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Tax

Not all that surprising

Really:

Home buyers in the South are paying more than three times as much stamp duty as those in the North of the country, new figures show.

An ad valorem tax is higher where prices are higher? Slap me with a wet kipper. You\’ll be saying that income tax revenues are higher in the South, where wages are higher, next.

It added that the amount of stamp duty now paid by residents in the South – which is made up of London, the South East, South West and the East – was equivalent to around 25 per cent of average annual earnings.

In the North it was only around 10 per cent of average pay.

And that shows the stupidity of the system in itself. We actually want to have labour force mobility. People moving to where the jobs are. And we\’re going to have a tax equal to 25% of annual wages on people making such a movement? Idiocy.

Small Point

Yes, yes, the Fair Tax proposal is silly in the extreme (just, for example, think of the posibilities of fraud, carousel type stuff perhaps, with a sales tax of 30-40% to be paid in one hit at the point of retail….) but this is a little illogical:

Without doubt it would increase inequality in a country that is already as dangerously skewed as it was in the Gilded Age of the 1920s. Averaged across the 1920s, the richest 10% of Americans grabbed 43.6% of total income (excluding capital gains), and the richest 1% a whopping 17.3%. In 2005 the comparable figures were 44.3% and 17.4%. The richest Americans already have a much greater slice of the pie than they have had for several generations and are doing very nicely indeed under a graduated tax rate (complete with Bush\’s tax cuts). A flat tax would destroy the system that seeks to redistribute some of the country\’s finite wealth amongst its people in the form of schools, roads and other public goods. And before the whining begins, this isn\’t a cry of class warfare, it\’s economic common sense. Even if you reject arguments around fairness and moral obligations to those less fortunate, by and large economies with more equality are more prosperous and the countries more stable.

Hmm, prosperity and stability coming from equality. The author has just proved that the US is unequal (actually, the inequality by market incomes, which is what he\’s using, is about the same as that of Sweden. A Gini of .48 to one of .46. Sweden\’s taxation system does a great deal more to alter that distribution than the US system does. Oh, and the UK market income distribution is even more skewed at .51. These figures are from a recent Smeeding paper drawing on the Luxembourg Income Study.) : the US is also the most prosperous nation on earth (leaving aside micro-states) and at 220 years or so and rising with the same constitution (the longest in the world for a written one I think?) also the most stable.

So I think that contention about the link between equality, prosperity and stability can be put to one side, don\’t you think?

Tax Incidence, Tax Incidence

Gaaaah! Richard Murphy again on a US proposal to reduce the corporate income tax:

Yet again, the corporate world seeks to lower its tax bill by shifting it onto ordinary people with a smaller capacity to pay.

It\’s not even controversial, it\’s a well known fact, that corporations do not in fact bear the burden of the corporate income tax. The actual burden is carried by some combination of the workers, in lower wages, the customers in higher prices and investors in lower returns.

The Congressional budget office saya that, in the US, more than 50% is bourne by the workers. Another more recent international paper says that in the long term, a $ 1 raised in corporate income tax reduces the workers\’ wages by more than $ 1.

Lowering the corporate income tax therefore benefits the incomes of the workers.

Does Murphy simply not know this basic point?

Tory Tax Plans

Mr Osborne said: "Corporation tax is too high and capital gains tax is now a mess. We are going to produce proposals next year on a fairly major reform of business taxation."

Abolishing it would be too much to hope for I suppose? Given that corporations don\’t actually pay it?

Sauce for Goose and Gander

The great chocolate teacake tax case. The latest round rests upon this:

But because this clause was applied differently to traders owing the Treasury money than to people owed money – contrary to EU rules on equal treatment – it could not be invoked in the case of M&S.

Now that, I submit, is an interesting little law. If we fuck up in payments to the taxman then we can be punished: it would appear that if the taxman now fucks up, they should be punished.

Not Connected

I fear that Andrew Pierce may notbe all that well connected:

It has a simple philosophy: it argues there is a strong moral case for allowing taxpayers to keep a greater share of their income. Who can disagree with that?

He\’s obviously not met Polly Toynbee.

