Thursday, 20 August 2015

Reform for the Day: Why the Government Avoids Tax Transparency

Poor people pay out more of their total income in taxes than do rich people, often considerably more. This is true in the USA (where Warren Buffet famously remarked on the fact) and the UK and no doubt many other countries.

It's true even though these countries have Progressive Income Tax regimes which take a higher percentage of rich people's incomes than poor people's thanks to tax bands. But this does not compensate for the Regressive character of Indirect Taxes - VAT (TVA, MwSt), Sales Taxes and such like - which take a higher percentage of a poor person's income than a rich person's.

Suppose you have 10 000 a year after tax and buy clothes for 100 of which 20 is tax. Then you have paid out 20 / 10 000 of your income in Indirect Taxes. A rich person with 100 000 who buys the same clothes pays out 20 / 100 000

Governments (at least the one in the UK) don't want you to work that out. They don't want to help you avoid indirect taxes, especially the ones which hit poor people hardest. Retailers don't want to tell you either.

So you never see tobacco or alcohol labelled with prices broken down into cost of the goods, on the one hand, and tax on the other. It would make some people think twice about their purchases if they knew that as much as 90% of their expenditure is a tax payment.

Nor does your Lottery ticket show the tax component. And so on.

So my Reform for the Day is Tax Labelling: compel retailers to show clearly - and not just on your till receipt after you have made the purchase - the Tax you are paying when you buy alcohol, tobacco, lottery tickets and so on. It would jolt some people into changing their habits.

It doesn't solve the problem of Regressive Taxes - or Regressive Benefits.

In the UK, a TV licence (which allows you to watch live TV legally ) now costs £145.50 (don't you just love the bureaucratic precision). Well 145.50/10 000 is quite a lot of money though 145.50 / 100 000 isn't. In both cases, it all goes to support the state broadcaster the BBC, a toadying second-rate organisation with a few good and even excellent elements aimed at those with 100 000 a year. I solve the problem by not watching live TV, ever, so I don't have to buy a TV licence. The problem could be better solved by leaving the BBC to generate its own income rather than provide it from taxes which it mis-spends. ( If you can't bring yourself not to watch TV, you could make a modest start by deleting the drivelling BBC News website from your Favourites Bar. Try Al Jazeera instead).

Local taxes (Council Taxes) are also regressive - they are banded but the bands are weighted in favour of those living in valuable properties most of whom also have valuable incomes. This may change a bit but not enough.

As for Regressive Benefits, these were the brainchild of New Labour. Take the (entirely bogus) Winter Fuel Payment, handed out just before Christmas to the over 60s and worth £200 to a single person like me. Everyone gets the same amount, so how come that's regressive? Isn't 200 / 10 000 a better deal than 200 / 100 000? Yes it is BUT ...

Since it's tax free you have to look at it like this. How much does a person on 100 000 have to receive in taxable income to generate 200 net? How much does a person on 10 000?

Well, on 10 000 you are in the tax exempt band so to end up with 200 you need to receive just 200. But at 100 000 you have lots of taxable income and you would need to generate 300 or more in taxable income to end up with 200 net. The Winter Fuel Payment saves you the trouble. You would only eliminate its Regressive character by taxing it as you would other income.

1 comment:

  1. You really think that people would think twice about buying their alcohol, fags and lottery tickets if they knew how much of the price comprised tax? Dream on.