Sunday, July 12, 2009


I remember a while ago, back when William Hague was the leader of the either the Stupid Party or the Evil Party (I forget which are which!), he appeared on Question Time, and Dimbleby asked him if cutting taxes was a moral matter, whether there was something immoral about taxation. Hague balked at the question, of course. I would not. Especially over income taxes.

Suppose that you were an alien visiting from another planet and saw a farmer giving money over to somebody else and driving off with a tractor. You ask the farmer, "why did you do that?" The farmer replies, "well, I has to pay that fellow for this tractor so's I can make my living, see. I need to use this tractor to make said living, but I can't use it (legally) that is, unless I pays him for it, regular like." Now, you, the alien visiting from another world, would probably conclude from this that the farmer was renting the tractor from another chap, and that the other chap was its owner. because he was its owner, it was illegal for the farmer to use the tractor to make himself a living without paying the other chap to let the farmer use the tractor.

This seems quite realistic and probably is an accurate interpretation, most would agree. However, why would we not make the same conclusion about the tax payer. Anybody who makes an income in any way has to use themselves, their body and mind, the skills they were born with and those they learned, various things intrinsic to what makes them them. At the same time, it is illegal to earn an income beyond a certain level without paying an income tax. So, quite simply, in order to be legally allowed to make a living beyond a certain level using our own bodies or minds, we must pay the state. When the farmer had to pay somebody else in order to be legally able to use the tractor to make a living, our objective and impartial alien concluded that this must be because the other person must have been the owner of the tractor, and the farmer was renting it from him. So what does it mean if you have to pay the state in order to be able to legally use your body to make an income? Surely our objective and impartial alien must conclude that your body belongs to the state and you must rent it from the state if you want to be able to use it to make yourself an income?

The very idea that we should have to pay somebody else if we want to use our bodies or minds for anything suggests that they, and not we, are the owners of our bodies or minds. Even Marxist philosopher GA Cohen is sympathetic to this view, noting that it implies that a person subject to an income tax lacks full self-ownership.

The Harvard philosopher Robert Nozick famously wrote that

Taxation of the earnings from labor is on a par with forced labor... taking the earnings of n hours labor is like taking n hours from the person; it is like forcing the other person to work n hours for another's purpose.

This is telling in the light of an article by Adam Smith Institute director Eamon Butler, published in the Telegraph on the 24th of June.

Today is Cost of Government Day. Average taxpayers in Britain now have to work almost half the year – 176 days – to pay their share of the cost of running Gordon Brown’s administration. Every penny we have earned since January 1 has gone to feed the state leviathan. It is only from today that, at last, you have started working for yourselves and your families.

More than five months of our servitude – from New Year until May 14 – were spent working to pay taxes, such as income tax, national insurance, council tax, VAT and many others including the notorious “stealth” taxes. But all that effort was still not enough to feed the monster, and when he had run out of our money, the Chancellor, Alistair Darling, had to borrow – at £20  million an hour – to pay his bills.So for the past six weeks, day in, day out, we have been working to fund that borrowing. No wonder Mervyn King, the governor of the Bank of England, warned yesterday of the “truly extraordinary” scale of deficits.

We have had to put in 10 days’ more work than last year in order to keep the Government afloat. It is not just the money that Brown and Darling borrowed to bail out the banks. It is the fact that every bit of public spending – national and local – is rising faster than taxpayers’ incomes. In 1999 – when Brown had finished with New Labour’s 1997 election pledge to match Conservative budgets – government spending was just 36 per cent of the nation’s income. Now it is a third more – 47.5 per cent this year – and rising.

Not that you can believe official figures. The International Monetary Fund thinks things will be far worse. Our national income will take a knock, and more people will be out of work and receiving benefits from the Government rather than paying it taxes. That makes it probable that public spending will be more than 50 per cent of our income – sending Cost of Government Day into July.

It amounts to a huge surge in the burden of government for those of us trying to earn a crust – twice that in France, and even more than when Britain was reeling from the oil-price shocks in the early 1970s. In fact, it’s not far off the 1940s, when at least we were paying off the cost of saving the world from Hitler.