Cheap Booze

This chart of tax paid on booze in supermarkets is instructive:

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Shows you quite how much is already gouged out of you when you try to partake of one of the pleasures of life. But even more instructive is this:

Safe drinking campaigners say it is impossible for supermarkets to make any profit on a £20 bottle of vodka, if 88 per cent of the sale price is being passed straight to the Treasury through VAT and duty.

I don\’t see why it\’s impossible for them to make a profit on such: Morrison\’s has £1,17 to play with on that bottle of Smirnoff. But let\’s go further and accept that it is in fact true, that they\’re not making a profit, that they are selling at cost.

That\’s actually what we want, isn\’t it? If you look at the classical economic models what happens in a perfectly competetive market is that competition forces profit margins down to zero. To the benefit of the consumer, of course. That the supermarkets are selling things at cost shows that, in this sector of the market at least, that we do indeed have something close to perfect competition and that the consumer is thus benefiting.

A cause for celebration, surely? So, who has the best deal on bubbly?

Football and Non-Dom

Errm, how does this work then?

So why do overseas players now dominate? As the supposedly economically competent Gordon Brown would understand, it\’s because they enjoy a huge and unfair competitive advantage over British players. Tax rules allow foreign players to claim \’non-domicile\’ status and, with the help of clever lawyers, pay 40 per cent less tax than their British rivals on much of their income.

Non-doms only pay less tax than doms on that portion of their income which is earned abroad. Playing in the Premiership is prety clearly working in the UK. So in thei competition with English players playing in the Premiership the non-dom foreign players don\’t actually have a tax advantage, do they?

Raise Alcohol Taxes!

Yes, we\’ve got the doctors insisting that booze must become more expensive:

Heavy taxes must be imposed on all alcoholic drinks if Britain\’s "binge-drinking" culture is to be broken, doctors will warn the Government in a report.

The taxes should be "proportionate", with the biggest levies imposed on drinks with the highest alcoholic content, says the British Medical Association.

You would rather hope that intelligent and well educated people like doctors would note a few things. For example, that we already have high alcohol taxes and they are indeed higher on those drinks with higher alcohol contents (Table 1, page 3).

Secondly, that we have free trade amongst the EU nations. That means that you can buy elsewhere and consume in Britain: paying the lower duty levels elsewhere. Finally, that we already have, relative to many other EU members, high alcohol taxation. Higher, in fact, than nations which do not have a binge-drinking culture.

Oh well, perhaps intelligent and well educated is not the same as capable of thought.

On Being Ruled By Tax Exiles

I can sort of understand the logic here:

A forthcoming constitutional reform bill could include measures to stop tax exiles from sitting in the House of Lords, the cabinet secretary said yesterday amid further questions about the tax status of the millionaire Tory donor Lord Ashcroft.

Of course, it\’s about nailing Ashcroft rather than there being any principle to it but let\’s take the argument at face value.

We shouldn\’t be ruled by people who do not live under the same law as us. It should not be possible for people who are not resident and subject to UK law to influence said law over those who are resident. That is the point, isn\’t it?

OK, then we shouldn\’t be ruled by the European Union then, should we? Should not allow non-residents to make 80% of our law for us.

The Yazzmonster

Should we, the unwanted and unloved Indy and Guardian sorts get the right to opt out of the licence fee?

Yes, of course you should. Everyone should have that right: although it would be better expressed as the right to opt in. You know, privatise the BBC and then suggest that those who wish to enjoy its output pay for it.

I\’ll tell you what\’ll be the first thing to disappear though: those appearance payments, those £50 and £100 cheques that you get for appearing on a radio programme. You\’ll be, I wager, less keen to appear at that point anyway.

Top End of the Laffer Curve

Megan McArdle:

I know I keep pounding the point that at American levels of taxation, the Laffer curve promise of higher revenue on lower rates doesn\’t apply. Well, at 55%, it\’s plausible to believe that it *does* apply. There is a limit to how much you can raise taxes on the rich.

There\’s an interesting if underappreciated point here I think. There\’s two ways in which raising tax will reduce revenues. Or, sorry, possibly could, if we engineer things to move to the right of the peak of the Laffer Curve.

