One of the briefing notes that I get from a stockbroking company has this to say:
I see from the headlines that this Government seems to be reverting to type over the treatment of fee paying schools. When times get tough, “lets put a bit of trendy legislation through attacking those nasty ‘rich’ people” in a desperate attempt to divert attention away from the state of the economy. The definition of ‘charity’ used to be ‘for the public good’; it would be difficult to find a better description of that than educating a seriously large section of the ‘public’ (even if you are Middle Class you are still part of the Public), to a much higher level then the average at absolutely no cost to the Exchequer, and with money that has already been taxed at 40%.
The definition of ‘charity’ (where Public Schools are concerned), now appears to exclusively mean ‘benefiting those in poverty’ which, were it applied universally, would put virtually every charity in existence in a bit of a quandary. The problem with this type of legislation, is that it is almost impossible to defend against because it will always be the majority ganging up on the few (remember fox hunting?), especially when the few are perceived as the privileged minority. The UK establishment seems to be doing its normal reaction to success, which is not to lambaste the failures but to drag down the achievers.
The circular refers to this story. Now, ideological purists for classical liberalism might well argue that charitable tax breaks are a problem, since they immediately beg the question of who gets to decide who is entitled to the tax break and why. Far better, of course, to get rid of the taxes in the first place and let people spend as they wish; part of the case for low, flat taxes of course is that it will remove the need for a vast stage-army of accountants, lawyers, “tax planners” and the like who earn a high living on what is essentially paper-shuffling rather than genuine wealth creation. But, but… we live in the world we have, not Galt’s Gulch. Hence the current attack on tax breaks and government interference in private schools should be seen for what it is; an attempt to further undermine any semblance of independent education in the UK.
Of course, Samizdata regulars will know that for real radicalism about education, we need to embrace the notion of removing compulsory schooling across the board, but I’ll discuss that again in the future, no doubt.
I have experience of both sides of the education system; I went to a private primary school, then a minor public school, then it wasn’t affordable any more (thanks, OPEC!) and I ended up at a pair of grimsome comprehensives. Serially, not both at the same time.
As such, I’m very aware of how much better a private education is. I’d like every child to have one, though frankly the public school I went to could have done with less of the freezing one’s bollocks off on a football pitch when one has a dexterity score of zero, thanks very much Wellingborough, I hope you’ve sold off the bastard playing fields for housing estates or something.
But I can’t for the life of me figure out why they’re charities. Any way you look at it, a public school is just a business. It provides a service to people who can pay for it. The children at mine, for instance, with the exception of the occasional misplaced chav like me, had parents with the wealth to pay for it, tax break or no tax break. What do they need a tax break for?
There’s this “they have to pay for state schooling through taxes as well” argument, but they have to pay taxes regardless. They were paying for free school milk for the poor as well back then, but they didn’t get a tax break on milk. Car drivers don’t get a tax break because they subsidise buses. And so on.
So these businesses get a tax break, because they’re supposedly providing a social service, which as all loyal Von Mises-alikes will know is rubbish because every business has some social value. And then they get the inevitable blowback- because the government has “given” them some money, they’re on the receiving end of patronage, so they’d better do as they’re bally well told.
If they give up the tax break it won’t “undermine” independent schools. It’ll make them independent. At the moment they’re rent seekers. They get no sympathy from me. If they want the tax break, they can expect to have to be part of the state project. It’s one thing or the other really. You can’t be “independent” while suckling at the teat.
And honestly, if you need a tax break to go to public school, you can’t really afford it. However great the education is, if your dad drives a vauxhall chevette and doesn’t know which fork to use, you’re better off among your own at Gasworks Road Comprehensive. Really. Not that I hated the stuck-up bastards. I’m not bitter at all. Not even a little bit.
As a parent with a child at private school (only seven more terms to pay), I would be perfectly happy to see it lose its charitable status and the related tax breaks; they are not actually worth that much and they are very expensive in terms of the administrative hoops teh school has to jump through to keep them. I am told the major problem (in this case) with losing charitable status is the change of status. A former charity cannot merely say “we are no longer a charity” and start paying tax. The charity has to be wound up and the assets distributed according to various laws, then a new business established to start carrying out the work of the former charity.
If a there was a mechanism by which a charity could simply reregister as a non charity, or even if it could simply transfer its assets to the new entity to carry on, I suspect many schools (and possibly other charities) would be taking advantge.
