He really, really, doesn’t understand the subject, does he?

But the point is that those models are all political. There is literally nothing in the economy that does not have a power relationship built into it – the tax system being a perfect example of that. It is power alone that results in income from wealth being taxed less than income from work; nothing else can explain that.

From the opening of a Piketty and Saez paperpaper:

According to the profession’s most popular theoretical models, optimal tax rates on capital
should be equal to zero in the long run–including from the viewpoint of those individuals or
dynasties who own no capital at all. Taken literally, the policy implication of those theoretical
results would be to eliminate all inheritance taxes, property taxes, corporate profits taxes,
and individual taxes on capital income and recoup the resulting tax revenue loss with higher
labor income or consumption or lump-sum taxes. Strikingly, even individuals with no capital
or inheritance would benefit from such a change.

Sure, you can disagree, as Piketty and Saez do. They buttressing their disagreement by changing the social weighting given to such things as inequality.

But do note what it’s not about – power. The standard economic models are about economic efficiency. You can indeed start to claim that efficiency ain’t all and as a bald statement it’s true. The question actually becomes when should we prioritise efficiency and when some other thing we’re interested in?

To claim that the non-equality of capital and labour income taxation is because of power is to be ignorant of the basics of the subject under discussion.

But then, you know, Snippa and economics.

38 thoughts on “He really, really, doesn’t understand the subject, does he?”

  1. Power dynamic is explained by pheasant plucking theory. Power requires support from the people. Capital taxes easy to collect(pluck)…. with less squawking than income. Therefore they are collected for reasons of power, to maintain it rather than to take advantage of it. If they had the same squawk level as their effects justified, then they would be zero.

    disclaimer- i’m not a pheasant plucker.

  2. It is indeed about power – without the net gains in votes that come from demanding a smallish minority subsidise the majority, capital taxes would have remained at zero.

  3. You seem to be saying the most efficient economy will tax money you make form doing nothing less than money you make from working ?
    For example stop all stamp duty and pay for it by lowering the level at which higher rates of income tax are paid. Would this not just lead to casino capitalism ?About the first thing the modern market economy did was create the South Sea Bubble, which was hardly efficient.I`m not sure UK`s relationship with property ownership as a whole is a good thing in lots of ways and I cannot imagine that the ongoing monopoly of opportunity created by inheritance is optimal
    More equal countries like France and Germany do seem to get an advantage from more people having access to life chances isn`t this more efficient than rewarding the people who are born with a silver spoon?
    Germany is the most productive country in the world ( I think ..well close anyway )
    That seems to suggest that a more equal society with strong unions regional government and all sorts of dreadful things might actually be more efficient than everyone sitting around gloating about their by to let scam ..perhaps .
    I have a feeling I have missed the point here to be honest.

  4. The argument is that investment is good. It makes the future richer. So, why are you trying to tax those who are producing the economic growth?

    Sure, it’s going to be politically difficult not to tax rich people. The squaring of the box is to have a “progressive consumption tax”. Effectively, all investments, and all income from them, are in an ISA or the like. Money invested isn’t taxed, income from investments isn’t. As long as you leave it in the investment box. If you take it out to spend it then you pay income tax just like any other source of income.

  5. @ Newmania
    One of the key requirements of an efficient tax system is that the taxes are easy to collect, which includes easy to define and measure. Stamp duty is, as you well know, a transaction tax not a wealth tax.
    The first problem with a wealth tax is that “wealth” is difficult to measure except for net cash. The second is that it disincentivises saving. The third is that some people will be unable to pay it – every so often we read newspaper articles about Lord X handing over his grandfather’s “Old Master” paintings in lieu of IHT because he simply does not have enough liquid or liquefiable assets to pay the IHT. no hearts bleed for him, but the little old lady living on a tiny pension (because her husband’s pension scheme didn’t have inflation-linking) whose house has just been revalued to £0.5m and has to sell it to pay the wealth tax gets heart-rending headlines.