But then Alistair Darling’s budget predictions have proved just as over-optimistic as his predecessor’s. In November 2008, despite all the drama in the banking industry, his forecasts seemed almost rosy. Now, he expects the Government’s budget shortfall this year and in 2010 to be four times that prediction, with 2011 and 2012 about five times bigger. The gap between what the Government expects to spend and what it actually brings in has risen five-fold, from £120 billion to £608 billion in the space of six months.

At that rate, according to the Institute for Fiscal Studies, it will take 23 years to return government borrowing to anything like normal levels – Gordon Brown’s famous “golden rule”.

And of course, every year you borrow keeps adding to what you owe. Right now, the Government calculates that it owes a total of £2.2 trillion – about £144,000 per household. The figure has trebled since the bank bail-outs. Some traders are beginning to wonder if Britain can actually pay its debts. If they start pulling out, then we really are bust.

And the real picture is worse, because the Government does not record all its debts on the official books. Take all those new schools and hospitals being built on tick at a future cost equal to £5,600 per household; Network Rail’s borrowing, another £1,000 per household; nuclear decommissioning, another £2,750; those generous civil service pensions – a future cost of almost £50,000 per household; not to mention the state pension. Add those in, and the real national debt is twice the official figure.

Do not imagine that all this extra spending and borrowing are the fault of the financial crisis and the need to counter recession – interest payments, social benefits and suchlike. A good half of it is simply feeding the Government’s pre-election spending splurge.

We, who rent our bodies from the state so that we can use them to make a living, will be working an average of seven months a year so that we can afford this rent. s typical for those on the "left" to object to the evils of exploitation, but what is this but exploitation? And exploitation by the state, the public sector? All wealth has to first be produced in the private sector before there is anything to be taxed to pay for the public sector. The public sector, the state, then, could not exist without the productive efforts of private sector producers. And yet graduates can expect to earn more in the public sector than in the private:

Graduates taking jobs in the public sector are now earning higher salaries than those who go to work for private businesses, research revealed yesterday.

University leavers with jobs in the civil service or the NHS now earn better wages for the first time, with salaries averaging £21,445.

This was £1,400 more than the average salary for graduates starting work in the private sector, the report from Hay Group management consultancy found.

A spokesman said: "Public sector work is often a safer bet because it is more secure and as it is not as competitive, there is less chance of getting sacked. It is a better option for a lot of graduates."

The average pay in public sector work is 14 per cent higher than profit-making companies can offer, a recent Bristol University study found.

The study also found that while the taxpayer spending on the public sector is rising fast, the quality of many state employees is falling.

Their analysis showed that the state sector is also creaming off a bigger share of graduates and highly-qualified recruits than commercial companies.

And, further, average incomes are likely to be higher in the public sector than in the private sector:

Average salaries in 2008 were £21,413 in the public sector, 3.4 per cent higher than the £20,715 average for the private sector.

Since 2000 average annual public sector pay has risen by 37.1 per cent while the increase for private company employees was 30.5 per cent.

Surveys have shown that the ave–rage public sector worker takes nine days off sick a year, against fewer than six in the private sector.

Similar evidence from Ireland supports this:

- Lest we forget the most obvious, in every year of the series, public sector workers were paid more per year than their private sector counterparts*. 30% more on average! (There may be perfectly legitimate reasons for this, for example average experience/years worked may be higher, responsibilities may be greater… but a priori, who knows?)

- As you can see, the gap has widened, not narrowed over the decade. In fact, in euro terms, it widened 8 years out of 10! And after the two years of greater private sector increases (prizes for eyesight if you can spot them on the graph), there were huge increases in public sector pay the following year.

- Public sector pay is at least five years ahead of private sector pay. What public servants earned in 2003 took their private sector counterparts until 2008 to earn (in fact, they’re not even there yet, another €500 or so to go!).