…and anyway while I’m at, we may as well remember that these days virtually the only people who can afford public school fees are the Oligarchy. I’m damned if I want my taxes subsidising the education of little Toynbees, Balls, Leathers and Darlings.
Revolution next thursday, assemble at 1pm, bring sandwiches.
IanB, if it makes you feel a tad better, I went to a state comp. and I felt that it did me good. The girls were much better looking than at the private schools, usually.
Not my experience of the schools my daughters attend. I doubt it makes me a better person, but I will admit there have been occasions when I have been watching a school event or looking around the room while waiting for the next free teacher at parents’ evening when I have caught myself thinking impure thoughts about their classmates. They compare more than favourably with the girls from the local state schools I see when I take the bus through town at the end of their school day*.
* I recommend this as a way of getting a view of local schools; take the same bus as the pupils and eavesdrop on their conversations. You will learn more than any number of offsted reports can tell.
Can we please STOP with this nonsense that private schools are “sucking at the teat”. This is the kind of sh*t that Toynbee would try and get us all to swallow.
Private schools are NOT being funded out of taxation. They are simply not paying tax on profit – a COMPLETELY different situation, and one that ought not to have to be rehearsed in these august surroundings.
Further, any profit they do make – and many are struggling to do just that – is not paid out to shareholders but reinvested either in capital projects or – pause to let Toynbee’s head explode – in bursary funds.
Finally, if you want to play the rent seeker line, you must also discount for the fact that every child educated – like ACTUALLY educated, rather than simply incarcerated – privately is a substantial net benefit to the taxpaying public, as they are not using a place in the state system.
IanB: you’ve had a run of smashing and deserving SQOTDs, but this current line of yours does you no credit at all.
Cleanthes-
If Business A gets a tax break and Business B doesn’t, you can either look at it as Business A getting a benefit or Business B being disadvantaged. Depends where you draw your datum. A tax break is a subsidy compared to those who don’t get that tax break.
The whole point of rent seeking is that the seekers will justify their subsidy as e.g. a “net benefit to the community”. Just as a manufacturer might say “giving me a subsidy will keep my factory open and prevent unemployment in this town”. Same thing. These schools are using their charitable status to reduce their operating costs.
Sorry, they’re getting a break. They’re not doing anything any more charitable than any other business. If they were educating poor orphans and waifs, yes, that’d be a reasonably defined charitable act. If they operated on voluntary donations from the general public, rather than charging specific fees to customers, that’d be charitable. But they don’t do that. They charge a specific fee to specific customers for a specific service. It’s a strange world indeed where one defines charity as “taking a bit of the burden off the taxpayer”!
This is one of the central issues that dogs economic libertarianism. Too many people want to keep their slice of the pie, and will use the same arguments to defend it, which always boil down to the same selfish manipulations of collectivism.
They provide a great product. They should run as straightforward businesses. Besides all else, that’d incentivise them to expand their businesses. I’d like to see the private sector expand. Giving them a sound business footing on which to do that would be a good start.
Huh? It is a strange way of thinking which would lead one to say it is wrong to prevent or lessen a theft (tax), unless it applies equally to everyone. I like tax breaks. Of course, I would like them more if they could be applied to everyone, but I will take them wherever.
I do agree, however, that it is silly to call them a charity.
Ian B,
But in this case Business A is the privately funded schools and Business B is the government’s schools. So B is actually getting a subsidy. But if all other factors were equal, I would agree with you. In this case, charging parents twice to educate their children once is double taxation. Remember, the parents still pay income etc taxes on the cost of private schools.
I had a state education but I now work as a teacher at a private school. I don’t much care about charitable status. I want to make a different point.
My school has been around for about a quarter of a century. It has survived quite well over that period and is expanding. What is remarkable in this thread is the distinct lack of perception of the elephant in the room. For any business to flourish in this country it has to be very good at what it does. For a private school to flourish it has to do a lot better than most other kinds of business. Private schools are not competing against other businesses. We compete against “free” state schools. Our customers pay twice as Midwesterner pointed out. So if our customers pay for a service they don’t consume what does that make them?
‘It’s a strange world indeed where one defines charity as “taking a bit of the burden off the taxpayer”!’
Ironically, that is actually a new definition of charity today. This same government that pursues these schools has a major habit of creating lots of charitable companies themselves to provide statutory services locally (like leisure centers for example). These charities then get to rely on grants and donations (even fees!) besides receiving grants from government. But if these services were being provided by local government beforehand, how exactly is this charitable? Well it is using charitable money to replace statutory funds, i.e. “saving” taxpayer money!