  6. The “power dynamic” is the opposite way round to what he thinks. There’s a logic to having zero taxes on capital; the fact that we do have many taxes on capital (transfers, income from, gains on) shows that the system is being warped by political power.

  7. little old lady living on a tiny pension (because her husband’s pension scheme didn’t have inflation-linking) whose house has just been revalued to £0.5m and has to sell it to pay the wealth tax gets heart-rending headlines.

    God knows why?

    I am not at all sure tat a progressive consumption tax would fit this,”ease of collection” paradigm. I quite like the idea of the Tecsos cashier swiping the goods and the buyer.
    ” My my Sir, aren`t we the plutocrat thats 90 % “screw the rich” tax on that canister of Lynx Deodorant!”

  8. “There is literally nothing in the economy that does not have a power relationship built into it – the tax system being a perfect example of that.”

    Herr Oberstuber has a point. Without power, you cannot collect tax.

  9. I suppose if he were talking about the real world, where lobbying is a thing and political parties are funded by both groups and individuals, he might be closer to the mark. After all, he who pays the piper calls the tune. However Spud might not be too keen on going down that particular road.

  10. Hallowed

    I think you’ll find it’s not pheasants, but geese, and you’re trying to avoid hissing, not squawking.

  11. There is literally nothing in the economy that does not have a power relationship built into it

    Volunteer work for a local charity?

  12. BravefartYeah my brain intitially told me turkey.. And then disagreed with itself. I’ll remember it next time.

    I think i heard that quote initially on his nib’s forbes site a rather long time ago. In fact i reckon one of my first comments was a hodge podge theory on we will always be taxed to the maximum we will accept. If a politico taxes lower than populace willing to accept, a rival will promise more goodies and win power. If Higher then a rival offers tax cuts. The devil/skill is in the market segmentation of various taxes and various tax funded goodies and this capital gains one is very much a major plank of it.

  13. Dennis: Oppressor, Warmonger, Capitalist and Consumer of Petroleum Products

    It is power alone that results in income from wealth being taxed less than income from work; nothing else can explain that.

    If everything sounds like a dog whistle, at some point people are going to come to the conclusion that you’re a dog.

    Murphy understands power; especially the power to coerce. He understands little else. Ergo, everything is about power.

  14. @Rob, Ritchie won’t volunteer for a charity. He expects payment!

    @Dennis, agreed, but hopefully Starmer will have the common sense to steer clear of him. Caroline Lucas is probably the only MP he still talks to, and she isn’t in a position to hand out a peerage or a job.

  15. Rob said:
    “Volunteer work for a local charity?”

    Have you met charity volunteers? For some of them yes, it’s definitely about power. Think of the scary domineering women, or the men who know every obscure rule in the society’s constitution.

  16. Jeeze, I find myself agreeing with Newmonia on something. Incipient senility?
    But buy-to-let. I don’t actually see it as an investment in the real sense of the word. Deploying capital to create wealth. Most buy-to-let depends on preferential access to credit to purchase already existent dwellings. It doesn’t in any way resemble my great-grandfather’s build-to-let. Where he used his own money to create half a street of those now very desirable Edwardian terrace slums. The sort of places, now converted into flats, are grabbed by the buy-to-letters.
    I suspect I’m going to enjoy the post-Coronapanic world of buy-to-letters,
    unable to service their debt from falling rental incomes, trying to sell their retirement nest-eggs into a crashing housing market. I like fire sales.

  17. @Newmania “I have a feeling I have missed the point here to be honest.”

    Remember to add that at the end of every post you make.

  18. “Buy to let”

    So the buy to let market disappears. Where are the many who rent going to live? ‘Social Housing’? Great. Live in the property assigned to you by the council.

  19. @BiS, there’s buy-to-let and there’s buy-to-let. Accidental landlords and such like with just one property aren’t doing it properly. And with the increase in regulation they are going to find it harder to make any money. Proper landlords and property investors make more property available to rent, increasing the housing supply. Property developers do make money, enough to pay rates of way over the base rate to investors. It’s a win-win situation where the investor makes money, and the tenant gets somewhere to live.

