
more lightly than non-necessities or not at all which benefits the poor
most because they spend proportionately more of their income on
necessities than the rich.
Nonetheless, most British people would say that direct taxes such as
Death Duties national insurance (NI) and income tax are in principle
fairer than indirect taxes. In practice this is dubious.
Death duties in theory apply to all, but in practice can be avoided by
the rich either through the use of trusts or the movement of their
assets off-shore.
NI has elements of a poll tax. For most people it is comprised of two
elements, the employers and the employees contribution - the
self-employed just pay a single contribution. The employers
contribution applies these days to the entire pay, but the employees
contribution until 2002 was capped at a relatively low level, somewhere
around the full-time average wage. Those earning more than the
ceiling did not pay the employees contribution on their earnings above
the ceiling. Thus, the richer you were the more beneficial the NI
rules. In the 2002 budget, the rules were modified and all earnings
above the ceiling are now subject to a 1% employees level. Nonetheless,
the more you earn the less proportionately you pay of your income in
NI.
Income tax may seem to be the fairest tax but in fact it is anything
but. Generally, it is only honestly paid by those under the
Pay-as-You-Earn scheme (PAYE). Even if they deign to make a tax return,
the self-employed can, at worst, reduce their liability very
substantially or make it vanish altogether by setting cost against
their gross income. Of course, many of those not under PAYE do not
declare at all. Moreover, many employers collect income tax and
national insurance and fail to pay it to the Inland Revenue. Add in
the fact that those in control of limited companies - the directors,
are able to legally avoid the full burden of PAYE by devices such as
share options and national insurance by receiving massive benefits in
kind (which do not attract national insurance) and illegally evade by
not recording money received on the books, and you should begin to get
the unsavoury picture. The rich of course need pay no tax because they
can put their capital and income beyond the Tax Man in any number of
ways, for example off-shore in the manner of Geoffrey Robinson.
Because income tax is only paid in full by those under PAYE, it is far
from being a means of redistributing wealth according to income.
Rather, it is simply a means of shearing the least mobile taxable
sheep.
Which taxes raise the money?
It is all very well saying that this or that tax is unfair and should
not be levied. In the end the first concern of a government must be to
raise funds to meet its standing obligations and any new policies its
wishes to introduce. Governments however radical they are when they
come to power, soon find that they have to worry first about bringing
in the money before making any attempt at social or economic
engineering.
Which taxes bring in the money? In the UK, the approximate proportions
of total tax revenue raised from the various taxes are:
Income tax 30%
National Insurance 18%
VAT 17%
Corporation tax 9%
Motoring taxes 7%
Business rates 5%
Council tax 4%
Tobacco, alcohol 4%
and betting
Other 6%
Income tax, national insurance and VAT make up 65% of the total tax
revenues of the UK. Consequently, anyone feeling that the taxes are
unfair or retrogressive has a massive problem if they wish to even
substantially reduce the taxes in those categories let alone abolish
them. So whether or not a government wishes to do so, they have to find
substitute sources of revenue or cut back very substantially on
government expenditure, something virtually impossible to do in a
country which provides a comprehensive welfare state.
Imagine that a government decided to abolish income tax
To illustrate the difficulties of dramatic tax change, let us suppose
that a government wished to abolish Income Tax. There are good reasons
why a government might. They could do it on the general issue of
personal freedom, for the tax allows the most comprehensive means in
any society one might call free for the state to probe into the lives
of individuals. Then there is the craven self-interest of politicians.
Income Tax is the most sensitive tax a government ever levies, because
people are made aware of it in the most dramatic and personal way. A
man gets his wage slip and sees directly what is taken. Most of the
time tax is taken without people being directly confronted with the
fact. Any government has a pressing incentive to keep down income tax
for that fact alone.
But how to make up the 30% shortfall if income tax is abolished? All
the obvious things to tax in Britain are already taxed and taxed at a
hefty rate. The only likely option would seem to be to shift the burden
onto the existing national insurance system which has no linkage to any
particular expenditure. This could be done in principle by simply
raising NI payments to make up the lost revenue. However, the effect of
that would be very like an income tax, with the more you earn meaning
the more you pay. It would be largely a change of name rather than
fact.
