I like tax competition

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My thanks to Cato's Dan Mitchell for drawing my attention to this comment by Finland's prime minister:

The overall tax rate will have to rise as well over the longer term. In some areas that can be done without much consultation between the countries. For example, property taxes or inheritance taxes can largely be determined at the national level without adverse economic consequences. But such taxes will not raise significant amounts of revenue. Only changes in value added tax, various excise taxes or taxes on earned and capital income can make a real difference. However, raising such taxes can have detrimental effects on economic activity. This is especially so when a country acts on its own: capital and people can respond by migrating to jurisdictions with lower rates. Deeper co-operation is therefore necessary if tax revenues are to be increased in a way that truly helps fiscal consolidation.

In other words, if we don't prevent tax competition, we won't be able to raise taxes as high as we want to. In order to make big government even bigger, we need to establish a tax cartel so people have no choice but to cough up. As Dan says, this idea is nothing short of an OPEC for politicians.

Still, at least the Finnish prime minister is being honest about his intentions, which is a lot more than you can say for Gordon Brown. He tries to tell people that we need to crack down on tax competition in order to make everyone's savings "much safer". And that, quite frankly, is laughable.

I favour tax competition for the same reason that most politicians oppose it: it puts a limit on how much of our income they can get away with stealing, and forces them to think about the effect that higher taxes are going to have on the economy. It's a blunt instrument, sure, but it's one of the few that taxpayers' have got. If anything, governments should be extending tax competition to different areas within countries, not attempting to curb it through international stitch-ups.

Blog Review 999

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Yet more evidence of Laffer Effects. The income of small business owners (who have more opportunities for changing behaviour of course) is twice as responsive to tax rate changes than the incomes of employees.

Not quite zero tolerance, but if you crack down on silliness when it's still silly then you'll not get the larger problems.

Could someone please create a similar guide to right wing zealous artcle writing? Then we'd all know what to avoid.

Argument Against Democracy No. CCVII.....there are at least 18 people who should not have the vote.

Argument Against Democracy No. CCVIII....look at the naivety of those who actually get elected.

Explaining Dani Rodrik's Capitalism 3.0.

And finally, another face/palm moment.

Mandelson's expensive empire

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Back in Gordon Brown's first reshuffle as prime minister, he turned the Department of Trade & Industry (DTI) into the Department for Business, Enterprise & Regulatory Reform (BERR). He also created a new Department for Innovation, Universities & Skills (DIUS). And according to the Evening Standard's Joe Murphy, this did not come cheap:

The Business, Enterprise and Regulatory, and Innovation, Universities and Skills departments were created in 2007 at a cost of £7million, including £218,063 on rebranding at BERR including emails, a website and headed stationery...

Two years later, and Gordon has been at it again, merging BERR and DIUS to create a new Department for Business, Innovation & Skills (BIS). The estimated cost of this rearrangement is £3million.

Maybe it's a better arrangement than old one. Or maybe it's worse. Or maybe it made more sense when we just had one department for 'trade & industry', one for 'education', and one for 'the environment' (instead of having BIS, DECC, DEFRA, DCSF, and DCLG all tripping over one another). Who knows?

And to be honest, I don't much care. But the waste, inefficiency and duplication that all these rearrangements engender does make me wonder if we wouldn't be better off with the American system, where primary legislation is required to create new departments and delineate their responsibilities. Perhaps then prime ministers would think twice about playing departmental musical chairs (at our expense) every time they got bored.

Save our Pubs and Clubs

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On Tuesday a new campaign is being launched to 'Save our Pubs and Clubs'. It has the inelegant but informative web address AmendTheSmokingBan.com (launches 22nd June) which sort-of tells you what it's about. The fact is that pubs and clubs have seen a disastrous fall in their trade since the smoking ban came in - and the recession has simply compounded the problem. Pubs are closing – several a week. Which is bad for business, bad for localities, and bad for those drinking habits that the government says it wants to improve – at least in pubs, people are drinking under some kind of supervision, while if they just load up at the supermarket and drink in the street, they're not.

