Blog Archives

Nobody should be made to defend their hard earned money

What is the best way for people to escape poverty? By reading the press in the UK at the moment, it would seem that the best way would be too lower the tax on the poorest people in the country and increase taxes on the wealthy. Lowering taxes for the poorest is a good thing and would help them to climb their way out of debt, but taxing the rich more? That is not a good idea. If you want to know what taxing the rich does, just ask France.

France has a hate tax of 75% for top earners. Since it has been implemented a significant number of wealthy people and successful entrepreneurs have fled the country, and most have ended up in London where tax is lower. The media always fail to realise that it is the people with spare money who are the ones who create the jobs (And not just any jobs, but productive ones unlike government services). 

All of this has lead to the owner of Iceland talking in the the media today defending his wealth:

The media have made negative comparisons between your wealth and that of your customers. Does that bother you?

Why is it an issue? My personal wealth is nothing compared to the wealth we’ve created. My hunger for business has resulted in 25,000 jobs and £600m in tax contributions in the past six years alone.

No one should have to defend their own earnings. Especially when they have used the spare money they had to start a successful business that employs thousands of jobs.

If the tax on the wealthy was even lower than it is now, it would mean they would have more money to plow into the economy, creating prosperity and jobs. Additionally, this lower tax rate would attract other entrepreneurs from across the world to the UK. The graph below shows the top tax rate and federal income from 1930 to 2010 in the US. It shows revenues can increase when the rich are taxed less because the economy becomes much more productive.

Image

 

You may argue that with all these tax cuts, that the government would have to reduce in size, effecting local services. I have always believed that government should be as small as it possibly can be and local services can be, and should be run by the local people, not the bureaucrats controlled by MP’s and Lords in Westminster.

 

Advertisements

Increasing government burden does not promote growth or prosperity

Image

 

VAT itself is actually the only fair tax that is used in the UK at the moment. This is because the rate is the same for everybody. However, I question whether it is even necessary when it has been proven that the most effective way of promoting growth, is by lowering taxes. Particularly when that tax forms part of a double/triple/quadruple taxation system. For example my monthly wage gets taxed, then with the money left over I pay my energy bills, which are also taxed, I go to the shop and by some food, again this is taxed, then I also have to pay council tax, next I put petrol in my car, tax, then I buy a ticket for the train to get to work, tax, and I could carry on all day. Would it not be more simple to phase out VAT and to implement a universal flat income tax to relieve the hardworking families of the UK? A tax system is most effective when ordinary citizens can work out their tax returns with a piece of paper, a pen and a calculator.

The faux-conservatives and the squishy tory-liberal coalition

Now I know I like to cite Dan Mitchell from the CATO institute a bit too much. But he has correctly pointed out that the UK is a good model for showing how the laffer curve works.

A funny thing often happens on the way to soaking the rich: They don’t stick around for the bath. Take Britain, where Her Majesty’s Revenue and Customs service reports that the number of taxpayers declaring £1 million a year in income fell by more than 60% in fiscal 2010-2011 from the year before. That was the year that millionaires became liable for the 50% income-tax rate that Gordon Brown’s government introduced in its final days in 2010, up from the previous 40% rate. So, the total number of millionaire tax filers plunged to 6,000 in 2010-2011, from 16,000 in 2009-2010. The new tax was meant to raise about £2.5 billion more revenue. So much for that. In 2009-2010 British millionaires contributed about £13.4 billion to the public coffers, or just under 9% of the total tax liability of all taxpayers that year. At the 50% rate, the shrunken pool yielded £6.5 billion, or about 4.4%.

Image

He also points out the three main points which explain why the laffer curve works:

  • When tax rates increase, sometimes people engage in tax avoidance, lowering their tax liabilities legally.
  • When tax rates change, sometimes people choose to alter their levels of work, saving, and investment.
  • And when tax rates go up, sometimes people resort to illegal steps to protect themselves from the tax authority.

Finally, I love how he refers to the current government as the squishy Tory-Liberal coalition. I now like to call the tory party the faux-conservatives. They could go much further with their tax cuts and reducing the burden of government but they seem to have lost their backbone.

What about VAT Mr Osborne?

On the face of it, VAT is actually the fairest type of tax. This is because its a flat tax that treats everyone equal and does not punish those who are successful like income tax. However, VAT is still a tax which gives government more money to spend. I feel the the UK VAT of 20% is very high and it drives a wedge between pre-tax income and post-tax consumption.

Image

Image

Image

Sorry for yet another obama cartoon, but he is trying to implement a VAT tax in america.

THE DEATH TAX

The death tax (or inheritance tax) is just another way for the government to confiscate your money. The graph below is very scary indeed. It shows all the sensible countries who don’t implement a death tax, including Hong Kong and Switzerland who are pro free market, anti regulation states, and those countries who do.

Image

 

The UK and USA have higher rates than Greece, Spain, France, Belgium and Venezuela! That says an awful lot. The death tax should be scrapped in the UK. This will allow people to plow more money back into the economy instead of the government spending it on the non-productive sector.

Image

Falling out of the global race

I have been reading updates of David Cameron’s visit to China over the past few days and I can’t help thinking that the whole trip should never have happened in the first place.

Firstly, what is the point in the prime minister visiting a country that we can’t sign a free trade deal with (Our ties to the EU mean we are no longer able to control critical and important things such as this). Instead he has to ask them to hurry up their planned free trade deal with the EU instead which has caused unrest among EU officials here and here.

