There's silly tax laws and then there's silly ones


No doubt we rather differ among ourselves in our overall estimation of the current Chancellor, George Osborne. But whatever that overall view is it's still possible to point out that not quite everything he does is all that sensible. For there really are silly ideas for taxation:

A senior member of the Government's fiscal watchdog has described George Osborne's raid on big businesses to fund apprenticeships as "a pay cut" for ordinary workers. Stephen Nickell, a member of the Office for Budget Responsibility's (OBR's) leadership team, said the Chancellor's move to raise £11.6bn over the next five years from a new apprenticeship levy served as a payroll tax that would be reflected in lower wages.

Yes, this is so:

"[The apprenticeship levy] is a form of payroll tax [and] in the end the incidence of a payroll tax tends to fall on workers. So in some sense it ends up being a pay cut and it doesn’t have much impact on profits,"

And a cut in wages perhaps isn't quite the thing that we wish to achieve.

Yes, of course, tax revenue needs to come from somewhere but payroll taxes are a really bad place for them to come from. Half or more of the country believes that as the company hands over the cheque then it's the company paying the tax. And as more than half the country likes the idea of someone else paying tax rather than they themselves they think this is just great. But the incidence of a tax does not depend upon who pays it. And payroll taxes almost entirely and always come out of the paycheques of the workers. Thus they're good politics, who suffers being disguised, and bad economics. Because we generally don't think that the workers' wages should be reduced.

Tax things in inelastic supply (land), inelastic demand (tobacco, petrol) and then consumption and, if absolutely necessary, incomes. But silliness like this Apprenticeship Levy really should be avoided.