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Tax

Save the oil companies!

Do you remember, just those few short months ago, when we had people screaming for a windfall tax upon the oil companies? You know, people like those frothing lefties, Compass?

And there were a few people around who were pointing out (modesty doesn\’t permit identification) that this was an artefact of rising crude prices and the way that accounting was done for inventory? And that as and when crude price fell those same oil companies would report shocking losses on the same accounting basis? You do? Good:

The net loss was $2.81bn after an $8.47bn profit a year earlier, Shell said today. Excluding gains or losses from inventories and one-time items, profit was $3.89bn for the quarter, lower than the estimate of City analysts surveyed by Bloomberg.

See, net losses as a result of the treatment of inventories during a time of falling crude prices, just as the earlier profits were in part from the treatment of inventories at a time of rising crude prices.

However, if, logically, those "excess profits" should be windfall taxed away in the good times then those "excess losses" should be subsidised in the bad times, no? So why isn\’t Compass out there calling for a subsidy to Shell?

Two possible reasons I suppose. The first being that they\’re too dim to understand what is going on, the logic of their own position. The second is that there was no logic to their earlier demands for a windfall tax. That it was just a circle jerk for frothing lefties.

I have to admit that I can see truth in both explanations.

I cry censorship!

Over at Ritchie\’s.

Of course, it\’s not censorship. His blog is his blog and thus his property and comments are published or not at his discretion. But I would just like to make one point, which, given my banning from his comments section, I can\’t make there.

The Adam Smith Institute copies a US right wing think tank in publishing a ‘tax freedom day’ for the UK. They claim it is on 2nd June.

But that’s a very selective view of ‘tax freedom day’. That happens to be the day when, they say, a taxpayer on average income, including indirect taxes, local taxes and National Insurance contributions, has paid all their taxes for the year, their remaining earnings being theirs to spend as they then will.

Indeed, we do publish such a statistic.

But there’s a major problem in that calculation. Not everyone pays tax at the rate a person on average earnings pays. Far from it in fact.

This is also true and is one of the inevitable results of using an average (that\’s not a subjective thing of course, that\’s simply a mathematical identity).

The message is clear: tax freedom day for some arrives on the first day of the year. For the poorest in our society it arrives last. They have the highest tax burden of all – at almost 50% of their income. Their tax freedom day is at the end of June.

So let’s stop the nonsense of discussing tax freedom day, and let’s ask the real question, given that the wealthiest are now, without doubt, the greatest beneficiary of government largesse as the economic bail out proceeds. Let’s ask instead about the justice in the way tax liabilities are distributed, and make sure that 2009 is the year that progressive taxation is put firmly back on the agenda. Nothing else s acceptable in the current economic climate.

Fine by us at the Adam Smith Institute I have to say. We\’re the folks who called for the personal allowance to be raised to £12,000 a year to take the poor out of the income tax net. We\’re the people who have long argued for a high personal allowance flat tax system. One that would in fact be more progressive than the current system.

But then pointing out such things would be subjective, wouldn\’t it, might even threaten that democratic debate which is so important.

Land Value Taxation

There are a number of us who think that Land Value Tax should be implemented (Hey, even Polly T has been known to mumble about it) as a solution to at least some of the ills in our current taxation system. The imposition of such a system would include measures like this:

Tax inspectors have divided England into 10,000 new "localities" with each neighbourhood ranked on the socio-economic class of its residents and environmental factors such as crime and traffic levels.

The inspectors have even purchased demographic data disclosing how many company executives, pensioners or students live in particular streets, The Daily Telegraph has learned.

This has been collated on a secret database which is being used to assess the desirability of neighbourhoods to help determine council tax bills if Labour wins power again at the next election.

The Conservatives have branded the proposal "a nice neighbourhood tax" which will penalise middle class families struggling to cope with the economic downturn. It is feared the revaluation will quickly be implemented if Labour wins the next election to help fund the growing deficit in Britain\’s public finances.

LVT is of course designed to capture the value that society itself adds to a particular piece of land. A "nicer neighbourhood" is an excellent example of exactly that. So this would appear to be a step forward.

A revaluation was due to be conducted in 2007, but was postponed until after the next election over fears that millions of families would see a significant hike in their bills. The average annual council tax bill is already almost £1,400 a year and a recent study suggested most town hall leaders were expecting above inflation increases next year.

