Monday, June 05, 2006

Tax Policy - where do we go?

I have read two interesting blogs on this subject over the last couple of days. First of all at QuaeQuam Blog and secondly at Jocks Blog. There was also a piece in yesterdays Observer and another one in today's Guardian. All of this has set me thinking about which bits I like and which bit I don't (bearing in mind of course we are yet to see the actual proposals). I am not keen on dropping the 50 percent tax rate simply because I believe that those who are substantially better off can afford to contribute more to the pot and that a society where the gap between the richest and the poorest is so large is not healthy. There may be an argument that we have pitched the starting point for this higher rate too low but I would not want to abolish it. The increased emphasis on green taxes is to be welcomed although initially I was concerned that those who were worse off would penalised for aspiring to a foreign holiday. Assuming that the comments in today's Guardian about the support of charter firms is accurate then I am reassured. I agree that some form of progressive property tax would be the way to go and like QuaeQuam blog I worry about the problem of looking like we are giving with one hand (through cuts in the rate of income tax) whilst taking with the other (through the introduction of local income tax). I am also not sure that cutting the basic rate from 22p to 20p is the way to go. It may be more marketable but would it not be better to help those who most need it by spending that money on raising the threshold at which you begin to pay tax?


Jock Coats said...

Whoa there! I thought the proposal was still in the Tax Commission stuff (some are exceedingly annoyed it has been spun/leaked by leadership before even the TC meets for the final time to ratify the draft that will got to FPC next week and then conference) to remove everyone up to minimum wage from Income Tax AS WELL AS reducing the basic rate to 20 (mainly in order that LIT so far as I can see does not actually raise the level of Income Tax anyone pays). Might be wrong but I've seen no arguments against that proposal - though perhaps they have no way of funding it (if they don't accept the bigger package of Porgressive Property Tax that is - which would fund it nicely).

Of course, I am ideologically, nay religiously even, against all taxes (as "revenue" raising measures at least - I accept there may be the occasional need for behaviour altering taxation but that such taxes should not be used in the general revenue pot) other than LVT.

Personally I think they started off with the wrong understanding of what the tax system needs to or can achieve...:)

If, as in Oxford and by extension presumably all the moreso in London and other parts of the south-east at least, you need an income of c £80k to afford a four bedroomed family home within 33% of your net disposable income (the usual touchstone of affordability) then £100k a year is not "super wealthy" even if less than the top 5% of people earn that much.

On the other hand I have a friend worth around six million mostly in inherited wealth. For the first time in a decade I think he's having to pay any income tax at all this year and the fifty pence rate would not be anywhere near touching him.

Tony Ferguson said...

Bearing in mind I have not seen any proposals anyway I wasn't as clear as I could have been in that I had picked up the hint of a general committment to raise the level at which tax kicked in but I guess I was saying that I though the emphasis should be on raising the tax free amount rather than lowering the basic rate. However, your explanation of the reasoning at least makes some sense albeit we have to consider how to sell such a message. Your argument about the cost of basic housing provision in some areas is persuasive and would make me think again about the level at which a 50% tax rate should kick in. Clearly if it were to be retained (which it sounds as if it will not be) then it would need to kick in at a much higher level

Will said...

Isn't it around 1% who earn over £100k? House prices nearby might be high but if you have that sort of income you can afford to buy to let in cheaper areas and boost your income further.

And if people on £100k find it difficult to get on the housing ladder (if that really is such an important aim), then it must be even harder for those earning less and it would still make sense for the better off to pay more if it means that the worse off can pay less.

Joe Otten said...

Tony, I don't see how you can tax the aspiration to have a foreign holiday. And of course flying is not the only way to travel.

Failure to tax pollution proportionately is a form of hidden subsidy. Surely we aren't arguing that jetting around is so great it should be subsidised?

Mind you I was in Rome last week, so I can hardly talk.

Tony Ferguson said...

I wasn't suggesting that we tax an aspiration. I was suggesting that I had initially been concerned that such a tax would disproportionally affect those on lower incomes but was reassured that charter operators were relaxed by the way in whcih such a tax is porposed to be structured i.e. it will penalise half full planes and encourage efficiency.

Jock Coats said...

Will, this is one reason why I hate Income Tax so much as a vehicle. Can you not see how such targetting is an almost random act of envy?

My point is that incomes do not necessarily mean wealth, even at surprisingly high levels.

Take an egregious example - I read a report that some London police officers were, after the July 7th bombings, doing so much overtime that some of them might earn over a hundred grand in the year.

Would we really want to say that because they've busted a gut in public service they should be hit with a higher rate of tax all of a sudden?

Look at the Philip Green debacle - billions of pounds of assets (wealth) in this country and yet no income to tax pretty much at all. Yet the police officer would be made to foot the bill (pardon the pun!).

And I also believe that just as Mr and Mrs Green have found a way of hiding most of their income from the UK tax man, so with globalisation and ever more sophisticated financial planning available to more people trying to calculate incomes for the purposes of tax will mean governments becoming ever more illiberal and intrusive in their citizens' lives and dealings.

Jock Coats said...

The real target to my mind for aviation taxes ought to be things like this:

"Twee vegetables tied together with a string of chives shrink-wrapped on a plastic tray in Marks and Spencer: the chives and plastic airfreighted out to Kenya, the vegetables grown in Kenya tied in chives, airfreighted back to the UK. A round trip of 8,500 miles, a bargain at £2-99!"


Tony Ferguson said...

I had a look at the link and some of the stuff on there is scary and quite frankly madness e.g. "Apples are graded according to colour and size. Out on either, if only by 2mm on size, and your apples will be rejected. The rejected apples are waste, the grower, may, if lucky, get a few pence per kilo as animal feed." However, I did also notice at least one glaring inaccuracy where it talks about Sainsburys Greenham Common Depot as if it is a fact. Never happened, never built, site now sold to another developer

Tabman said...

Do we tax as a society to "punish" the wealthy, or do we tax to raise money to be spent (wisely and efficiently) on public goods?

IMHO the latter is the aim, and what we should be doing with Tax is all about making it similar and removing the lowest paid out of tax altoghether so we end the ludicrous situation whereby when people transition from benefits to work they often end up worse off.

Tony Ferguson said...

I agree that the latter is the aim but i do not feel that this is inconsistent with a system that says aeffectively the poorest pay nothing, those who can afford to contribute do and those who have the most pay the most. I guess it is all about how this is done and I tend to agree with the thoughts on Jock Coats blog....

Jock Coats said...

If we're talking about the "philosophical basis" for taxation I would put it slightly differently. I came to Land Value Taxation having been interested in monetary reform for some time. I would maintain that in an ideal world taxation would not be attempting to "raise revenue" for government expenditure. That the state, as the collective expression of our economic successes and failures should spend new money into the economy on public goods, debt free, backed effectively by what was known as the "full faith and credit" of the people, and THEN moderate the supply of money to counter any inlfationary tendencies by taking some out through LVT - sort of "cancelling the money" they already created to spend.

But that seems to be beyond comprehension or summat!