Odd for me to be defending a Guardian columnist, one on economics come to that. But it does have to be done.
You see, what Inman has done is gone off and found out about the economic impact of taxes. And he\’s come back with this new found knowledge. We should lower or abolish corporation tax, have a land value tax and stick up VAT. Oh, and lower income taxes as well while we\’re about it.
To which Ritchie says:
That’s going to ….? And boost the economy a lot, isn’t it?
And the answer is, yes, it is. Because Mr. Inman has done what Ritchie has conspicuously failed to do, which is go and look up the economics of taxation.
As in this from the OECD.
All taxes have deadweight costs. That is, they wipe out economic activity that would have occured in hte absence of said tax.
Yes, it\’s absolutely true that the spending of the taxes raised can increase said economic activity. I\’m rather fond of having a court system for example. Ann\’a police force, bin collections, vaccinations and so on.
But we would obviously prefer to collect that tax in the least reducing of economic activity manner possible. Even if we do wondrous things with the money that\’s still what we\’d like to do, the least harm in the collection of it.
And what the OECD tells us, what the basic economics of taxation tell us, is that different taxes have different effects upon the amount of economic activity that they wipe out. That is, that there are different deadweight costs. Or, if you prefer, if we tax in one manner we might wipe out £30 of activity for £100 in revenue (a reasonable estimate for current US tax rates at the margin) and if we do the taxing in another manner that we might wipe out £20 for £100 of revenue collected.
And we even know the order of precedence of these taxes. From least effect to most: recurrent taxes on property, taxes on consumption, taxes on income, taxes on corporations and capital.
So, if we collect exactly the same amount of revenue, but shift taxation from corporates, capital and incomes to consumption and land then we get a boost to the economy. For we\’ve moved from taxes with higher deadweight costs to taxes with lower deadweight costs.
Which is what Inman has found out because he\’s bothered to go and look up the economics of taxation and what Ritchie is ignorant of because he\’s not bothered to go and look up the economics of taxation.
Something that hasn\’t bothered Ritchie in his vehemence about how we should all be taxed but then that\’s the problem, isn\’t it?