Wednesday, 29 December 2010

Tax Freedom Day

The Adam Smith Institute does a useful job calculating, each year, what they call Tax Freedom Day - the day on which someone in employment starts to keep the money they earn instead of handing it over to the government in taxes. For 2010, TFD fell right at the end of May - basically, forty percent of everything anyone earns goes to the government.

Very few people are shocked by this. Over the decades, as the percentage going to government has drifted upwards so the "middle ground" assumption about what is a reasonable level of taxation has drifted up with it.

I don't think the political Right should have a monopoly over thinking that forty percent is too much. High taxation does not a left wing country make. Or a fair country. Or a just one. France has high taxation and France is one of Europe's nastiest right-wing countries. People there are very unhappy.

What reconciles most British voters to high taxation is the thought that they will get it back in benefits of one kind or another, some of them very tangible - like the bogus "Winter Fuel Payment" which is a direct cash transfer to the bank accounts of those known to be particularly bribeable (the over sixties).

The troubles with this line of thinking are two-fold.

First, it uncritically assumes that government is She Who Gives Benefits. This kind of thinking is child like. It is a very odd notion of what government is for.

Second, it ignores the costs of the middleman - the apparatus of government and administration which collects taxes and gives it away. They don't do it cheaply, you know. And they don't do it very efficiently. You would probably be better off not paying the taxes in the first place and simply buying some of the services government provides. People might be better off buying or swapping books than paying for public libraries.

I think the middle ground assumption needs to change. It could be done from a left wing position. On the left, someone could say: we will abolish all flat taxes because they are regressive taxes, hitting the poor harder. So we will abolish VAT. Then we will raise the thresholds at which variable taxes kick in, so that the rich pay more than the poor. But we will not stop cutting taxes until the tax take is down to 20% of Gross Domestic Product.

Of course, we will be cutting expenditure too. We will abolish the House of Lords for starters followed next by the Arts Council.Policing costs will go down because there will be no more State Visits from tin-pot dictators, Papal or otherwise. And we will cut by at least 50% the number of poor countries we invade and occupy.

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