The information seen by The Daily Telegraph however, suggests middle class home owners could be facing even more punitive council tax rises if Labour wins a fourth term.

However, leacing aside the LVT aspects, I\’m not sure why a revlauation should raise council tax in general. It shouldredistribute it, for sure, as different areas have increased in value by different amounts, but there\’s no reason why a revaluation should lead to higher bills in general.

Although, of course, I submit to the obvious logic that any change in any tax system is going to be used to raise the general level oftax.

 

Eh?

This week, we learnt that one in five English farmers has received a letter from the Rural Payments Agency, demanding a total of £37 million that it overpaid in 2005 and 2006.

The agency now admits that it miscalculated 10,000 payments totalling £20 million in 2005 and a further 7,000 valued at £17 million in 2006. The overpayments in the current round range from £300 to £15,000.

Many of the farmers involved did not know they had been overpaid and the agency – quite unjustly – refuses to tell them why its former calculations were wrong.

We\’re going to claw back the money but we\’re not going to tell you how we\’ve calculated it?

Given that the decision to claw back is an admission that they get the calculations wrong, how can anyone have confidence in this set of claculations?

From the Guardian

CP Scott died in 1932 and was followed only four months later by Edward, so sole ownership fell to JR Scott. Faced with the potential of crippling death duties and the predatory interest of competitors, Scott contemplated a radical move to ensure the future of both the Guardian and the highly profitable Manchester Evening News.

He created the Scott Trust which still owns the newspaper.

Yup, the ownership structure of the Guardian is deliberately and specifically designed so as not to have to pay death duties (what we now call inheritance tax).

 

Is California going bust?

Mebbe. But I\’m not sure I buy this argument as to why:

California’s biggest problem is the precipitous decline in tax revenues over the past year. The state’s property taxes — the equivalent of Britain’s council taxes — are based on the value of a house when it was first bought, and can then rise by no more than 2 per cent a year. This means that by far the most tax revenues come from new property sales, and these have all but dried up.Tax revenues have also been hit by the global recession. and credit crunch.

For, you see, property tasxes don\’t make up part of the budget of the State.

Prior to 1912, the state derived up to 70 percent of its revenue from property taxes. The state no longer relies on property taxes as its primary source of funds—since 1933, the only property tax directly levied, collected, and retained by the state has been the tax on privately owned railroad cars. Currently, the state’s principal revenue sources are personal income taxes, sales and use taxes, bank and corporation taxes, and a series of excise taxes. The State Board of Equalization administers sales and use taxes and excise taxes, while the Franchise Tax Board administers the personal income and bank and corporation taxes. Today, it is California’s counties, cities, schools, and special districts that depend on the property tax as a primary source of revenue. The property tax raised more than $31.8 billion for local government during 2003-04. These funds were allocated as follows: counties 18 percent, cities 11 percent, schools (school districts and community colleges) 53 percent, and special districts 18 percent.

If it were the counties and the municipalities going bust, then yes….

This bit…

From 2011, if Labour win the next election, earnings above £150,000 will be taxed at a new higher rate of 45 per cent. The new higher rate of tax – the first income tax increase in decades – will raise £670m a year.

Trivial….the politics of envy, no more. At current rates of spending this is something like 0.1% (yes, one tenth of one percent) of the total tax take. Meat for the success hating classes, nothing else.

Mr Darling\’s tax increases will begin in 2010 – before the expected date of the next election – with changes to the tax-free personal allowance. At the moment, no taxpayer has to pay income tax on the first £6,035 of their earnings – a tax saving worth £1,207 per person.

However, from 2010, those earning more than £100,000 will lose half their personal allowance – adding more than £600 to their annual tax bill. Those earning more than £140,000 will not get any tax-free allowance.

This creates a couple of oddities in the marginal rate that (some) people face. But not important ones I think. Dependent upon the details those earning £139,999 and getting a £1 pay rise will see a reduction in take home income. But at that level I don\’t think that anyone does get a £1 pay rise, so I doubt that it\’s of any importance.

 

 

Sorry, no

Brown cut some taxes by £2.7bn this year as compensation for the abolition of the 10p rate,

But he didn\’t cut taxes. He cut some taxes and raised others to be revenue neutral.

