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Written by Tim Worstall
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Wednesday, 08 August 2007 |
My somewhat quixotic (and one man, I have yet to find Sancho) campaign
to abolish inheritance tax in order to increase social mobility gets
some supporting evidence over in the Wall Street Journal blogs
. The observation is that the children of those who have proven to be
good at making money don't actually seem to be very good at keeping
hold of it. Indeed, precisely because they are such pampered little
darlings they're even worse at hanging on to it than others. Clogs to
clogs in three generations as it were.
The problem is inheritance tax itself. Rather than hand over 40% of
their lifetime's work to the Treasury, those who've made money set up
trusts and foundations: these do not allow their callow youths to get
their hands upon the capital, only the income from it, and thus the
financially inept do not have a chance to lose that cash. It is thus
people's response to inheritance tax, those trusts, which perpetuate
the inequality of wealth down the generations.
Thus, if we want to encourage social mobility, something which requires
that some move down as others move up, we should encourage the wealthy
to leave their wealth to their children unencumbered, so that they can
indeed lose it. As one such was asked where his inheritance had gone,
on "heroin and taxis". They will only do so if they are not threatened
with taxation.
I realize that at first sight, abolishing inheritance tax to promote
social mobility is a little odd. As one wag to whom it was mentioned
put it, like bonking for virginity. But then there are
counter-intuitive realities out there: as Steven Landsburg has pointed out , if more people have affairs STD rates will go down.
So why not? Let's increase the ease with which the rich can lose their
money, abolish a tax and raise the level of social mobility, all in one
fell swoop. All that's needed now is for a few Panzas to belly up to
the bar and join this quest.
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Written by Tom Clougherty
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Wednesday, 01 August 2007 |
Clive Coleman has a very interesting – and shocking - article
in this month's Reader's Digest. It seems that those wonderful people
over at Her Majesty's Revenue and Customs are, to all intents and
purposes, above the law.
Here's one example: a series of delays and errors by HMRC cost
Neil Martin's business more than £500,000. The Revenue admitted their
mistakes but refused to reimburse his losses. When he decided to take
them to court he was told that HMRC did not owe him a duty of care –
meaning they can't be sued, no matter how much they cock-up. There are
internal appeals procedures of course, but is the Revenue really like
to pass judgement against itself?
Even worse is the story of Sarah Wilcox, who dared to dispute
£1000 of her tax bill, only to be forced into bankruptcy and made
homeless (she lost her house, worth half-a-million, and now lives in
hostel). The bankruptcy was later annulled on grounds of unfairness,
but HMRC refused to revisit the case.
No other public body is immune in this way: schools, the NHS and
the MoD all owe a duty of care to those affected by their negligence –
why should HMRC be any different? It's not just that they refuse to
take responsibility for their own mistakes – often the taxpayers
themselves are the ones held accountable. Every self-assessment
taxpayer is deemed responsible for paying the correct amount of tax,
even if HMRC makes incorrect demands. And if they overpay your tax
credits, they can make you repay them, even though you have already
spent the money in good faith.
Far from solving this problem, the government is doing its best
to make it worse: the new Finance Bill, for instance, makes it easier
for the Revenue to charge more and greater penalties to taxpayers who
make mistakes on their tax returns. They'll even be able to fine you if
they made a mistake and think you should have noticed it.
So much for liberal democracy and the rule of law...
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Written by Tim Worstall
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Monday, 23 July 2007 |
Apologies, I've just had one of those jaw dropping moments: I type with
a bruised mandible, (err, my mandible is bruised, I type of course with
my paws,) for I've just found out how it is that the UK has been
defined, by the IMF, as a tax haven. It is, sadly, another one of those
inane (perhaps insane is more appropriate) methods of measurement that
seem only to exist in order to provide ammunition for critics. Of
course, to those of us actually groaning under HMRC impositions, the
idea of the nation as a tax haven is absurd, but that doesn't stop
various Guardianistas from repeating it as fact (here , here and here ).
