In which we introduce Ritchie to some basic economics

It\’s R. Murphy time at CiF again and before we get to the economics allow me to stick the boot in.

And that\’s a challenge for all who do believe in society, the rule of law, the value of government services and the democracy we enjoy. Are you willing to pay by cheque or card, to demand a receipt, to operate PAYE on your domestic staff, to clamp down on tax evasion, and say so? It\’s a choice you can make. You can choose to pay tax. Will you do that to keep the services you want?

Ask yourself that the next time you could evade tax. And live with your conscience if you contribute to the tax gap – a gap we, and those who rely on the state, can no longer afford.

Now you can call me Mr. Picky over this if you\’d like, but, umm, no, I\’m not willing to take advice on the morality of tax avoidance and tax evasion from a man who is so egregiously hypocritical.

The grubby details are here but in short, he\’s been telling us all for years that we really shouldn\’t be using all the techniques which he himself has used to reduce tax bills.

But on to something more important that the usual don\’t do as I do, do as I say, of those who epitomise Kip Esquire\’s Law*. I refer to the basics of economics of course.

The first rule of basic economics being that incentives matter.

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Image nicked from here where Ritchie goes on to say that:

There are three things to note. Firstly, as the trend of the average shows, there is an unambiguous increase in the size of the UK shadow economy over this period. This is worrying, and it is a trend that is bound to be exaggerated by the recession. The ratio had though, on average, reached 13.5% in 2007.

Second, GDP for the UK in 2010 is expected to be £1,458 billion.

Third, UK tax revenues as a proportion of GDP historically have averaged in total between about 35% and 37% of GDP according OECD data, with that ratio being higher at the end of the period noted above, overall.

So let us add our magic pixie dust of economic insight to these figures. You know, the stuff Ritchie decided in his first year of an economics and accounting course was rubbish and thus to be ignored.

Both tax rates and the tax burden rise.

More of the economy operates outside the tax system.

Err, anyone want to try and link the two points?

Yes, well done. If Ritchie really is worried about the tax gap, as he says he is, he should be arguing that the tax burden and tax rates should fall so as to reduce the incentives to avoid and evade tax: thus reducing the amount of tax avoidance and evasion that does happen and thus reducing the tax gap.

Strangely, he doesn\’t.

*That those who advocate planning always see themselves as the planners. Worstall\’s Corollary is that planners of course are not to be subject to the same rules as those being planned upon.

5 thoughts on “In which we introduce Ritchie to some basic economics”

  1. Seems comment is free is not very free at all. I posted the following on Ritchie’s article, since removed by a moderator:

    “It is time that you and others stopped giving airtime to this odious panjandrum, whose fascist views have no basis in reality.”

    What was so offensive about that?

  2. Any skin in the game, Mr W?

    I believe that you live abroad. Just as a matter of interest, do you pay UK income tax?

    Tim adds: I’m not sure of the relevance of the question. Ritchie seems happy enough telling eveyone what the tax systems of other countries should be and he’s not paying tax in all of them, is he?

  3. “I believe that you live abroad.”

    Which means that he is using almost nothing of the services provided by HMG on our tab.

    Tell me then: why exactly should Tim be being UK tax – of any stripe, not just income?

  4. “Third, UK tax revenues as a proportion of GDP historically have averaged in total between about 35% and 37% of GDP”

    If 35% to 37% of GDP is the “natural” or maximum acceptable level of taxation in Britain why has spending over the same period averaged around 40% of GDP?

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