  20. @ bis
    It depends whether you class contracting with a builder that you will buy a row of houses from him as “Buy to Let” or “Build to Let”. One of my great-grandfathers did so, like yours: which was fine until Lloyd George introduced temporary rent controls during WWI which lasted for decades (minor relaxation in the 1950s). Build to Let was real investment, Buy to Let is a financial investment.

  21. “More equal countries like France and Germany do seem to get an advantage from more people having access to life chances isn`t this more efficient than rewarding the people who are born with a silver spoon?”

    Perhaps you ought to try living in those countries. They have their own ways of making life very tough for people of the wrong kind

  22. @ Newmania and Diogenes
    “more people having access to life chances ”
    So bring back the Grammar Schools!
    When I was “up” there were more guys from Grammar Schools than Public Schools (and more from Manchester Grammar than Eton) at Oxford.

  23. “More equal countries like France and Germany do seem to get an advantage from more people having access to life chances isn`t this more efficient than rewarding the people who are born with a silver spoon?”

    Ah, the ‘we should be more like other European countries’ argument, that suddenly disappears when the NHS is being discussed……..

  24. Good to see Manchester Grammar School in the comments from john: that’s Old Hall Lane, Wilf the caretaker, Welsby the referee, David Maland and Martin Stephen. The last named head has made some great comments about money having nothing to do with the quality of fee-paying schools, nor the selection of the intake much, but the success was due to the aspirational parents. He’s said some good things about how hard it is to recruit part time teachers in his age group in the state sector because you need the PGCE or similar, and a lot of retirees with time to give to teaching just don’t have them, and don’t want to put in the full time hours and months to get them.

  25. little old lady living on a tiny pension (because her husband’s pension scheme didn’t have inflation-linking) whose house has just been revalued to £0.5m and has to sell it to pay the wealth tax gets heart-rending headlines.

    God knows why?

    Because we aren’t soulless automatons. Or psychopathic pieces of shit.
    People (normal mentally healthy people) have a psychological attachment to their family home. It has provided safety, warmth and been the place of many memories which make up life – some good, some bad, but all contributing to our identity.

    Then, after the tragic loss of a loved one, a pensioner on a fixed income, with no easy means of suddenly magicing an extra income out of the air, is told by the incompetent, heartless fuckwits known as the government that
    “Your house has suddenly shot up in value because we say so. Give us a boat load of cash, or else.”

    Knowing this is useful information. It lets us know when the tree of liberty is in need of refreshing.
    That’s why the papers sell it – we want to know.

  26. Bloke in North Dorset

    In the 60s Huddersfield had 2 x Grammar Schools, King James Grammar School which was an academic hit house and produced many Oxbridge students, and one whose name escapes me, but had a reputation as more sporty and outward bound, whilst still having a high academic standard.

    Sadly I ended up at the former, against my parents wishes, and never settled in.

    (KJGS’s most famous living former student at the time was Harold a Wilson, and we had that rammed in to us at every opportunity)

  27. Chernyy is entirely correct–and let us hope Facepaint that the next draft of ichor refreshing the Tree of Liberty will be further “sweetened” by the thin blue yuckwater that crawls around you.

  28. @ Bongo
    Good point.
    Aspirational parents – yes, tend not to notice because (almost – see below) all parents of those at fee-paying schools *must* be aspirational because they chose to pay the fees (or to put their kid into a competition for a scholarship). Which does tend to make the environment more conducive to learning.
    Possible exceptions: armed forces officers serving overseas – but that sounds to me like a fairly aspirational, dukes who have little to aspire to.

  29. Halloo Hallowed be:

    Last time I gave my pheasant plucker a brace, she didn’t squawk at all, and , having been properly nailed by a Hambleden hot-shot, neither did the pheasants.

    It’s a quiet economy when cash is paid.

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