If we\’re to have a fiscal stimulus (which would be the point of the exercise) then he needs to cut some taxes without raising others….that is, to cut taxes overall.

Taxing corporations

One of Richard Murphy\’s buddies wrote this report. They\’re talking about taxes in developing countries

A fourth goal is to strengthen political representation. When governments are more dependent on tax revenues and less on income from natural resources, aid or debt financing, this generally stimulates accountability to citizens regarding the use of government funds. The effect is strongest for direct taxes on personal and corporate income. Aid dependence, on the other hand, stimulates accountability to external donors.

What utter cock. Given that companies don\’t have votes their taxation does nothing at all to stimulate accountability.

Indeed, given that the populace in general (and it\’s the same here, this isn\’t something limited to ignorant foreighers) think that they don\’t, in the end, pay those corporate taxes themselves, the taxing of corporations actually reduces that accountability.

In praise of tax havens

Start with the view of, say, Deepak Lal.

All governments are, to a greater or lesser degree, predatory elites. They install themselves in power and then feed off the production of the populace.

Britain, France, Germany and a string of leading world economies have pledged to get tough with tax havens, adding more to a black list and drawing up punitive measures for uncooperative countries.

StephenTimms, Financial Secretary to the Treasury, representing Britain at a gathering to discuss the issue in Paris, said the meeting sent "a very strong signal that time is up for people not paying their taxes".

Mr Timms said Britain would next year repeat an operation conducted in 2006, when it demanded the country\’s top five banks provide information on their offshore accounts. "We gave people the opportunity to disclose offshore holdings and have so far taken in £400m worth of tax that otherwise would have gone unpaid," he said.

Tax havens are thus a benefit to all in that populace. For it is indeed true that some capital, some income and some labour is mobile. If the deal on offer by that predatory elite isn\’t worth it, if the demands in taxation are too great for the services offered in return are too high, then some can indeed bugger off and escape that predation.

This limits the demands upon all for tribute to those in power: a rational despot will be revenue/power maximising, and will limit demands so as to garner the maximum of both.

Thus the existence of tax havens lowers tax rates for us all.

Hurrah!

Remarkably confused

This piece doesn\’t seem to be making the correct distinctions between residence and domicile.

From what is actually said it looks like he isn\’t resident but is (possibly) still domiciled. But you do have to read between the lines a bit to get what they\’re saying. Not important, of course, just would have thought a newspaper piece would be clearer than that.

Mistakes such as these should disqualify ____ from pontificating about taxation or redistribution*

But here is the shocker: the Treasury now admits that the companies can offset most of the £910m cost of these schemes against corporation tax. Not only is this not a windfall, the taxpayer is paying.

Erm, Polly, are you seriously trying to tell us that you didn\’t know this? That corporation tax is only paid upon profits? That is, on what is left after the costs of doing business? So that if the costs of doing business rise then profits fall and so does the amount subject to corporation tax?

And you consider yourself qualified to pontificate about taxation and redistribution?

 

*Polly Toynbee and David Walker.

Eh?

So Barack Obama can promise tax cuts by “the closure of corporate tax loopholes and tax havens.”

He’s right: he can.

No he can\’t.

He can close loopholes and tax havens (well, at least in theory he can) and thus raise the effective tax rates that corporations pay, thus leaving room to lower other taxes on other people. That he might be able to do.

But raising more money from one group and then less from another is not "tax cuts". That\’s a redistribution of the tax burden.

Cretins

Other options, including a stamp duty holiday, are being held back for further consideration.

Christ on a bike….don\’t these morons understand that uncertainty about the legal and tax environment is what cripples markets?

It doesn\’t matter what decision you take about stamp duty. Abolish it, double it, leave it as it is.

But take the decision now you cretins!

Yet even more windfall tax

As with Hatters, now that our own favourite retired accountant has come out in favour of the windfall tax we can confidently reject it of course.

The arguments for a windfall tax on energy companies are complex. I am in favour of such a tax at this time.

However, there\’s something vastly more interesting in his post (as well as the usual extremely odd argumentation).

We often hear about the incidence argument of corporation tax, which says that all tax burdens are eventually suffered by people. In extremis, I do of course agree (although I also argue that as the tax is used to change the people who pay the burden it remains important that it is charged).

