Taxation

A sanctimonious liberal like any other respectable 16-year-old, I made a seminal lurch to the right the first time I opened a pay slip. I was manning the register weekends for the Ice Capades Chalet in Atlanta and made about $40 a week. Or so I imagined. Then where the hell was it? The significantly lighter payment was my rude introduction to taxation at source. Indignation at being fleeced at a minimal income persisted into my adulthood. I lived on a wing and a prayer for decades, and having to pitch anything whatsoever into the communal pot was consternating. I fancied that I asked for nothing from government; in trade, they should ask for nothing from me. I wasn’t yet a grown-up.

What would a perfect tax system look like? For companies, profit taxes should be competitively low, to encourage inward investment, with generous reliefs for start-ups, research and capital projects; the corporate tax code should be designed to generate rising productivity and prosperity rather than to maximise short-term tax revenues, and companies should acknowledge a duty to contribute wherever their profits arise. For individuals, income tax rates should rise only to the lowest level that maximises revenue collection and thresholds should be high enough to keep low earners out of the net, while pension savers and first-time home-buyers should be incentivised.

There’s a saying that when you tax something, you get less of it. Sometimes, this is a good thing. The government taxes smoking, alcohol, and petrol partly because we think these things have costly side-effects—like pollution or burdening the NHS—that we want to discourage. But most of our taxes do not fall on activities with costly side-effects: they fall on things like working, travelling, and socialising. And because we have such a high tax burden—this year we'll work for the chancellor for 154 days before we start working for ourselves on Tax Freedom Day, today—we almost certainly have less of those things. With lower taxes we'd be happier, and our descendants would be richer.

Some things are universally accepted as true. Water finds its own level; crumpets are best eaten in winter; and the England football team will not win the World Cup again, ever. On a par with these things, the most accepted part of economics is Keynesianism. Of course, John Maynard Keynes said lots of things about economics in between his many and varied sexual encounters. But, as is the way of the world, one of the things he said turned out to be particularly influential. It is so influential that it has gone around the world. It is repeated and relied upon by Japanese finance ministers, New York Times columnists, Nobel prize winners and anti-austerity demonstrators. It is in textbooks around the globe. It is on page 262 of the Edexcel Economics A-level text book.

‘I visited the black marble obelisk which marks the epicentre of the explosion, and I saw the plain domestic wall-clock retrieved intact from the rubble with its bent hands recording the precise time of day when the city was obliterated: 11.02 a.m. I was glad to be alone, because I could not have spoken.’ Published here 20 years ago, that was my memory of Nagasaki, the target on 9 August 1945 of the second and last nuclear weapon ever deployed. The subsequent seven decades of non-use of nuclear arms — deterred by that most chilling of threats, ‘mutually assured destruction’ — is one of the miracles of modern history, given the unsafe hands in which much of the materiel was held.

Bashing the rich has become trendy. Last night, the Spectator hosted a debate at the Guildhall School of Drama on whether the rich have contributed their fair share to society, or if we should ramp up wealth taxes. It’s a very emotive topic and each of the speakers made a solid case for and against the motion: politicians should leave the wealthy alone — they already contribute more than their fair share. Proposing the motion, Spectator editor Fraser Nelson described how London is a city ‘shaped by the super rich,’ pointing out the number of places that serve a £20 vodka martini. But Fraser argued that society needs these wealthy people and taxing them more isn’t the best way to get money out of them.