Actually Ian, there is a great deal of common ground between us. In particular:
“They provide a great product. They should run as straightforward businesses. Besides all else, that’d incentivise them to expand their businesses. I’d like to see the private sector expand. Giving them a sound business footing on which to do that would be a good start.”
I absolutely agree. The first thing to do to put them on a sound business footing is to remove the massive subsidy to state schools.
As for rent-seeking a subsidy, you are still talking complete shite. No funds go from the taxpayer to these schools. None. Zero. There is no subsidy.
A manufacturer asking for a subsidy to prevent them shutting up shop and taking their operation offshore is actually expecting cash to appear. That’s a subsidy.
When tax rates are reduced for higher earners, they are NOT being subsidised by every one else. It is Toynbee-ist nonsense to suggest that they are.
“can either look at it as Business A getting a benefit or Business B being disadvantaged.”
Possibly. At a stretch. But what you can’t say is that B is subsidising A. Particularly, as noted above, when B’s ENTIRE revenue, not just an insignificant portion, comes from the source that you are complaining about A receiving.
…..and?
Those who don’t take advantage of a break, if offered & the strings are bearable, would be foolish not to avail themselves of ‘free'( other people’s) money. A good part of the bloody population, wonderfully expanded by really alien immigrants, does it one way or another with bogus ‘social’ claims… and I’m amazed at the number of ‘disabled’, glued to the taxpayer’s teat.
What is wrong is the system & the idiots who devised it.
Midwesterner said-
No, Business B is any other business that pays taxes. With all due respect I think some of you have misunderstood what I’m saying and maybe need to brush up on public choice theory, rent seeking etc. Look at it as market sectors. Cake manufacturers pay VAT. Biscuit manufacturers don’t. Either cake manufacturers are being penalised, or biscuit manufacturers are being advantaged (subsidised). Take your pick. Since the default position in our society is that businesses pay taxes, those who don’t ae being subsidised compared to the norm.
Anyone who isn’t availing themself of a public service is paying twice. The person who buys private sector condoms instead of using free NHS ones is paying twice. Where’s their tax break? The person who buys or rents housing privately rather than obtaining housing benefit is paying twice. Where’s their tax break? Shouldn’t private landlords be counted as “taking the burden off the taxpayer” and be charities and tax free as a consequence? Are not their tenants paying twice, once for their own property and once through taxes for housing benefit for others? And so on. The “paying twice” argument applies to anyone not on welfare. People advocating tax breaks for private sector schooling are merely applying this to one sector of the welfare state, the welfare schooling sector, without applying it to others. And they’re doing that, I suggest, for entirely selfish reasons.
Permanentexpat sums it up succinctly-
This is precisely the problem with statism that public choice theory demonstrates. In a patronage based economy, it’s more rational for businesses to compete for government handouts than in the marketplace. They can do this as individual businesses, but more likely as sectors organised as cartels. “Give us a subsidy for the good of society” is the general argument.
Not only does it harm the economy, further enmeshing business with government, it also creates those “strings” which will invariably become unbearable. This is where private schools now are; their strings are going to gradually destroy the whole point of their existence. They’ll have less and less freedom to create a distinctive and worthwhile product. They become just another arm of government. This is inevitable. You never get something from the government for nothing in return. If you’re on the receiving end of patronage, expect to become the creature of your patron.
To address it again, in replying to Lee’s comment-
Depends how you look at it. The government is a voracious taker of taxes. If one sector successfully lobbies to reduce taxes on themselves, that can only come at the cost of some other sector paying more. You can’t lessen the theft that way, you can only redistribute it. Take VAT exemption again. Those market sectors who successfully make themselves zero-rated (and again who usually do so by classic rent-seeker “public good” arguments) do so at the expense of all the other market sectors who have to pay it. They don’t reduce the national tax burden. Governments decide how much to steal, and then distribute that theft at their whim. So he who gets himself tax exempted doesn’t lessen a theft, they transfer it to somebody else, whose taxes will rise. There is no “lessening of theft”. If you seek lower taxes, they must indeed be lowered across the board, and the result would be a lowering of public sector revenues. Rent seeking doesn’t achieve that; indeed it ultimately raises the total tax take, as history shows.
It’s a canard to see this as competition between private schools and state schools. It’s competition between the private school sector and all other private business.