Excellent! At last some reality is penetrating. Over the past few months he\’s moved from entirely denying the tax incidence argument, through claiming it only works in a closed economy (Brrrring! Fail! It works in an open one, not a closed one!) to accepting it.

As I say, good, however, we now need to look at the second part, the bit in parentheses.

Because the studies done on the incidence of the corporate income tax (what we call corporation tax) are all pretty much in agreement.

In theory, it\’s going to be some combination of the workers, in the form of lower wages, the customers, in the form of higher prices and the investors in the form of lower returns. Quite how that split actually works is an empirical question. One you\’ve got to go out and calculate.

Now, the one that I use here is a study done by the Congressional Budget Office over in the US. They\’re as close to bipartisan as we\’re going to get.

Their answer, in the US economy, is that workers bear 70% of the burden.

Isn\’t that lovely? We\’re attempting to make the returns to capital pay the tax. The outcome is that the returns to labour pay the majority of it.

Yes, corporation tax does indeed change the people who pay it: that\’s exactly why we don\’t want to have it. It changes who pays it from those we would like to pay it to those who don\’t.

What would be a better system is simply to abolish corporation tax altogether. Dividends would be taxed, as now, as income at the marginal rate of the recipient. Retained profits, ones which are reinvested, would not be taxed at all. To balance the system we could tax capital gains at the same rate as marginal income.

We\’d save gargantuan amounts in paperwork. We\’d also save huge amounts because attempting to avoid corporation tax skews investment decisions and best of all, the workers would be better off.

Which is what we want of course.

In short, it\’s precisely because corporation tax does change who pays the tax that we want to abolish it.

 

 

Right, that settles it

Roy Hattersley is in favour of a windfall tax.

Clearly it\’s an absurd idea that we can safely reject then.

Two facts should dominate ministers\’ consideration. The first is the size of energy company profits. For Shell, they amounted to £13.9bn in 2007-08 and £4bn in the second quarter of this year, a 4.6% improvement on 2007.

Eh? Big company, employing hundreds of thousands of people and hundreds of billions of capital makes big profit? That\’s a justification?

Centrica, the owner of British Gas, is expected to make a record profit of £1.9bn this year – a 50% year-on-year improvement, a month after raising average prices by 15%.

They already have the highest tax rate in the FTSE 100, they already pay 75% tax on North Sea gas profits. How much do you bloddy want? Come on, we all know the Laffer Curve exists, the only argument is at what rate.

These results are not the product of either improved efficiency or greater investment, but are largely the results of the idiosyncratic way in which energy tariffs are calculated.

Idiosyncratic? A market? Sheesh!

Still, whatever the paucity of his arguments at least one thing is settled. As he\’s in favour we know it\’s a bad idea.

Finally!

I\’ve been yammering on about this for years:

The Government\’s fixation with fuel poverty stands in the way of sensible policies on energy taxation. One of Gordon Brown\’s first acts on becoming Chancellor of the Exchequer in 1997 was to reduce VAT on domestic fuel. With the Government now committed to reducing carbon dioxide emissions, this should be reversed, with the increase to the full rate of VAT phased in gradually over a few years.

Now there\’s two of us, hurrah!

Parking meters

I\’ve said this before recently but it bears repeating.

Fifty years ago this summer, Britain’s first parking meter was installed in London’s Grosvenor Square, outside the American Embassy, appropriately enough since it was the invention in 1935 of Carl C Magee of Oklahoma City.

As head of the city’s chamber of commerce, Magee hoped the meters would free up parking spaces for local businesses that were being affected by town-centre congestion. Parking restrictions were, therefore, from the very outset, about traffic management and congestion relief, not about raising money, or anything else for that matter.

The Government would have you believe that this remains the case; but the mask slipped last week when John Healy, the local government minister, suggested councils could set their charges to “reduce congestion, improve levels of health and exercise and encourage the use of local shops”.

If the aim were indeed to increase the use of local shops then you wouldn\’t raise the price of parking meters. You would in fact lower the price, to zero, for short term parking: and perhaps raise it for longer term.

If the aim is, as said, to get  people using local shops then you\’d actually want parking to be free for the first 20-30 minutes. But expensive for longer than that. So people could come in, park, pop into the shops and go away.

This wouldn\’t do much for congestion and the other things, this is true, but then that\’s the problem with claiming that one solution will solve all problems.