There was a terrific article in yesterday’s Times by the philosopher Jamie Whyte entitled, ‘Why taxes should be slashed by half’. Arguing against the still-indecisive Conservative tax policy, Whyte claims that we are miles past the acceptable limit of taxation because politicians lack an understanding of the basic business concept of “cost of funds".
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.
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.