Ian B,
Sure, if the tax burden is simply redistributed then little is gained from a tax break. However, I very much doubt that this occurs every time, and even if it eventually does occur, I suspect that it will at least have the effect of slowing the growth of government. I can think of much to complain about tax breaks (mostly that they call “not stealing from you so much” by the Orwellian euphemism “giving you a break”, I mean give me a break!). Nonetheless, tax breaks seem considerably better than most of what the state gets up to. In fact, they come incredibly close to doing something right for a change.
I would, however, note that tax rates are not the same as tax revenues. In a nation with a 100% tax rate, there would be very little tax revenue, since there would be few incentives to work, at least outside of a black market. Likewise, a lower tax rate can stimulate higher tax revenues, because there is far more productive work to tax. This will act as an important feedback mechanism to limit state expansion, supposing that we retain minimal rights and those who the state must buy off remain a large group.
I couldn’t disagree more. We know that the government works by deciding how much it wants, then just taking that money. If they give a tax cut in one place, it’s balanced by a tax rise somewhere else. It does occur “every time”.
No, they just make matters worse, and do so consistently. They encourage the atomisation of society into mobs of rent seekers, they make the tax burden more uneven and more unfair. They provide an illusion that the tax burden is less unpleasant than it really is, by targetting taxes onto “unpopular groups”. You cut taxes on baby food, and make it up taxing “fat cats” or drinkers or smokers or hamburger eaters. It encourages governments to demonise groups they wish to steal from; often groups who are economically productive at the expense of those who are less so or just plain economically unproductive and only survive by the said tax breaks, such as inefficient industries.
Law of unintended consequences kicks in and it doesn’t actually end up working that way. If you look at the UK, the tax burden as a percentage of GDP is now its highest ever despite the growth of GDP. If your assertion were true, it should be falling; GDP increase should be outstripping tax revenues.
It doesn’t work because if people become wealthier, the government just seem them as more taxable. If everybody’s on the breadline, it’s hard to tax them. If they’re far above that, the government sees that as more “spare money” to steal. So under a statist sysem, a tax cut is temporary. It stimulates the economy, there’s more money in society, and in the next half of the tax cycle the government just steals a higher percentage of it.
Statists look at “needs”. They have a mental model of how much people “need” to keep; and anything they earn above that is seen as a kind of luxury, so you can just tax it at random. Taxes will thus rise as a proportion of GDP, as well as in absolute revenue terms.
Under statism, there’s no such thing as a tax cut; just a redistribution of the theft from enemies to friends.
If you’re going to have taxes, fine, but the primary methodology must be that they’re spread equally, without favour. Anything else just makes matters worse.
The other point worth mentioning here is that when business lobbies itself successfully into bed with government, it tends to create protected, heavily regulated cartels with high barriers against new entrants into the marketplace*. That’s bad for everybody.
*The regulatory burden will be high which discriminates against small startups, but which the cartel members can afford because of the state patronage and their already larger sized businesses. There may be stringent certification requirements for entry to the cartel which are again difficult for new businesses to satisfy. The regulation limits diversity between products in terms of quality and price, such that new entrants cannot offer a distinctive enough product at a lower price to get an “edge”. Profits may be statutorily limited, or there may even be a requirement for non-profit status. Etc.
Sorry to comment again.
Just wondering if any of the people with sprogs at private school could give a ballpark idea of what prices per term or year are these days? A while back I tried to find an answer to this purely out of interest but my Google let me down.
Apologies, but I tend to get confused by the British use of the terms “public” and “private” when applied to schools, since it seems to be the opposite of US usage. (Over here, “public” schools are those run by the government and funded with taxes, and “private” ones are non-governmental and charge the attendees tuition.) Nonetheless, I completely understand the thrust of this discussion and, to a certain extent, I think we are conflating two different issues.
One issue is the appropriateness of non-government schools being classified as tax-exempt charities; the other is whether persons who send their children to those non-government schools (thus sparing the government schools the expense of educating, or at least incarcerating, their children) should be somehow subsidized in their choice so they aren’t “paying twice”. Ian B has adequately addressed the second issue with his observation that “anyone not on welfare” is paying twice for many things; why should schooling be different? I think the first point is the more interesting one.