Time for another class war, me thinks! Thankfully one political party in the UK [i]is[/i] prepared to start waging this new class struggle: The Libertarian Party. They have declared that their central policy shall be the abolition of the income tax.le would no doubt balk at this idea. These are crazy libertarians who want to abolish schools and hospitals and roads - how could we pay for all the great an necessary things that the state does without an income tax? How could we afford welfare, or education, or the NHS? Would all these things be private?" The presumption is that without the income tax much of government would become unaffordable and there would have to be tremendous cuts and privatisation. But what is the reality? Eamonn Butler writes, "If spending since 1997 had risen no faster than inflation, we would be spending a third less than we do now, and could abolish income tax, VAT, and council tax entirely." This echoes an earlier claim of his that

Government spending will reach £600 billion in 2008 – that's £10,000 for every man, woman and child in the UK, and twice as much as in 1997. If public spending had only grown in line with inflation since 1997, we could have abolished income tax, corporation tax, capital gains tax and inheritance tax, leaving the taxpayer £200 billion better off.

So, far from the idea of scary cuts in spending, the abolition of the NHS, etc, government could have grown since 1997 - hardly itself a period of tiny government, with no NHS, no state schooling, etc - and we could have afforded to abolish the income tax, corporation tax, capital gains tax and inheritance taxes, if only the state had grown in line with inflation!

The LPUK press release goes on,

Party Leader, Patrick Vessey, said, "Income Tax raised £143 billion in 2006/07, about one quarter of the £534 billion spent by government last year.

"But savings on unnecessary spending could easily be found: for example, current annual spending on Britain's hundreds of unaccountable QUANGOs—including such patent time-wasters as the British Potato Council, the Milk Development Council and the Wine Standards Board—is running at around £175 billion.

"The Libertarian Party believes that the tax burden should be substantially reduced, and that those taxes that remain should be levied on spending, not on income. This policy will reward those—especially the poorest—who spend within their means and who save for their future."

The Party's Director of Communications, Chris Mounsey, added, “This may seem like pie-in-the-sky but, in 2001/02, the government spent £378 billion. Were we to return to those spending levels, we could abolish personal income tax and still have £13 billion left over—sufficient also to abolish, at current revenue levels, Inheritance Tax, Capital Gains Tax, and duty on beer and wine.

“The people of Britain are beginning to understand that simply throwing money at public services doesn't work. The Libertarian Party is dedicated to allowing every person in this country to choose how their hard-earned money is spent – and the best way in which to do that is not to steal it from them in the first place.”

Abolition of the income tax is not some whacky idea that would decimate government (actually, decimate means to dispose of ten percent of it, and the tories are proposing ten percent cuts!). In fact, the fact it would have such a little impact on the government at all is telling as to just how enormous the state has grown.

Of course, in the present economic crisis, the government's deficit is so huge that many people would wonder whether tax cuts, let alone abolition of the income tax, are plausible. However, Eamonn Butler's article continues:

And do not believe the spin that the Conservatives would make 10 per cent cuts to balance the books. They have pledged not to cut education, the NHS, or overseas aid, and they are stuck with the debt repayments and the EU’s demands; even if they cut 10 per cent off everything else, it amounts to just 3 per cent overall. They would be shrinking next year’s spending bill from £717 million to £695 million. That is still more than Labour has ever spent.

“What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom,” wrote Adam Smith. If your family had debts as big as the Government’s, you would know what you had to do:spend less or earn more – and preferably both.

The Government won’t earn more by putting up taxes. The Centre for Economic and Business Research estimates that the proposed 50 per cent top tax rate will make 25,000 people leave the UK, costing 140,000 jobs and reducing revenues. Britain is already overtaxed.

And the private sector has borne nearly the whole burden of the economic downturn. Wages have fallen, and unemployment is heading up to 3 million. But the public sector has been largely unaffected. That is why people are so angry when they see how much of their 176 days’ effort is simply wasted – or abused, as with MPs’ expenses.