The campaign says that if pubs want to have a designated smoking room, with proper air filtration and the like, why shouldn't they be allowed to? People who didn't like a smoky atmosphere wouldn't have to have one, but those people who wanted a beer and a cigarette could have it.

Anyway, the campaign is being launched in Westminster on Tuesday at 11am. As a non-smoker, I won't be lighting up, but I shall be there supporting the rights of those who want to.

Blog Review 998

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On the Iranian election: the secret to cheating is not to do it too well.

Why we need our own Pirate Party in the UK: it's not just for Sweden you know.

The side effects of regulation: the banning of naked short selling simply leads to larger profits for hedge funds.

Once again, evidence that accepting government "help" is more expensive than not having such government help.

Contrary to what we are told, plastic bags do not take 100 years to decompose.

Sometimes, economists would prefer that people did not take their advice.

And finally, why bother with satire when the real world offers such gems?

 

MP's expenses: A blackout and a whitewash

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Another huge own goal by Britain's parliamentarians. Everybody knew that they were taking a rather generous view on their expenses, and when a request under the Freedom of Information Act threatened to expose it all, the Speaker, the hapless Michael Martin, took it right up to the High Court. The argument was that the expense chits would show where MPs lived, which would be a security threat. Eventually a compromise was reached – that the information would be published, but with the addresses blacked out.

It is only thanks to the Daily Telegraph that we discovered what such censorship would have concealed. MPs 'flipping' their second homes to maximize their allowances, using public money to do up their houses before selling them at a profit, even maintaining a 'second home' that is neither in London nor in their constituency. Because the Telegraph saw the uncensored originals.

The receipts published online by Parliament today, however, have all the address information blacked out. So you can see if they've been charging the taxpayer 89p for a bathplug – but not whether they told Parliament that one address was their second home, and Revenue & Customs that it was their main residence (and therefore not liable to capital gains tax).

What makes it an own goal, though, is that the story has shifted: it is no longer about expenses, but about the cover-up. The censorship does far more than protect MPs from security threats. It protects them from embarrassment. One MP put in a grocery bill, but we're not even allowed to see what supermarket it was from, never mind what town it was in. That's above and beyond the call of security.

Thanks to the Telegraph, we know what has been going on. So the censorship now doesn't look like a prudent measure to protect MPs' safety – it looks like a blatant cover-up to save their skins. This will run and run.

Balancing the budget

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money1Apparently the Tories are going to cut public spending by 10%. But are they really? Assuming a May 2010 election, and a bit of time to get organised, that should mean cutting Darling’s proposed spending for 2011/12 from £717 billion to £645 billion.

Except that they aren’t going to cut education, or health, or overseas aid. And they can’t cut debt interest or payments to the EU. And they are only proposing to cut departmental expenditure, not benefits, pensions or tax credits. So in fact the Tories’ supposed 10% cut is actually barely 3%, from £717 billion to £695 billion.

That leaves the Tories’ spending more than Labour’s record £671 billion this year. Even allowing for inflation, the Tories propose to spend more than Labour ever spent. You call that a cut? Pathetic.

So what can be done to balance the Budget?

The Treasury estimates that taxes will bring in £577 billion in 2011/12, but frankly no-one else does. Lets assume that we’re not going to get any more than 2008/9’s £530 billion. So what would we have to do to balance the Budget at that level, instead of Darling’s insane plan to borrow £111 billion?

Well, four years ago (2005/6), government spending was £523 billion. Take spending back to that level, and we would have a surplus. Remind me, who was the Chancellor who thought that £523 billion was a generous level of public spending just four years ago?

OK, those calculations don’t allow for inflation. So let’s go all the way back to 2002/3 – five years into the Labour government. Then the government’s total spending was £425 billion. Add on inflation, and that would cost about £515 billion by 2011/12, leaving a £15 billion surplus.

So balancing the Budget, without any tax increases, means the government just has to do what it did in 2003. Is that really so difficult?