An alternative would be to try to run the welfare state on a proper
actuarial basis. Those unable to pay premiums would have to be given
credits by the state.
Such a scheme might be practical for healthcare and unemployment, where
the costs each year are to a large extent predictable because of their
short-term nature. But what of pensions? These are more problematical
because of the period over which contributions must be made - anyone
who believes that a pension can be guaranteed over a period of 40 odd
years is living in cloud cuckoo land. Even if payments towards a
non-state pension were made compulsory, it is all too easy to see
situations where large numbers of people would be left with pensions
insufficient to keep body or soul together or no pensions at all -
remember Maxwell. Therefore, I cannot foresee a time when the state
should not be the provider of the last resort. Such pensions need to
be funded out general taxation. Which brings us back to square one,
namely, where do we get the money from if not income tax or a
non-actuarial based NI?
Local taxes
Local taxation is more problematical that national taxation in one
important respect - the variation of wealth throughout the country is
of no account when setting national taxes but it is at the local level.
The large majority of what local authorities spend these days comes
from central government. Supporters of local government decry this on
the grounds that it removes responsibility from local politicians and
voters. That is true. However, there is a problem with giving local
government greater taxing powers. Councils in poor areas will have both
a greater need to spend than richer areas - because they have more
people in need of support - and a smaller tax revenue than rich areas,
a circle which could never be squared. Certain parts of the country
may have a similar level of prosperity but special circumstances
causing higher council expenditure such as a substantially larger
proportion of their population above retirement age.
If councils raised much more of their revenue from local taxation
without interference from central government, inevitably some areas
would impose much higher taxes than others. This would have the effect
of driving people and businesses from high tax to low tax areas. This
may sound fine and dandy, but the effect on those still living in the
high tax areas would be dire as a vicious circle of increasing
poverty, decreasing employment and fewer businesses to tax was set in
progress. Apart from common sense telling us that is what would happen,
we have the confirmatory experience of the period before the Standard
Business Rate was introduced and council expenditure capped.
The circumstances of a tax can change
Income tax is a very popular tax with British governments. It is
popular not because it is inherently easy to collect, but because of
the cooperation of employers to operate PAYE. If everyone paid their
tax directly to the Treasury, as the self-employed do, the amount
collected would drop drastically and the cost of collection rise
massively. There are 28 million people in work in the UK. Most are
under PAYE. Imagine having to administer 28 million separate tax
returns.
As most of the tax is collected from those under PAYE, it becomes less
effective the fewer large employers there are. This is because large
employers are generally (1) willing to collect and pay over tax and NI
and (2) their PAYE schemes are cheap for the Inland Revenue to
administer. Th+e number of large employers is rapidly diminishing.
This both increases the cost of tax collection and the frequency of
evasion by small companies who can easily evade tax.
How do small companies avoid tax? A favourite trick is to trade for a
year or eighteen months without paying over tax of any kind to the
state and then liquidate voluntarily. (Creditors other than the state
are paid to ensure the continuance of the business under the next
company) A new company is set up on the same day as the other one is
liquidated and the business continues as before. So, for example, AB
Fashions Ltd liquidates on the 15th March and AB Fashions (New) Ltd
begins trading on the same day. A separate company holds any assets
such as machinery, so there is nothing for the liquidator to realise.
The taxpayer makes up the non-remitted National Insurance payments
from the liquidated company by crediting them to the ex-employees. Thus
the taxpayer meets the cost of what is essentially theft by the
employer. The employers get away with it because non-payment of tax or
NI to the Inland Revenue - as opposed to non-declaration or
non-deduction - is a civil not a criminal matter. In short, tax and NI
deducted from wages but not paid to the Revenue is simply a debt to
the Revenue.
This trick, incredibly, can be done almost ad infinitum because the
legal restraints, such as banning people from being company directors,
are utterly insufficient to stop the practice. Indeed, if a man wishes
to engage in criminal activity with little chance of prosecution, he
cannot do better than set up a limited company and trade fraudulently.