Secondly, on his trip he wanted to prove that the UK is still part of the global race. To take part in the global race you have to structure your economy to ensure that it doesn’t have a trade deficit, and that it is competitive on tax rates to attract people and businesses over to the UK. Yet he is another prime minister on a long list of backbone-less politicians. This is what the telegraph had to say about the current government:

If anyone is to make the case for difficult supply side reform, it ought to be Mr Cameron, with responsibility delegated to individual departments, rather than dictated by the Treasury as part of some Soviet-style five-year plan. In any case, beyond lip service, we’ve so far seen precious little of it. The Coalition has dabbled in education, planning, welfare and tax reform, but none of it has been transformational, while on energy policy, the Government seems to have steamed off in the other direction entirely.

What about red tape?

Any exploration of supply-side reform starts with the well-tested notion that the best thing government can do for business and the economy is simply to stay out of the way. Michael Fallon, minister for business and enterprise, has been heroically leading the unglamorous charge against red tape, but new obligations keep mounting, most recently with the start of pension auto enrolment, adding a further 3pc to labour costs.

Public spending?

Sure enough, public spending is slowly – very slowly – being brought back into line with revenues, but too much of the burden of this adjustment has been put on to rising taxes and not enough on a smaller state. Forging ahead with HS2 in the belief this will expand the economy’s potential flies in the face of the basic principle, backed by much economic research, that money ploughed back into the economy through tax cuts is likely to be far more helpful to growth than tax-funded government investment. Examples of public policy that promote self-reliance, as opposed to further discouraging it, remain all too thin on the ground.

The UK’s attitude for growth after world war two was “export or die” and “We must sell the things we like to buy the things we need”. Now it is “cut little bits here and there until growth resumes, then spend more”.

Nothing is solved by government spending, full stop.

Don’t laff, this is serious!

The laffer curve. The libertarians most powerful tool. It explains how increasing tax rates by too much can lead to reduced revenue and that decreasing tax rates can promote growth and prosperity.

Image

 

Ronald Reagan proved this can work:

Image

 

The table above, which is based on data from the IRS’s Statistics of Income, shows what happened to tax collections from upper-income taxpayers between 1980 and 1988. Supply siders can be criticized for many things, especially their apparent disregard for the importance of limiting the size of government, but the IRS figures clearly show that lower tax rates were followed by more rich people, more taxable income, and more tax revenue. For those keeping score at home, that’s a perfect batting average for supply-side economics. – Dan Mitchell

The majority of tax rate hikes arrive via class-warfare policies, which aim to ‘tax the rich and give to the poor’. However, as I explained here, the geese that lay the golden eggs can fly accross the border.

The vast number of taxes suffered by UK citizens

The vast number of taxes suffered by UK citizens

Whenever I look at this chart, I always realise that 3/4 of these taxes are unnecessary and are a huge burden on taxpayers and the economy. Just imagine how much the economy could take off without the likes of petrol, vehicle and inheritance duties. For one, I could afford to buy a car!

Want to get rid of political corruption? Simple…

Want to get rid of political corruption? Simple, just implement a flat tax. This is why:

  • With a system that you could fit on a postcard, people would no longer need to hire lawyers
  • A single, low tax rate would be very competitive and attract business and people from around the world to reside in the UK and create jobs and wealth
  • No double taxation on savings and investments (ie. no death tax, no capital gains tax, no tax on savings or dividends)
  • It is easier to enforce and a low rate ensures its not worth rich people finding loopholes

For a great tutorial on how it would work, watch this Dan Mitchell video from the CATO institute:

I love tax more than you do!

I love tax more than you do!

It is true, that the French love tax more than most european states. Their hate tax has caused every single successful entrepreneur to leave the country, and the majority moved to london where the highest tax rate is much lower. This is what happens when you raise taxes.

Merkel is involved in this meme because part of her plan is for europe-wide tax harmonisation. Just think about that for a second. I wonder whether all the successful people who contribute more than their fair share in taxes and who provide employment will leave europe altogether.

Flat tax…with a cat of course!

Flat tax...with a cat of course!

In the end, it comes down to the number of pages

America has more than 70,000 pages of tax laws. In comparison, hong kong has less than 200 pages and slovakia’s flat tax is thinner than a magazine.

Image

Brilliant audit joke!

The HMRC sends their auditor to audit a synagogue. 

The auditor is doing all the checks, and then turns to the Rabbi and says, “I noticed that you buy a lot of candles.”

“Yes,” answered the Rabbi.

“Well, Rabbi, what do you do with the candle drippings?” he asked.

“A good question,” noted the Rabbi. “We actually save them up. When we have enough, we send them back to the candle maker and every now and then, they send us a free box of candles.”

“Oh,” replied the auditor somewhat disappointed that his question actually had a practical answer.  So he thought he’d try another question, in his obnoxious way. “Rabbi, what about all these matzo purchases?  What do you do with the crumbs from the matzo?

“Ah, yes,” replied the Rabbi calmly, “we actually collect up the crumbs, we send them in a box back to the manufacturer and every now and then, they send a box of matzo balls.”

“Oh,” replied the auditor, thinking hard how to fluster the Rabbi.

“Well, Rabbi,” he went on, “what do you do with all the foreskins from the circumcisions?”

“Yes, here too, we do not waste,” answered the Rabbi.  “What we do is save up all the foreskins, and when we have enough we actually send them to the HMRC.”

“To the HMRC?” questioned the auditor in disbelief.

“Ah, yes,” replied the Rabbi, “directly to The HMRC …And about once a year, they send us a little prick like you.”

Old, but still proves a point

Old, but still proves a point

The geese that lay the golden eggs

As Dan Mitchell (from the CATO institute) once said

The geese that lay the golden eggs can fly across the border.

This is such a nice way of explaining how uncompetitive tax rates can lead to successful people and businesses, who both contribute massively in taxes, to leave the country/state when conditions no longer suit them. For a country to grow and be successful, it has no option but to choose low tax rates, and from a libertarian perspective, a flat tax.

%d bloggers like this: