Limiting a benefit is not a tax nor is it confiscation

You know who:

The world\’s press and financial markets have gone into spasm because some people with wealth are to be charged 10% of it for the privilege of having the balance protected by the state in Cyprus.

The bedroom tax will impose a charge of about £700 a year on more than 600,000 people in the UK who have no choice but pay as there is nowhere for them to move to, even if it was reasonable to do so. In many cases this will be 10% of income and in all cases well over 10% of disposable income.

The bedroom tax is considered fair by the financial markets even though it destroys the chance to live any form of sustainable life of dignity within a community. A levy on wealth is not considered fair, even though it protects those who have it.

Isn\’t that a lovely misreading? The world\’s press is actually entirely happy with the 10% confiscation above €100,000. In fact, most of it, myself included, is calling for that levy, that confiscation, to be higher.

It\’s the 6.75% on the balances under €100,000 which has us all up in arms. Because, you know, it\’s the Courageous State breaking it\’s word and acting contrary to the rule of law.

And the comparison with the bedroom \”tax\” is somewhat odd. A reduction in State Benefits paid to a certain section of the population is really not the same thing as a confiscation of some portion of the wealth of another section. The clue being in the \”reduction in benefits\” and \”confiscation\” bits.

31 thoughts on “Limiting a benefit is not a tax nor is it confiscation”

  1. So Much for Subtlety

    A reduction in State Benefits paid to a certain section of the population is really not the same thing as a confiscation of some portion of the wealth of another section.

    They are called Entitlements for a reason. Pretty soon the independence of the former Respectable People is broken down and they come to see the money as their own – and need it even more.

  2. The money isn’t actually there, because the banks are bust. The savers are being bailed out, because the banks are bust. By, y’know, the state.

    If there were no haircuts or taxes occurring, that would be a direct fiscal transfer from taxpayers to savers (yes, I know those groups aren’t exclusive, but on aggregate).

    So yes, it is pretty much the same thing.

    The other interesting development is the discovery that the Germans and the EU both wanted Cyprus to do an EUR100k cap and a 15% tax on deposits over EUR100k, and the Cypriot government refused.

    Whether this is because Russian depositors pay MPs good bribes, Russian depositors are good at feeding MPs to the sharks, or (least plausible) there is a sane reason for the policy that doesn’t involve MPs being corrupt, terrified or both, is for the reader to judge.

  3. JohnB – it is not the same thing. Not least because, in many if not most cases, the people with the money in the bank are taxpayers i.e. the very same class of people who are paying out the money to the others in (in the UK) housing benefit and who are actually bailing themselves out.

    The government has *no* money, other than ours.

    That aside, the question is where we (collectively) want to be in ten years’ time.

    In ten years’ time, if it were possible (which it sadly isn’t) to bring about smaller and more efficient government in Cyprus (and elsewhere), to eradicate a decent slice of the inbuilt graft and corruption, and to find out which bankers lent stupidly to which stupid borrowers, and make them personally carry the can through prosecution, bankruptcy or dismissal (or whatever else is appropriate), and if the people of Cyprus (and elsewhere) were prepared to accept that their actual, natural living standard is really more 1970 than 2013 (still not bad, historically), things would be better at that point.

    What will *not* make it better, now or in ten years, is reneging on guarantees to protect depositors, however wrong it might have been to let people assume there was a blank cheque waiting, whatever hazards that created, etc etc.

    Our man with the crayons will be frothing along in a minute to demand the hanging of ‘banksters’, but they’re only one part of a seriously screwed up model.

  4. if you repeat a lie often enough……the labour party have adopted this clever lie of calling every proposed reduction in benefits a ‘tax’ and the bbc/guardian types repeat it often enough it becomes ‘true’. The nasty party are taxing ‘the poor’. Join us and we will tax the rich instead. Rob Peter to pay Paul and you can always rely on the vot eof Paul

  5. Mark T – spot on – I’m sick of this Newspeak way of describing limiting benefits as taxes, and reducing what is taxed as ‘giving money to…’ But what can be done (apart from me banging on about it to anyone who will listen)?

  6. “for the privilege of having the balance protected by the state in Cyprus”
    What?!?
    The state is not protecting it. Not like the US system which repeatedly results in banks going bust and state bail-outs. Those suffering 10% “haircuts” aka partial confiscation were not covered by the guarantee scheme in the first place which is limited to

  7. There’s a bug if it loses just half of my text: the rest was…
    “€100k per deposit. If pendants wish to point out that the guarantee scheme covered that small slice of the large depositors’ wealth, how is the state defaulting on this scheme “protecting” them?

  8. And here again we have Interested, a petty rent-seeker, speaking on behalf of “the taxpayers” and declaiming cod-libertarian rhetoric about smaller government and “graft”.

    Delusional.

  9. Interested: “on aggregate”.

    The group of people who are savers benefit from bailouts. Some of them are taxpayers. The group of people who are taxpayers lose from bailouts. Some of them are savers.

    When there is a bailout, virtually nobody will be in a tax position where their tax liability is exactly the same as their return from the bailout. For simplicity, you can put them into four groups.