1) All of the usual stuff: if the marginal tax rate is 55% or 75%, then people will simply substitute leisure. Or instead of making high risk high return investments in equity, make low risk ones (tax free municipals look pretty good at high rates of income taxation, like, say, the 98% the UK had on investment income). In short, people will stop doing productive stuff.

2) People will bugger off and do their productive stuff somewhere else. Why pay 60% in the UK when you can pay 13% in Russia or 0% in Monaco?

OK, those are actually both pretty obvious, at least from the European view. But 2) rarely comes up in US discussions of such things. Because, you see, under US tax law, you don\’t get out of paying Uncle Sam (you do get out of State taxes, but not federal) by moving to another country. Unlike most, in fact I think all, other countries in the world, you\’re taxed as a US citizen, not upon where is your residence. So as this ability of US citizens to decamp to Switzerland to avoid the taxes doesn\’t exist (except by giving up citizenship and believe me, the US makes this more difficult than any other country as well) the American debate about the peak of the Laffer Curve concentrates solely on 1).

Whereas, from what I can see, the European one concentrates on 2).

Which leads me on to a favourite annoying little point of mine. There\’s no such thing as "The Laffer Curve". There are a series of them. Depends upon the person, the tax and other bits and bobs associated with the situation. Sure, we can aggregate the population\’s responses to the level of any given tax: but if we forget, in the case of income taxes, those two different ways in which the take can fall, then we\’re going to end up with our presumed peak of the curve in the wrong places.

Now if we make the (gobsmackingly, awfully, wrong, but it\’s to clarify) assumption that the reactions to 1) are the same worldwide we are then left considering only 2). How easy is it for the high earners to flee the tax jurisdication?

For those in the UK, very simple indeed. For those in the US, near impossible. Which leads us to the fact that the peak of the Laffer Curve in the UK is shifted leftwards from the one in the US. Another way of saying the same thing is that the revenue maximising tax rate in the US is higher than it is in the UK.

Of course, I would argue that this means the UK rate should be lowered but I\’m aware that there\’s thems who would argue differently.

 

 

Richard Murphy in The Guardian

He\’s still not really got it:

As a result tax burdens are shifting from companies to ordinary people, whose effective taxation rates in the UK have risen as corporate contributions have fallen.

He\’s missing the idea of tax incidence. Sure, it looks like the corporations are paying all of that tax. But they don\’t really. The corporate income tax is paid by investors, by workers or by customers: the company is just that convenient legal fiction that the cheque comes from. As is detailed here.

Which is why we should abolish coproation tax altogether and simply tax the income when it arrives with the workers or the investors.

Taxation Bananas

This is good news don\’t you think?

Richard Murphy, a tax expert who advised the NAO on its report on the performance of the UK Revenue and Customs, said that large companies are effectively now able to set their own tax rates. "Corporation tax is falling worldwide as a percentage of profits. Corporations seem to be deciding what they should pay, not as a percentage like the rest of us, but as a sum above which they don\’t want to go."

John Christensen, a former economic adviser to the Jersey government and director of the campaign group Tax Justice Network, said the Guardian investigation confirmed that the flight of capital was continuing, having reached unprecedented levels in the 1990s. "The trend in the last 30 years has been to shift the burden of tax away from companies on to the consumer and labour. Capital is increasingly going untaxed."

For as we know, the taxation of corporate profits actually leads to lower wages. Proof here. So we can in fact celebrate these glorious upholders of the workers\’ wages at the expense of the predatory State.

We might also note that capital isn\’t in fact going untaxed: it\’ just being taxed where it ought to be, at the level of the individual, when they receive their dividends or capital gains. A good thing all round then.

Yup!

This is what should happen.

If the Tories want a morally sound and hugely popular tax policy, they should scrap the whole thing and instead cut the taxes of the very poorest. As far as I’m concerned, it’s nothing short of obscene that workers on the minimum wage pay income tax at all, and then have to beg pitifully to be allowed some of it back – assuming they’re eligible, that they can understand the forms, and that they can get over the worry that an incompetent state machinery will pay them too much, and then send the bailiffs round.

Tax credits make their recipients suffer the highest marginal tax rates of any group in society. They show what happens when a man with no imagination and too much faith in his own intellect is allowed to design a policy. Most importantly, as far as the Tories go, they are a policy that has sticky Brown fingerprints all over them, and one that Labour could never disown.

The replacement should be a non-traditional tax cut, aimed squarely at those at the bottom of the workforce. If the Tories scrap the £15bn that tax credits cost, and can fire a further £35bn worth of Gordo’s army of useless numpties, they could afford to raise the personal income tax allowance to a whopping £15,000. If you\’re concerned that vital services would be devastated, just remember that no one really noticed when they were all hired, so it would be surprising if anyone noticed when they get fired. This cut would free those working a 48-hour week on the minimum wage – or up to £6 per hour – from paying any income tax at all.

Nothing could be more powerful, or more attractive. It would be the great symbol of the new Toryism. It would be a slap in the face for Labour’s pretence to be the party that looks after the poor. Every piece of syrup-brained interfering middle-class leftism of the last half-century, from inhuman council estates to ‘progressive’ schooling, has hit the poor hardest. It could be the start of the roll-back – if Cameron has more bottle than Brown.

Guess which political party already advocates this? UKIP.

Marriage and Tax

Well:

In an interview with The Daily Telegraph, Andy Burnham, the Chief Secretary to the Treasury, says there is a “moral case” for promoting the traditional family through the tax system. “I think marriage is best for kids,” he says. “It’s not wrong that the tax system should recognise commitment and marriage.”

Well, yes it is actually. The tax system should be indifferent to whether people have made a promise to the Sky Pilot or not. What you\’re actually saying is that you\’ve noted that such tax breaks are popular. This is known as populism.

Will Hutton. Seriously Confused.

No, really, very seriously confused.

Labour could even have copied the ultra-capitalist Swiss and introduced a small wealth tax levied annually, including on super-rich foreigners living in Britain who enjoy the right to be considered \’non-domiciled\’ and so excused taxation on British income and assets.

Err, non-doms are not excused taxation on British income and assets. They\’re excused taxation on foreign income which they do not bring into the UK. Getting it 100% the wrong way around is pretty bad for a columnist, don\’t you think?

Rather, the take should be raised and the loopholes closed that let much property to be held offshore.

Now I\’m on slightly shakier ground here but I think that again Will has misunderstood the role of domicile here. Indeed, I think this is part of the very reason that we do distinguish between domicile and residence. So you\’re a UK citizen: you can\’t become a non-dom and still live in the UK. You actually have to give up UK citizenship and bugger off elsewhere. (If I get some of this wrong please do correct me.)

Now, if you are a UK citizen and you do bugger off elsewhere, you don\’t have to prove that you are resident elsewhere in order to show that you are non-resident in the UK. Just being out of the country for the requisite number of days in the tax year is enough.

However, to prove that you are not domiciled in the UK any more you do have to prove that you are domiciled elsewhere. That you\’ve got a new citizenship, that you really do live elsewhere and expect to die elsewhere and be buried there (is, I think, the normal formulation).

Now, any property that you own in your own name in the UK (yes, of course trusts can be used to disguise this) is, if you are non-domiciled and non-resident, not taxed by the UK as part of your estate. The assumption is that the other taxman gets his cut. But if you are non-resident but still domiciled then your UK property is indeed subject to inheritance tax.

As I say, I\’m on slightly shaky ground here as I\’m not a tax expert but that\’s what I think happens. And why would the law have been drawn up in this manner?  Why, so that death duties would apply to the great landed estates of the past. If the 4th Marquess of Chinlessness went off to Monaco in order to flee 98% income tax, that was one thing. But unless he then went on to become Monegasque then his 500,000 acres still faced death duties on his expiry and his heirs would have to sell up the great landed estate. That, I believe, was actually the point of devising the tax system this way.

If you want to change the whole set up about domicile and residency, fine, carry on: I\’m not sure that it really matters all that much either way. But it would be nice to see an admission that there\’s more to it than getting hands on some of The City money. It will also mean not getting hands on  some much older money (although this specific example doesn\’t count now as farmland doesn\’t pay IHT).

Back to Will\’s clear and obvious confusion:

Extraordinarily, inheritance tax is felt to be unfair. There is one good reason for this: more than 70 per cent of the take is paid by people inheriting estates of half a million pounds or less.

A point I have made often: the actual rich don\’t pay it. So what should we do?

Labour, of course, should have seen this coming. It should have protected its position by making the case for inheritance tax morally, socially and economically at the same time as designing the system so that it was much fairer. The eligibility threshold for inheritance tax should have been raised, while simultaneously making the rates sharply progressive.

Not so sure about the progressivity but still, OK; we should raise the threshold.

Which is why the emerging consensus that inheritance tax is unfair and should be reduced, if not abolished, (which Shadow Chancellor George Osborne exploited so successfully last week in his proposal to lift the threshold to £1m) is so odd.

Osborne\’s raised the threshold so that it is indeed only the rich that pay. Those with less than £500,000, what we might in these days of house pricing, call the middle classes, don\’t pay 70% of the take any more.

Excellent, so Osbourne has followed the advice of Anthony Giddens, Third Way Guru.

Yet Will thinks this is a bad idea.

Tell me, is it actually a requirement to be ill informed and contradictory to write on economics and taxation for The Observer? I thought those were afflictions reserved for blogs?

 

 

 

 

 

 

Polly on Taxing the Rich

She\’s still not quite got it, has she?

Those registered as a non-domiciliary, absolved from British tax although they live here, would pay a flat rate of £25,000 a year.

Err, no. Income made in hte UK is taxed exactly the same as that of any other resident\’s. It\’s the taxation of overseas income that is at issue here. If you want to think of it in moral terms (which no doubt Polly would), well, what right does the UK State have to income made in, say, Russia? By a Russian?

It\’s not just the non-doms and non-residents, but the private equity tax avoiders and all the mega-rich.

Non-residents now? What, you mean that people who don\’t even live in the UK should be paying UK taxes?

The UK has one of the lowest top rates in the OECD 30 nations, yet the rich use the same roads, services, police and national security to conduct their business in a well-regulated environment, with the NHS to save them when their Porsches crash.

Now that is interesting. The implication of course is that the rich should be paying more because they use the same services. That there might be some fixed amount that people should pay for services does not, of couse, cross Polly\’s mind. However, let\’s look a little more closely. How much of all of the tax take do the rich contribute? And how does that compare to other countries? This is the top 30% of the people (just because that\’s the stat I found) but it doesn\’t actually show what Polly would like it to show.

In the UK, the top 30% of the people, the richest 30%, pay 62% of th total tax take. This is lower than the US for example, at 65% or so. But what about the Nordics? Those perfect social democracies, which Polly would so dearly love us all to be like? Hmm. Finland 56.8%, Norway, 53.8%, Sweden 53.3% and Denmark 48.7%.

So, err, for us to become the sort of society which Polly would like we should be lowering the tax take on the richest 30%.

As house prices rise, more people fear that their estate will creep into the £350,000 level most recently set by Gordon Brown; 37% of estates are now worth over £350,000 (homes, pensions, cash), so if everyone died today then 37% of estates would be liable. But everyone is not dying today. According to Carl Emmerson of the Institute for Fiscal Studies (IFS), by the time people grow old and die they have divested themselves of money, giving it away when children and grandchildren need it, downsizing their homes to spend on cruising, enhancing their pensions or going into long-term care.

Didn\’t Polly recently call for al lifetime gifts to be taxed as inheritances? I\’m sure she did you know.

Good grief!

People think IHT is an unfair "double taxation" out of already taxed income. But no one pays it from income: it is only paid after death by inheritors.

No it isn\’t! it\’s paid by the estate! If £5 million is left to one person or the same £5 million is left to 100 different people the tax paid is the same. If inheritances were taxed at the level of the recipient then there\’d be a great deal less fuss about the whole subject.

Is it worth asking, you know, pleading almost,  that journalists know what they\’re writing about?

Richard Murphy Gets One Right!

I know, it\’s a bit of a shocker but this is simply quite wonderful. You see, Non-Doms don\’t not pay tax at all:

George Osborne has begun to talk tax. On domicile Bloombreg report that he is proposing a flat levy of £25,000 pounds ($51,000) on non- domiciled residents who currently avoid tax.

I’ve got news for George Osborne. The average tax paid by a non-domiciled person now is £26,800, based on Treasury data.

Bravo Mr. Murphy, Bravo!