The definition is here , at Richard Murphy's (normally someone to read solely for the entertainment value):
The methodology used in the IMF report sought to overcome
subjective tests for what might be a tax haven by using an objective
measure. That measure was that the financial services sector in the
country tested was larger than that needed to service its domestic
economy. This was indicated by it having a financial services sector
proportionately larger than one standard deviation away from the norm
for all economies tested.
So, if you're the host nation to a cluster of specialists in
international finance, you're a tax haven. If you're taking part in the
global division of labour, you're a tax haven. If you're the
marketplace for the money of the world, you're a tax haven.
There's no reference whatsoever to the tax rates actually being
charged, no attempt to discuss whether anyone is in fact avoiding or
evading any taxes: just, if you're specialists in finance you must be a
tax haven.
Well, what do you think? Inane or insane?
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Written by Dr Eamonn Butler
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Tuesday, 17 July 2007 |
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The Joseph Rowntree Foundation reports that the UK's rich/poor divide is wider now than it has been in forty years.
Sort
of. In fact there are fewer people in really abject poverty, though
rather more just a rung above. Meanwhile, the rich are getting richer.
Less real poverty? Well, about time too. The whole point of
welfare is to spare people from it. The fact that it exists at all
shames our politicians who run the system. As James Bartholomew noted
in The Welfare State We're In
, the old pre-welfare-state system of friendly societies, charitable
foundations and local welfare was probably better at alleviating real
poverty than the centralized, bureaucratic system we have today.
Particularly when Gordon Brown made it too complicated for many needy
people to understand. It's quite easy, Gordon: if people are poor, give
them cash. Then they're not poor any more.
And should we worry about the rich getting richer? Economists say
that if some people get better off while nobody else get worse off,
that's good. But maybe there are limits. “No society can surely be
flourishing and happy," wrote Adam Smith
, of which the far greater part of the members are poor and miserable."
Or think they are: big divides in wealth, power and status can lead to
unrest and disruption.
Divides of wealth, though, are the easiest to overcome. It's hard
to break through class barriers, or into the charmed circle of those
with political power. But in an open economy, anyone with some drive
can improve themselves, making the free market the most egalitarian
system imaginable. Yet our politicians load it with all kinds of
burdens, from regulation to spiralling taxation. Is their failure to
eliminate poverty any real surprise?
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Written by Dr Eamonn Butler
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Thursday, 06 October 2005 |
In The Wealth of Nations, Adam Smith spelled out the principles of taxation.
People should contribute in proportion to their abilities.
How, when, and what is due should be clear.
Payment should be convenient.
The number of collectors and inspections should be minimized, and taxes should not discourage enterprise.
In the 250-odd years since then, we have found out a lot more about
taxation, and there is some pretty good analysis of it which allows us
to add a few more things on to Smith's list.
First, all tax is damaging. In terms of economic efficiency, it is best
if the damage is spread evenly across commodities, because then it is
spread thinner. Taxes should not favour some things and penalize others.
Second, taxes should be spread across time. We should not tax hard
today so as to generate lighter taxes tomorrow, nor – as is more
likely, knowing politicians – over-spend today and send the tax bill to
some future generation.
Third, taxes should be spread across people. They should not gang up on
the working population. When work is taxed, people work less. They take
fewer risks, because the risk/reward balance deteriorates – which means
less innovation for the society. And they learn less, because we learn
by doing things, so society's knowledge advances more slowly too.
All this to me suggests that we should move to an expenditure tax, or
to a lot more emphasis on an expenditure tax than on income and capital
gains taxes. And that it should not be riddled with exemptions for
politically 'good' things like new building work, children's clothes or
even books and newspapers. And that we should prune public expenditures
and keep the rate low. If we taxed everything at 10% – the biblical
tithe – my guess is that we would raise just as much revenue as we do
with the damaging and dispiriting taxes that we have today.
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