    People who are both wealthy and earn a lot will do approximately fine.

    People who aren’t wealthy but earn a lot (ie young-ish people with masses of human capital but no inheritances) will be the ones who suffer most.

    People who are wealthy but don’t earn much benefit the most.

    People who are neither wealthy nor earn much get fuck all and lose fuck all.

    Hence, using taxpayers funds for savings bailouts is basically a transfer from hardworking young people to indolent pensioners, whilst it’s of total irrelevance to people who are actually rich or poor.

  10. John77: because in Cyprus, they’ve passed a law where tax expropriation involves a fairly small amount based on the amount of money you have, not all of it based on how much the PM dislikes you.

    The Cypriot government has protected the money because it hasn’t said “John77 is a bad man so he will be sent to the gulag and his money will be forfeit to the state”.

    This is an issue of which any Russian businessman who has followed the life and times and finances of Mikhail Khodorkovsky will be acutely aware.

  11. I will agree with Mark T. I’ve noticed that the BBC has taken to calling it “the so-called bedroom tax”, to which my response is “by you!”. The misnomers over tax are really disrupting the debate.

  12. I seem to have touched a raw nerve with our man with the crayons. It’s stopping him reading straight! 🙂

  13. …having got one chuckle with a playground taunt, I see Interested has now adopted it as his catchphrase.

    Did you punch the air with glee, Inty? Here’s a top tip: paste a printout of it on your cubicle divider; every time you catch sight of it, you’ll simply glow with pride!

    Of course, you’ll still be a fuckwit. But that can’t be helped.

  14. What strikes me, is that the confiscation of 10% of deposits will drive money away fom banks and into the black economy, making business regulation , tax collection, bank lending, job creation and growth and more besides all the more difficult.

    Have we really learned nothing from history?

  15. Nick, I think this comes down to acts of desperation to shore up a system that is in meltdown. This obviously isn’t rational, but they’ve run out of rational things to do.

  16. Interested throws an arbitrary accusation of insanity rather than answer a point: CHECK.

    Ian/Nick: this is absolutely it. This Choose Your Own Adventure sums it up quite well. Any policy ideas that aren’t captured within its spectrum would be extremely interesting.

  17. In addition to being completely unfair, this move is incredibly stupid.

    Whenever a country anywhere in the Euro is looking like it needs a bailout, there will be a run on the banks.

    Even the one eyed lunatic from the Socialist Republic of North Britain couldnt have thought this one up.

  18. Even more staggering than this (which is offensive enough) Is a subsequent post suggesting that ‘Guernsey and Jersey’ are circling like vultures.
    From this I can discern that one of the principles in ‘The Courageous State’ is that no Sovereign state can be deprived on any income whatsoever. Thus the Russian money in Cyprus cannot be offshored – I am assuming this applies to whichever kleptocratic, tinpot regime can make a claim to sovereignty.

    I was so speechless at his budget proposal (and the lemmings lining up in the comments to jump of the cliff with him) that I didn’t even point out that were such proposals introduced exchange controls would need to be introduced immediately as anyone able to afford a flight would be stockpiling cash in suitcases and getting on the first plane out…

  19. FWIW, a lot of the weirdness with Tim’s blog not rendering properly and arseing about with comments is due to a mismatch between the content encoding as sent by the server and that declared in the document. There’s a meta tag pledging content encoding as UTF-8, but seemingly at random the server actually sends a Content-Type: text/html; charset=windows-1252 or iso-8859-1 header. The HTTP header overrides the meta tag. Needs someone to play with server conf.

  20. @ #12 john b
    I am sure that Don Corleone would agree with your usage of “protect” but I am British and use English English so I do not. The banks are regulated by the government of most of Cyprus but if said government was protecting (in the English sense of the word) the depositors money then there would never have been this crisis. The government had said that it will make sure that small depositors are reimbursed if their bank fails but has now agreed to allow a partial confiscation of the funds of small depositors in banks that have not failed. I understand that there was not a guarantee for deposits in excess of

  21. So Much for Subtlety

    Nautical Nick – “What strikes me, is that the confiscation of 10% of deposits will drive money away fom banks and into the black economy, making business regulation , tax collection, bank lending, job creation and growth and more besides all the more difficult.

    “Have we really learned nothing from history?”

    Or to put it another way, the heirs of Byzantium will have a Byzantine economy whether they like it or not. Or an Ottoman economy perhaps. History matters. People are not fungible.

    There was something unique about Northern European Protestants. Others have had very limited success in copying it. As those Northern Europeans decline, so will the world economy.

  22. And yet, the banking system that has brought the world to this awful state is of European Protestant design.

  23. So Much For Subtlety

    Ian B – “And yet, the banking system that has brought the world to this awful state is of European Protestant design.”

    So it is. And places without, with a thoroughly libertarian attitude to lending, Somalia for instance, have done better in recent years?

    No system is perfect. No one is claiming it is. But this round of problems has been caused by 1. the US government insisting on banks treating Blacks and Mexicans as if they were WASPs and 2. the French attempting to impose Germany’s standards on the feckless Catholic south. Not by problems inherent in the banking system per se.

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