| Taxes should be slashed by half |
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| Written by Philip Salter | |
| Thursday, 22 May 2008 | |
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When a company considers investing in a project, they first have to determine how much it will cost them to raise the funds. As Whyte explains, a company will keep raising money until its cost exceeds the return from spending it. Whyte suggests that such logic should apply to government spending: The Government should raise taxes until the cost (to society) of doing so exceeds the benefit (to society) of the spending it funds. Due to the combination of administration, compliance, avoidance, and deadweight costs, this equates to the need for the government to deliver a return of more than 20 per cent upon the taxpayer’s investment. Of course, almost all government spending fails by any objective standards to deliver on this investment. Just take a look at education, healthcare, housing, unemployment insurance and pensions. Whyte concludes: Given the politically sacred status of “public services”, eliminating this spending and taxation will not sound like a very nice idea. And Mr Cameron is determined to make the Conservatives seem nice. But imposing pointless costs on society is not really a nice thing to do. Taxes slashed by half? It would certainly get my vote.
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Comments (4)
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written by Mark Wadsworth, May 22, 2008
It's a great article, but appears to be the summary of a series of articles, unless he's already done so, you'd need separate chapters on a) the spending side - splitting this up into core functions of state like refuse colletion; State provision (and associated waste) and pure waste (quangoes, subsidies), b) the taxation side (and some taxes have much higher deadweight costs than others) and c) the merits or otherwise of pure redistribution - e.g. taxpayer funded vouchers for schools are, AFAICS, universal non-means tested benefits, but at least the provision side is done privately.
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written by TomG, May 22, 2008
How long would it take to cut taxes by half? I presume it wouldn't be possible to do it in your first budget given the number of people employed by the state who would lose their jobs...
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written by Graham, May 22, 2008
The main reason such profligacy is tolerated is that the efficiency/value-for-money is not typically the justification for them. Very few deny that better services could be obtained privately, but the question tax-cutters will be faced with is: 'what about the poor?'
... written by Mark Wadsworth, May 24, 2008
Re "what about the poor", as we know from the post-war years, food, water, power, coal, car manufacturing etc was all state controlled/provided. Are 'poor' people hungrier since rationing was ended? Are cars more expensive? How many 'poor' people have died of thirst since water companies were privatised?
"provision" of e.g. health and education is only half the equation - the other half is funding. What objection can any sane person have to taxpayer funded health or education vouchers (with a right to top up with private money)? That seems like an admirable half-way house to me. Write comment
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