Do try to keep up laddie, optimal taxation theory

There are three real policy responses required. First, it is necessary to reinstate an investment income surcharge in UK taxation. We had one of these until the mid-1980s: income from what might be considered unearned sources (rents, interest, dividends, etc.) was subject to an additional 15% tax rate. This was justified on purely social grounds: there was meant to be a bias to work (and why not?). It does, however, have a purely pragmatic basis as well: horizontal equity in the tax system requires that tax be paid at approximately equal rates from what ever source it arises. This does not happen in the UK, and we have a deeply inequitable tax system as a result. This must be addressed.

Second, it is absurd that capital gains are taxed at a lower rate than income: again, the alignment of rates is essential. Nothing less will do, and at one time the Conservative Chancellor (Nigel Lawson) had the courage to do this.

the standard economics of this is that capital income should be taxed at a lower rate than labour income. Optimal taxation theory. And if you’re not up to date on this then you really shouldn’t be commenting upon tax matters at all.

And candidly, no, Sir John Mirrlees is not a neoliberal.

11 thoughts on “Do try to keep up laddie, optimal taxation theory”

  1. Bloke (back) in North Dorset

    “This was justified on purely social grounds: ”

    What social grounds are those then, spite?

  2. A 15% surcharge on interest from savings? Brilliant, lets discourage saving, from someone who sneers constantly about consumption.

    Candidly, competing ideas and policies fight each other constantly in the foetid swamp inside his head.

  3. I thought rental income *was* taxed the same as any other income. It just goes down on my tax form along with everything else as just “income”. And as for “unearned” – so, coming home utterly knackered, covered in paint, or with a nail in my kneecap, or stinking of plumbing flux, or clinging to a ladder in what feels like a gale, is “not earning” that income?

  4. The best retort to this came from the Great Lord Bauer – almost the ‘Anti Murphy’ in that Bauer was right about almost everything whereas Murphy is right on precisely nothing – he pointed out the very notion of ‘unearned income’ was a bizarre one – the returns from rent were the consequences of real resources supplied. It is true this income could be artificially inflated by restrictions on supply (something that Trade unions knew a thing or two about in the late 1970s) but it was never ‘unearned’.

    Quite why he just doesn’t come out and say all resources above a certain level should be the property of the state is quite beyond me – at least that would have the virtue of honestly representing his position.

  5. “income from what might be considered unearned sources”

    Like writing. Which last I checked didn’t involve a lot of physical effort.

    Forget optimal taxation theory. Just getting across that the labour theory of value is dead would be a start.

  6. You expect someone who doesn’t understand the concept of tax incidence to understand optimal taxation theory?

    Come now, he can’t even keep tax evasion and tax avoidance straight.

  7. jgh,

    It sounds like you aren’t separating the work from the capital gains. I’m sure Murphyloon would call you a tax evader/avoider.

  8. Its is all very well pronouncing grandly about “optimal taxation theory”.What is it? If it is some paid- for ruse to justify paying less tax for unearned income , such as that from sitting on your chuff while your land values go up, it is obviously bogus and in the service of those who wish to emulate the landed gentry by spending all day practising cruelty to animals while their kids are locked up in private schools being buggered by experts.

  9. Bloke in Costa Rica

    I think DBC Retard has a bit of a fixation on public school sodomy. For what it’s worth, Reed, my parents, not members of the landed gentry, were extremely kind to animals and sent me to prep and public school where I remained resolutely un-buggered the whole time. So be a good chap and fuck off.

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