Six oddities from the TPA's tax plan

All in all, a slightly strange report.

It turns out the plan of reading the TPA's tax report in full and only then writing on it, while possibly commendable in pursuit of accuracy, is probably not the best thing to do from a journalistic point of view. Many of the best pieces have already been written, particularly Nick Pearce, Tony Dolphin and Daniel Elton's. Nonetheless, there are sufficient oddities that are worth noting for a quick round-up post. In no particular order:

1. Inheritance tax isn't mentioned in the inheritance tax chapter

This one really is just a bit odd. Chapter six is titled Transaction, wealth and inheritance taxes should be abolished. But inheritance taxes are mentioned just once, in the context of an argument against a proposed measure of paying wealth taxes. Their abolition is never proposed, and no arguments are given as to why they are wrong.

But in chapter five, Taxes on capital and labour income disguised as business taxes should be abolished and replaced with a tax on distributed income (snappy titles throughout), there's a five page discussion as to why inheritance tax is so unpopular. I'm not sure what happened with the editing, but it's all very confusing.

2. The Biblical and Quranic arguments for low taxes

Apparently:

It might be argued that God endowed humans with certain inalienable rights, including personal freedom, and that taxation breaches those rights. [Page 98]

Also:

There is no morality in taking someone’s wealth and giving it to another. Such redistribution of wealth is about controlling society, not about helping others. [Page 103]

3. Pigovian taxes

Pigovian/Pigou/externality taxes are something we've covered before. The short version is that some activities affect people beyond those voluntarily partaking in them (creating an "externality"), and that economic efficiency is restored if a government imposes the cost of the externality on the person gaining the benefit from the activity.

The classic example is climate change. Burning a barrel of oil may bring me benefit, but it also causes damage to the planet. The Stern report put the damage at roughly $80 a barrel, and so anyone burning that much oil for less than $80 benefit is, netted out, destroying value. A carbon tax at that level would thus ensure that only oil which was economically beneficial was burned.

The commissioners don't like taxes, though, even economically watertight ones. In the chapter externalities rarely justify taxes as high as they are already, let alone higher, they argue that fuel duty should be cut, and tobacco and air passenger duty should be abolished. All good; although climate change is one of the biggest dangers facing the British economy in the long term, it makes sense to institute a carbon tax with a broad base, rather than focusing the costs on selected industries.

Except they don't argue for that. In fact, they don't argue for any form of carbon tax. Instead, two red herrings are put out. Firstly, that no tax on externalities can raise revenue and change behaviour at the same time (which is true, and something some supporters of the Robin Hood tax would do well to accept), and secondly that many taxes on externalities hit the poor hardest (which is true, but that's why carbon taxes are normally combined with a healthy redistributive element).

If you are ripping up the tax code and starting again, the very first thing that should be introduced is an effective, accurately priced, and properly enforced carbon tax. Doing so would render every other measure to fight climate change superfluous. The failure to take advantage of that ability implies that either the commission rejects any new tax out of hand, or embodies the worst of denialism.

4. If we assume that low taxes drive economic growth then we can see that lowering taxes will drive economic growth.

The commission uses the Centre for Economic and Business Research's dynamic model of the UK economy. We've addressed dynamic modelling before, particularly the often one-sided approach of assuming tax cuts will lead to more work and higher compliance while not making similar assumptions about spending, but the commissioners take the biscuit. They alter the model "based on [uncited] research into the impact of tax on the economy" such that it exaggerates the effect cutting tax will have on business investment, labour supply and net exports. Needless to say, if you build a model around the assumption that cutting tax drives business investment, it is not a massive achievement to then prove that cutting tax drives business investment. Tony Dolphin goes into more detail on this concern for Prospect.

This circular argument recurs many times throughout the report. Take page 76, for instance:

Peter and Mary are at school in very similar countries. At the moment, Peter’s country provides money to buy whatever teachers in state education request. The schools are well-equipped with the latest technology and buildings are refurbished frequently. In Mary’s country, there is stricter control over spending, the technology in schools is adequate, and buildings are only refurbished when they get shabby. The tax burden is therefore lower in Mary’s country, and the rate of economic growth is slightly higher.