As long as no blatant removal of assets and money occurs, prosecution
can normally be avoided provided the principals of the company keep
reciting such time honoured phrases "l thought trade would improve"
and "I was out of my depth". If all else fails, lose the records or
claim that they were never kept.
Non-taxation measures
None of what I have written means that a government is constricted
unduly in its policies.
Potentially governments have many other weapons at their disposal to
shape the economy and society. They may control interest rates. They
can restrict credit. For example, house price inflation could be curbed
by placing an upper limit on the wage multiplier used by mortgage
providers to decide what mortgage is granted. They can protect their
industries from foreign competition. Thewy can relax or tighten
immigration.
Take the single issue which has caused more political dissent than any
other over the centuries, differences in wealth. There is a strong case
(which the ancient Greeks clearly identified at least 2500 years ago)
for preventing wide differences in wealth because they are corrupting
to a society for they concentrate power into too few hands and create
profound dissatisfaction amongst the have-nots, which social traits
guarantee regular social upheaval.
It is certainly true that the rich enjoy privileges which go far beyond
the mere enjoyment of material possessions and sensual pleasure. Their
wealth buys them power and influence. It is also true that the rich
abuse both. If a government cannot effectively tax gross differences
in wealth out of existence what can they do to stop such abuse? A
good deal is the answer, provided the political will is there.
They can act in non-economic ways to control the behaviour of the rich.
Access to the law could be made more or less equal if all legal work
was in effect legally aided. That alone would have a massive effect on
the abusive power of the rich and powerful. A statutory right to reply
for the individual to media coverage of them would be a powerful
weapon. Restrictions on members of the same family taking political
office could be introduced. A law banning national newspapers and
broadcasters from employing more than one member of a family would
have the same effect.
I said that all governments potentially had many non-tax
opportunities to pursue their ends. However, in practice many
governments are to varying degrees constrained from exercising such
powers.
A written constitution will restrict the powers of those in executive
authority by setting limits to what they may do and will prevent the
passing of laws by forbidding those which contravene the constitution.
More generally, treaties can restrict virtually anything, in theory at
least. They are increasingly important and have profound effects on
the power of governments including their ability to tax and control
immigration. In particular the range of taxes available to a
government is constrained by free trade. Not only may it not impose
tariffs, the free movement of goods and services means that taxes
cannot be set without regard to taxes and price levels in other
countries.
Do not confuse tax raising with political ends
If the first priority on the supply side of taxation is whether a tax
raises the required revenue at a particular moment, no government can
ignore the general effect both the level of taxation and its
particular nature affect the economy.
The trick with taxation is to avoid confusing taxation with
government expenditure. Taxation should simply be a means to meet
government spending plans. These plans may include social engineering
such as providing university grants to students from poor families and
economic engineering such as subsidies for important industries. What
experience shows is both inefficient and damaging is the attempt to use
taxation to alter behaviour.
--
Robert Henderson
phi...@anywhere.demon.co.uk
Blair Scandal web site at http://www.geocities.com/blairscandal/
Personal web site at http://www.anywhere.demon.co.uk
Derek Geldard
<Phi...@anywhere.demon.co.uk> wrote:
>a
> The principles of taxation
>
Are just stupid.
[Snip] (558 Lines)
I am an electrician (for the sake of this argument)
Over the back lives a painter and decorator.
2 streets away lives a plumber.
Down the road lives a joiner
I can do my own house wiring and this activity is not taxed.
I could do my own decorating and not get taxed, but I'm not a
decorator and I don't have the tools etc so I'd probably make a mess
of it so I get the decorator in. I pay him in *Money* and therefore
the government get vat, income tax, and national insurance, this could
add up to 76% approx.
The decorator could do his own wiring and this would not attract any
tax but he wouldn't be sure it was safe. He could call me in and get
it done right but of what he paid over three quarters would go in
tax.
And so on for all the combinations of the above trades.
In fact I could build my own house. I could work my fingers to the
bone, work all the hours god sends and build myself a house. I
wouldn't be qualified for anything except the electrics so I'd
probably make a mess of it, it probably wouldn't be safe, therefore to
avoid it becoming a menace to public safety I didn't I commissioned
the tradesmen to do what they are trained for and equipped for.
However, as a consequence all the tax has quadrupled the cost of the
house, or put another way to put building my own house on an equal
basis If I built my own house I would have to be compelled to build
three more houses and give them to the government so that they in turn
could give them to idle scroungers who have never turned a stitch and
stayed in bed all day whilst I was building their houses.
Fair, or not?
Anybody for bartering?
Derek
Zer0
"Derek Geldard" <d...@miniac.demon.co.uk> wrote:
>I am an electrician (for the sake of this argument)
>Over the back lives a painter and decorator.
>2 streets away lives a plumber.
>Down the road lives a joiner
>However, as a consequence all the tax has quadrupled the cost of the
>house, or put another way to put building my own house on an equal
>basis If I built my own house I would have to be compelled to build
>three more houses and give them to the government so that they in turn
>could give them to idle scroungers who have never turned a stitch and
>stayed in bed all day whilst I was building their houses.
Is there a difference, then, between you and your mates building four houses
together, each owning one on completion?
Zer0
Derek Geldard
>
>Is there a difference, then, between you and your mates building four houses
>together, each owning one on completion?
>
No difference at all. If my mates stayed in bed all day and I did all
the work! Of course, I would not willingly chose such an arrangement.
Taxation being compulsory, that element of choice does not exist!
Derek
Magrathea
Derek Geldard <d...@miniac.demon.co.uk> wrote in message news:opm8huo85oqf7svm7...@4ax.com...
Quadrupled the cost of building the house..given the land
You have ignored the affect of the price of land. In reality these taxes
will of course have some affect on the final 'cost' of a house, but not nearly
as much as the price of land which typically amounts to 65% of the total
price of the house..Indeed if you reduce taxes on 'house building' the price
of land is likely to rise in response to the extra funds available from the
increased returns because land is in fixed supply. Rerun the scenario with
low taxes and the builders will faced with hiked land costs that have risen to
replace the tax...The holders of territory be they political 'owners' or the
private owners of land are enabled to take a slice of all production equal
to the value of *being there* as opposed to somewhere else. A smart tax
system will allow people to pay their taxes in the price they *must* pay in
market competition to be where they are (land rent) A stupid tax system
(like the one we have) will allow individual landowners to pocket the
unearned value accruing to being present in the community and instead tax
people on their labors.
Here is some more info on the position
http://www.progress.org/archive/fold160.htm
The principle behind what you are saying is fine, but you have chosen
a bad example in houses.
Robert Henderson
<d...@miniac.demon.co.uk> writes
>I could do my own decorating and not get taxed, but I'm not a
>decorator and I don't have the tools etc so I'd probably make a mess
>of it so I get the decorator in. I pay him in *Money* and therefore
>the government get vat, income tax, and national insurance,
Painter and decorator? VAT, income tax and NI? Ho, ho, ho...hos to
infinity and beyond. RH
>this could
>add up to 76% approx.
--
Derek Geldard
You are, of course right. But where I live (The post - industrial
North of England) the price of land does not distort the argument that
much. Enough land for a £200K house could be had for Ca. 20k.
>In reality these taxes
>will of course have some affect on the final 'cost' of a house, but not nearly
>as much as the price of land which typically amounts to 65% of the total
>price of the house..Indeed if you reduce taxes on 'house building' the price
>of land is likely to rise in response to the extra funds available from the
>increased returns because land is in fixed supply. Rerun the scenario with
>low taxes and the builders will faced with hiked land costs that have risen to
>replace the tax...The holders of territory be they political 'owners' or the
>private owners of land are enabled to take a slice of all production equal
>to the value of *being there* as opposed to somewhere else. A smart tax
>system will allow people to pay their taxes in the price they *must* pay in
>market competition to be where they are (land rent) A stupid tax system
>(like the one we have) will allow individual landowners to pocket the
>unearned value accruing to being present in the community and instead tax
>people on their labors.
>
>Here is some more info on the position
>http://www.progress.org/archive/fold160.htm
>
>The principle behind what you are saying is fine, but you have chosen
>a bad example in houses.