The task is to reduce public expenditure without it showing. A freeze on spending and recruitment for a couple of years, then pegging it to inflation, would be surprisingly effective at re-balancing the books. (If spending since 1997 had risen no faster than inflation, we would be spending a third less than we do now, and could abolish income tax, VAT, and council tax entirely.)

Another useful move would be to publish online every cheque the Government signs, so we can see what it is spending and where. Private firms would be able to show what they could do more cheaply. And citizens could point out where they think their money is being scandalously wasted, as with the £300 million on departments’ service contracts, wasted through bad management, or the £200 million lost through bad procurement of hospital buildings.

Then there are the IT projects, such as the NHS records system, that are billions over budget and months or years late (the Department of Employment alone spent £59 million on a computer system that did not work). Exposing such wasteful incompetence would help eliminate it. And do we really need to spend tens of billions on ID cards?

Along with the Royal Mail, we can privatise the Tote, Channel 4, BBC Worldwide, air traffic control and various utilities, which would bring in a handy £20 billion. And we can get rid of central bureaucracy by measures like simply handing head teachers their bit of the budget and telling them to get on and spend it as they see fit, rather than as Whitehall bureaucrats think they should. The same could go for health – give the budget to patients or their doctors, not to layers of bureaucracy such as the strategic health authorities. And the quangos need to be culled again: they have grown in number, cost and power under Brown. For what gain?

Meanwhile, dozens of local government officers are now paid more than £100,000 and retire on generous index-linked pensions – something now almost unknown among the private-sector employees that work to support them. As this newspaper reported yesterday, PricewaterhouseCoopers claims that 96 per cent of companies regard final salary schemes as unsustainable.

About a third of Child Benefit is little more than pin-money for the middle classes. It should be given to the poorest. By taking everyone on the minimum wage out of tax entirely, we would see a stampede into work by those who we presently make better off on benefits.

Another huge saving would be to speed up the plans to raise the pension age, reflecting improvements in health and longevity. This is by far the largest spending change one could make. Yes, many people would not like it – though others would be delighted to avoid forced retirement at 65. But it would be hugely symbolic – a return to honesty in the public finances, and an end of the idea that we can all live at someone else’s expense. If this recession has taught us anything, it should have taught the politicians that.

There is one final saving that I would also add to Dr. Butler's proposals: An end to the war on drugs. The regulated legalisation of all drugs could save the British public £14 billion a year one study has found.

For many years the government has been under pressure to conduct an objective cost-benefit analysis of the current drugs policy, but has failed to do so despite calls from MPs. Now the drugs reform charity, Transform, has commissioned its own report, examining all aspects of prohibition from the costs of policing and investigating drugs users and dealers to processing them through the courts and their eventual incarceration.

As well as such savings is the likely taxation revenue in a regulated market. However, there are also the potential costs of increased drug treatment, education and public information campaigns about the risks and dangers of drugs, similar to those for tobacco and alcohol, and the costs of running a regulated system.

The report looked at four potential scenarios, ranging from no increase in drugs use to a 100% rise as they become more readily available.

"The conclusion is that regulating the drugs market is a dramatically more cost-effective policy than prohibition and that moving from prohibition to regulated drugs markets in England and Wales would provide a net saving to taxpayers, victims of crime, communities, the criminal justice system and drug users of somewhere within the range of, for the four scenarios, £13.9bn, £10.8bn, £7.7bn, £4.6bn."


Taxing drugs would also provide big revenue gains, says the survey. An Independent Drug Monitoring Unit estimate, quoted in the report, suggests up to £1.3bn could be generated by a £1 per gram tax on cannabis resin and £2 per gram on skunk.

Thankfully the LPUK also plan to legalise all drugs.


Anonymous Anonymous said...

Unbelievably, many of my public sector friends (when I bring up this discussion ) say:

- "Well, it's fine because we pay tax"

.....I end up flapping my mouth like a goldfish in amazement!

it's like working for someone for 6 months, and them saying "this slavery is fine, because I give half your cash to my mate"



7:03 PM  

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