Others may argue that the rate of growth will be higher in a country with a well-funded education system. But that doesn't get a look-in, even though, as Nick Pearce shows, the argument that low taxes lead to high growth is dubious.

5. Sexy, sexy low taxes

Political Scrapbook caught this with alarming speed, but Matt Ridley's section on the evolutionary psychology of low taxes is just bizarre:

Even in an age of working women, sexual continence and gender equality, the man with the most money still gets more sexual opportunities than the man with the least money. Ask them.

So no wonder we dislike inequality. No wonder we want tax to take that money off a Vanderbilt before he grabs all the best women. . .

[Support for taxation is] at least partly plain old sexual jealousy at the root.

Interestingly, there is no mention of the fact that, as well as being a Doctor of Zoology, Matt Ridley is also the Fifth Viscount Ridley, former chairman of Northern Rock. It doesn't take a foray into dodgy evolutionary psychology to work out why he might be in favor of lower taxes.

6. The lack of blue-sky thinking

The oddest thing about the report is how staid it is. Despite all the quirks throughout, its final conclusion – lower most taxes, scrap some – manages to be almost exactly what everyone expected when the commission was announced. Where is the genuinely innovative thinking? They missed the chance to call for a carbon tax, which would necessitate far less spending combating global warming; they missed the chance to call for legalisation and taxation of drugs; they could have taken on some of the right's darlings of spending, such as defence (5.7 per cent of expenditure) or crime and punishment (4.7 per cent) in order to justify their revenue cuts; and they decided against recommending taxation of wealth or land, focusing mainly on the fairness aspects.

It's this final point that really implies that this was a report written with a conclusion already in mind from the start. Which is depressing, because a real discussion of what a tax system drawn from scratch would be like is sorely overdue.

Jesus throws out the moneylenders. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty
Show Hide image

Ignored by the media, the Liberal Democrats are experiencing a revival

The crushed Liberals are doing particularly well in areas that voted Conservative in 2015 - and Remain in 2016. 

The Liberal Democrats had another good night last night, making big gains in by-elections. They won Adeyfield West, a seat they have never held in Dacorum, with a massive swing. They were up by close to the 20 points in the Derby seat of Allestree, beating Labour into second place. And they won a seat in the Cotswolds, which borders the vacant seat of Witney.

It’s worth noting that they also went backwards in a safe Labour ward in Blackpool and a safe Conservative seat in Northamptonshire.  But the overall pattern is clear, and it’s not merely confined to last night: the Liberal Democrats are enjoying a mini-revival, particularly in the south-east.

Of course, it doesn’t appear to be making itself felt in the Liberal Democrats’ poll share. “After Corbyn's election,” my colleague George tweeted recently, “Some predicted Lib Dems would rise like Lazarus. But poll ratings still stuck at 8 per cent.” Prior to the local elections, I was pessimistic that the so-called Liberal Democrat fightback could make itself felt at a national contest, when the party would have to fight on multiple fronts.

But the local elections – the first time since 1968 when every part of the mainland United Kingdom has had a vote on outside of a general election – proved that completely wrong. They  picked up 30 seats across England, though they had something of a nightmare in Stockport, and were reduced to just one seat in the Welsh Assembly. Their woes continued in Scotland, however, where they slipped to fifth place. They were even back to the third place had those votes been replicated on a national scale.

Polling has always been somewhat unkind to the Liberal Democrats outside of election campaigns, as the party has a low profile, particularly now it has just eight MPs. What appears to be happening at local by-elections and my expectation may be repeated at a general election is that when voters are presented with the option of a Liberal Democrat at the ballot box they find the idea surprisingly appealing.

Added to that, the Liberal Democrats’ happiest hunting grounds are clearly affluent, Conservative-leaning areas that voted for Remain in the referendum. All of which makes their hopes of a good second place in Witney – and a good night in the 2017 county councils – look rather less farfetched than you might expect. 

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.