>
I just wanted to get across the results of the iniquitous way taxes
are compounded on taxes. Even the taxed taxes are taxed again! I am
sure Hoi Polloi don't appreciate they are paying 75% - 85% - 95% tax
on their purchases! This is why governments can afford wars. Nothing
costs "Anything" (-like as much as people think it does) because it's
all Tax! It was the easiest scenario to demonstrate, the trades that
go into building a house are in everybody's ordinary experience. Those
that go into making Vehicles, or Pharmaceuticals (say) are not.
However the basic argument re taxes remains the same. Land is just a
raw material in the production of houses it happens to exist in finite
amounts.
So, having demonstrated the principal, why not indeed consider
vehicles, the *raw materials* of which (The various ores, natural
products etc), do not, at the moment, exist in finite amounts compared
to the demand. I had not in fact compounded up the various taxes just
added them arithmetically. The true rate of taxation on a new motor
vehicle might well exceed 90%. Remember "Taxman" by the Beatles?
"It's one for you nineteen for me!"
And, yes what you say is true. This level of taxation is the basis of
our economic system, if it was suddenly abolished the profiteers would
have a field day. But we shouldn't be in this position.
Derek
Derek Geldard
<Phi...@anywhere.demon.co.uk> wrote:
>In article <opm8huo85oqf7svm7...@4ax.com>, Derek Geldard
><d...@miniac.demon.co.uk> writes
>>I could do my own decorating and not get taxed, but I'm not a
>>decorator and I don't have the tools etc so I'd probably make a mess
>>of it so I get the decorator in. I pay him in *Money* and therefore
>>the government get vat, income tax, and national insurance,
>
>Painter and decorator? VAT, income tax and NI? Ho, ho, ho...hos to
>infinity and beyond. RH
>
RH, you are a terrible man, but I like you!
But, you know, the fact that these taxes may be evaded does not alter
my argument about their iniquitous effect one iota.
If I do 50 quids worth of decorating for myself on my own house
supplying my own materials (Labour only see, Magrathea!) I pay no tax
but if I do 50 quids worth of labour only electrics work for Dave (the
decorator) and he does 50 quids worth of decorating work for me, the
government wants at least 38 beer tokens from each of us.
And yet you wonder why these taxes are avoided?
AAMOF, the economy here in the North of England is such that a self
employed decorator would probably not need to register for VAT, we pay
Ca. £10.00/Hr.He'd be lucky to clear £20k/yr. A rule of thumb by
computer consultants is 1,000 billable hours/yr. It seems painters
have to do a bit more than that. The VAT registration amount would be
regarded as a figment of unimaginable affluence by a self employed
painter hereabouts. The bills for his raw materials he can simply pass
to his clients for payment & to reclaim the VAT. Our painter certainly
does, I think this is legal.
Neither have I found any inclination for one man tradesmen nowadays to
offer to work for payment in cash without formalities, the accountant
/ revenue look for a consistent flow of income. If VAT is involved
they will follow a jobbing builder and chase him up his ladder onto a
clients roof wanting to know "Where have all these door handles been
used" we've seen it. It's just not worth it for a one man tradesman.
IME you get that sort of thing from jumped up bosses running outfits
with rented vans, hired tackle and a dozen or two operatives from the
pub / dole queue, who have the cheek to say "We're a £5 million
company, we did Harvey Nicholls floor!.... but you won't want to pay
VAT so can you just have the £350.00 cash ready. You'll have to excuse
me now but I've come out in the van and I've left old Fred standing on
a street corner across town with a floor sanding machine". That, also
has happened.
Or, FTM, the bogus "Employment Bureau" scam where a jobbing builder
also runs an "Employment Bureau", which employs all his own operatives
and a load more for other customers. The "Employment Bureau" goes bust
with monotonous regularity, always owing the revenue ~£300k,
resurfacing as a Pheonix from the ashes and with the wife, kids,
partners, OUTCAA as as directors, with a very similar name using the
same database of customers, some of which never knew the company has
been bankrupt.
The revenue can't seem to nail this one down :-( .
The latest scam seems to be when the Husband, wife, and kids, have all
been disqualified from being directors but the firm continues to
survive being run from within a self administered pension scheme.
Being disqualified from being a director doesn't prevent you being a
"Trustee" of a pension scheme, does it? and you can start drawing an
income from it at 50. :-)
Derek.
anton
Robert Henderson wrote in message <9U11p4A9...@anywhere.demon.co.uk>...
>a
> The principles of taxation
>
> Robert Henderson
[difficult to interleave with your interesting article]
Your description of the poll tax ascribes its genesis to
a wish to avoid a forthcoming necessary revaluation
of homes with the resulting increase in rates. This is
either wholly incorrect or at best, a partial explanation.
Firstly, it's clear that other simpler routes were available
to reduce a sudden increase in rates- simply lowering the
proportion of rateable value could have allowed most people
to end up paying the same amount in rates.
You also ignore an issue that was far more pressing as far as
the Tories were concerned. This issue led a long way away
from local democracy; to accusations of excessive centralising;
and is at the heart of the principles of taxation.
During the 1980s, certain councils were accused of being
taken over by the "loony left". Rates were under the control of
councils, and in some areas these were driven up repeatedly-
for both commercial premises and homes. There were some
well-publicised incidents of spending by these councils on
matters of little genuine interest to the people of the city.
Certain places, of which Liverpool was possibly the most
notorious, had a proportion of unemployed and people on
benefit that was so high that it constituted a majority or
near-majority. These people did not pay rates, and so
could vote without financial fear for various schemes which
destroyed local industry & enterprise, and helped push out
those owning more expensive homes. Rate-capping was
introduced in the 1980s to deal with these irresponsible
councils, and now cash limits iirc have replaced this.
A poll tax was intended to allow more genuine local
democracy by forcing financial responsibility on the voters.
'No taxation without representation' had been the cry centuries
ago from America- maybe the converse- 'No representation
without taxation' should have been the cry to support the poll
tax.
Without doubt, it's introduction was mishandled, with
(wished-for) confusion reigning in some councils, and
far too high a rate applying owing to Lawson's lack of
belief in the concept. For a functioning local democracy,
a poll tax for at least some of the revenue-raising still
seems to me to be the best way forward. Maybe it can
be tried again in another 20 years.
--
Anton
Derek Geldard
<anto...@SPAMbtinternet.com> wrote:
>
>Without doubt, it's introduction was mishandled, with
>(wished-for) confusion reigning in some councils, and
>far too high a rate applying owing to Lawson's lack of
>belief in the concept. For a functioning local democracy,
>a poll tax for at least some of the revenue-raising still
>seems to me to be the best way forward. Maybe it can
>be tried again in another 20 years.
IIRC a responsible commentator said well after the poll tax debacle,
that Margaret Thatcher was of the belief that if everybody paid it the
amount of the poll tax would only need to be a fraction of the rates, 50
quid each was mentioned! Well, she was old enough to know better, plus
certain councils did indeed have an axe to grind. Plus + experience of
previous Local Authority re-shuffles should have told here the Unions
would make a field day out of it.
Derek.
Robert Henderson
<anto...@SPAMbtinternet.com> writes
>
>Robert Henderson wrote in message <9U11p4A9...@anywhere.demon.co.uk>...
>>a
>> The principles of taxation
>>
>> Robert Henderson
>
>
>[difficult to interleave with your interesting article]
>
>Your description of the poll tax ascribes its genesis to
>a wish to avoid a forthcoming necessary revaluation
>of homes with the resulting increase in rates. This is
>either wholly incorrect or at best, a partial explanation.
>
rating and the outrage that engendered panicked the Tories. RH
>Firstly, it's clear that other simpler routes were available
>to reduce a sudden increase in rates- simply lowering the
>proportion of rateable value could have allowed most people
>to end up paying the same amount in rates.
Politicians do not think in those sorts of ways. They have absolutely no
skill in administration nor a willingness to learn from those who do. I
write as an ex head office civil servant. RH
>
>You also ignore an issue that was far more pressing as far as
>the Tories were concerned. This issue led a long way away
>from local democracy; to accusations of excessive centralising;
>and is at the heart of the principles of taxation.
>
>During the 1980s, certain councils were accused of being
>taken over by the "loony left". Rates were under the control of
>councils, and in some areas these were driven up repeatedly-
>for both commercial premises and homes. There were some
>well-publicised incidents of spending by these councils on
>matters of little genuine interest to the people of the city.
>
This still happens. How many people want race awareness course and
Bengali women's support groups funded by the council? RH
>Certain places, of which Liverpool was possibly the most
>notorious, had a proportion of unemployed and people on
>benefit that was so high that it constituted a majority or
>near-majority. These people did not pay rates, and so
>could vote without financial fear for various schemes which
>destroyed local industry & enterprise, and helped push out
>those owning more expensive homes. Rate-capping was
>introduced in the 1980s to deal with these irresponsible
>councils, and now cash limits iirc have replaced this.
>
That is a separate issue (which I mention in the piece). RH
>A poll tax was intended to allow more genuine local
>democracy by forcing financial responsibility on the voters.
>'No taxation without representation' had been the cry centuries
>ago from America- maybe the converse- 'No representation
>without taxation' should have been the cry to support the poll
>tax.
>
That was part of Thatcher's ideological thrust. However, it is no good
having a tax which cannot be collected. RH
>Without doubt, it's introduction was mishandled, with
>(wished-for) confusion reigning in some councils, and
>far too high a rate applying owing to Lawson's lack of
>belief in the concept. For a functioning local democracy,
>a poll tax for at least some of the revenue-raising still
>seems to me to be the best way forward. Maybe it can
>be tried again in another 20 years.
>
>--
>Anton
>
>
>
>
--
Robert Henderson
<d...@miniac.demon.co.uk> writes
>On Sat, 22 Jun 2002 21:52:33 +0000 (UTC), "anton"
><anto...@SPAMbtinternet.com> wrote:
>
>
>>
>>Without doubt, it's introduction was mishandled, with
>>(wished-for) confusion reigning in some councils, and
>>far too high a rate applying owing to Lawson's lack of
>>belief in the concept. For a functioning local democracy,
>>a poll tax for at least some of the revenue-raising still
>>seems to me to be the best way forward. Maybe it can
>>be tried again in another 20 years.
>
>IIRC a responsible commentator said well after the poll tax debacle,
>that Margaret Thatcher was of the belief that if everybody paid it the
>amount of the poll tax would only need to be a fraction of the rates, 50
>quid each was mentioned! Well, she was old enough to know better,
Politicians are never old enough to know better. I have never met one
who was not in essence a child. RH
>plus
>certain councils did indeed have an axe to grind. Plus + experience of
>previous Local Authority re-shuffles should have told here the Unions
>would make a field day out of it.
>
>Derek.
--
Paul Hyett
anton <anto...@SPAMbtinternet.com> typed this -
>
>Without doubt, it's introduction was mishandled, with
>(wished-for) confusion reigning in some councils, and
>far too high a rate applying owing to Lawson's lack of
>belief in the concept. For a functioning local democracy,
>a poll tax for at least some of the revenue-raising still
>seems to me to be the best way forward. Maybe it can
>be tried again in another 20 years.
>
happened!
--
Paul Hyett, Cheltenham, England
Magrathea
Derek Geldard <d...@miniac.demon.co.uk> wrote in message news:9ti9huomahnk3j6uk...@4ax.com...
Zoned lots are available for 20k that will hold typical housing that can
reliably command 200k?.. but where is the northern house building
explosion this implies?
I think it is likely that you are considering the price of a suitably sized site
without paying any attention location or comparing the price of a site in
one location and the value of a house at another..or looking at the price
of unsuitably 'zoned' sites and forgetting the all important political
component of land value. In any case my argument doesn't so much
rely on the universality of that 65% figure so much as the universality of the
relationship between the returns to building a house and the level of
bidding for suitable sites to build. If you increase the returns in building
a house by reducing tax, you will increase the price that must be paid
for land (back to square one) The reason this particular example is
different from most other tax / cost examples is that land is in fixed
supply and so increased returns involving land simply feed through into
increased bidding for land rather than reducing prices
>
> >In reality these taxes
> >will of course have some affect on the final 'cost' of a house, but not nearly
> >as much as the price of land which typically amounts to 65% of the total
> >price of the house..Indeed if you reduce taxes on 'house building' the price
> >of land is likely to rise in response to the extra funds available from the
> >increased returns because land is in fixed supply. Rerun the scenario with
> >low taxes and the builders will faced with hiked land costs that have risen to
> >replace the tax...The holders of territory be they political 'owners' or the
> >private owners of land are enabled to take a slice of all production equal
> >to the value of *being there* as opposed to somewhere else. A smart tax
> >system will allow people to pay their taxes in the price they *must* pay in
> >market competition to be where they are (land rent) A stupid tax system
> >(like the one we have) will allow individual landowners to pocket the
> >unearned value accruing to being present in the community and instead tax
> >people on their labors.
> >
> >Here is some more info on the position
> >http://www.progress.org/archive/fold160.htm
> >
> >The principle behind what you are saying is fine, but you have chosen
> >a bad example in houses.
> >
>
> I just wanted to get across the results of the iniquitous way taxes
> are compounded on taxes. Even the taxed taxes are taxed again!
Yes agreed :(
I am
> sure Hoi Polloi don't appreciate they are paying 75% - 85% - 95% tax
> on their purchases! This is why governments can afford wars. Nothing
> costs "Anything" (-like as much as people think it does) because it's
> all Tax!
Again agreed :(
> It was the easiest scenario to demonstrate, the trades that
> go into building a house are in everybody's ordinary experience. Those
> that go into making Vehicles, or Pharmaceuticals (say) are not.
> However the basic argument re taxes remains the same. Land is just a
> raw material in the production of houses it happens to exist in finite
> amounts.
Imo the argument does not remain the same. If you eliminate the tax
levied on the act of building a car you will drastically reduce the price
of a car because competition between builders will take the price of
a car down. Do the same with housing and you simply increase the
money available to bid for sites so increasing the returns to the holders
of land. The amount of public revenue collected is reduced, the costs
involved in house-building remain much the same, the price of housing
stays much the same and the number of homes built stays much the same..
Who is benefiting?..
> So, having demonstrated the principal, why not indeed consider
> vehicles, the *raw materials* of which (The various ores, natural
> products etc), do not, at the moment, exist in finite amounts compared
> to the demand. I had not in fact compounded up the various taxes just
> added them arithmetically. The true rate of taxation on a new motor
> vehicle might well exceed 90%. Remember "Taxman" by the Beatles?
> "It's one for you nineteen for me!"
Absolutely agreed..but imo you should also consider another
unproductive 'dead-weight' cost that is less commonly talked
about; the price of access to land. Land 'cost' permeates all
productive activity because land is a prerequisite to all activity..
yet it is not a cost *of* productive activity as the land need not
be produced and is already available. Land is in a way like a licence
to produce..as if the government had issued so many 'productive
activity' licences and they were bartered for and traded in a market.
This arrangement might be a good way to decide who was the
best 'user' of the 'production licence' but the costs associated
with acquiring the licences are not productive costs but political
ones. (forcibly reduce the price of the licences and their supply
does not reduce, but people's costs do) Land rent is a form of private
taxation; a privately held privilege to a section of productive potential
or conversely to levy a charge without returning a real service but
instead merely allowing what was already possible without you
(The political 'service' of access to already existing productive
opportunity); Private charges for land are a private tax that is just
as pernicious, immoral and destructive as the public ones and whose
benefits flow entirely into private pockets..One reason why land
price and taxation appear to be exchangeable in this scenario is
that they are in many ways much the same thing.
> And, yes what you say is true. This level of taxation is the basis of
> our economic system, if it was suddenly abolished the profiteers would
> have a field day. But we shouldn't be in this position.
They would have a 'field day' whether it were suddenly abolished
or if tax had never existed..The price of land appears as a cost
imposed on the community to do *anything*..If that cost is increased
the amount of work that must be done to get any productive outcome
is increased; that work doesn't disappear..it flows unearned into pockets.
land Rent is an ongoing deal, the sudden increase in land values due
to the shift in taxation would just be a temporary icing on a cake