My opinion is that if we are to have taxes (income taxes, property taxes, sales taxes, etc.) no enterprise, of any sort, should be exempt from them. Yes, this means that churches should be taxed on their tithes; universities should pay property taxes on their immense landholdings; and the Red Cross and other public charities should pay income taxes on their contributions. As Ian has noted, exempting from tax one class of persons must ultimately result in increased taxes for all others not so classified. This observation is even more apt when applied to these “fictitious persons” (which is how the law views corporations, trusts, and similar non-corporeal entities). More importantly, the existence of “tax-exempt” status creates a panoply of problems: it is an invitation to governmental mischief (in setting the rules for who is so advantaged and who is not); it is wildly distortive from an economic perspective (giving financial benefits to some entities but not to certain of its competitors, irrationally favoring the contribution of appreciated property, etc.); and it creates all sorts of economic waste as the “charities” contort themselves to maintain their privileged status (such as by creating “for-profit” subsidiaries). Any entity which truly wanted to operate on a not-for-profit basis would simply ensure that substantially all of its revenues were expended each year (presumably on “good works”, but in in the absence of the distortions created by tax-exemption that wouldn’t really matter). And the resulting expansion of the tax base would result in lower marginal tax rates for all. I am aware of no rational economic justification for the existence of tax-exempt status.
Not truly a libertarian nirvanah, I’ll grant you, but much closer to one.
Ian B,
This time you are wrong. Saying that a private school is “competing with all other private businesses” is just false. It is competing with government. If is very important to keep that point in mind.
Schools that are tax exempt are not competing with schools that pay taxes. They are competing with schools that are ‘free’. Their taxes are the huge hunk taken from their income in order to compete with the government. This money is taken from them by force.*
JFTR, I do oppose selective tax ‘incentives’ within industries as a means of social engineering or any other form of government controlled favoritism. But allowing government to use the tax hammer to further pound on the few struggling alternatives to the government indoctrination mills can only help government to consolidate its power.
I’ve got an example right in my town from the field of education. It is exactly the case we are talking about. About a hundred years ago, the state of Wisconsin decided to expand the university system to every corner of the state. With taxpayer dollars of course.
They were held back by depressions and wars up until the mid to late fifties at which point they cut loose and really went all out to expand and use taxpayer money to fund students’ educations. They put virtually every private college in the state except for a few heinously expensive rich kids schools and a very few religious schools out of business. In my town there was a more or less secular college founded in the 1800s by a protestant denomination. For almost 150 years it taught students. Competition with tax subsidized state education put it out of business. It struggled and struggled to compete against taxpayer subsidized education but eventually it failed and went bankrupt.
Nobody thought it at the time, but in hindsight, I am convinced that bankrupting affordable colleges was a thoughtful long term plan. The destruction of private education was necessary in order to insure that the great majority of those who attended college (and became leaders) received a populist, socialist indoctrination. Even tax breaks are not enough when you are competing with tax payer subsidies.
[* farmers trying to resist government control of agriculture face a similar tactic but that is not what this thread is about.]
That’s not what I’m talking about. I’m talking about competition within the rent seeking market. They get their tax break at the cost of other businesses paying higher taxes.
So we’re discussing two different things here.
MW-
Regarding the Wisconsin Idea, I’d presume that most libertarians would recognise that as a power grab by progressives; it’s an archetype of the form. You say-
I think this is a fundamental and widespread mischaracterisation. I’ve stated several times in this place, and it’s a fundamental core belief of mine, that the best way to understand the statism of the 20th century is as an orchestrated power grab by technocrats. It was the university itself that decided to expand itself with state money (using as ever, the “public good” argument to leverage state funding). From that wiki article for instance-
“Students, faculty and staff are motivated by a tradition known as the Wisconsin Idea, first started by UW President Charles Van Hise in 1904, when he declared that he would “never be content until the beneficent influence of the university [is] available to every home in the state.”
I think many people see the educational/academic/scientific tribe as kind of “dragged along” by statists, or that they’ve been corrupted by state largesse. It’s certainly the way I once saw it, being a rather pro-science and education kinda guy. But that’s not true, I think. The historical record shows instead that these ideas fermented in and spread from the universities, medical schools and so on- and still do. In that sense, the governments are more the junior partners. It was state sponsored academics who wanted and want to destroy private sector education.
I think that’s very important to bear in mind when considering who “the enemy” really is. If statism is to be stopped, at some point we’re going to have to turn our fire on the incubators of it, who currently hide away from criticism in the sacred Groves Of Academe.
Ian,
There are many ways for the government to steal from you. Taxes are the most obvious and least devious. You need to say with dollars and cents (er, better make that UK money) exactly how the school gains an unfair advantage on the grocer or the car dealer.
The school has less income available to compete on rent, materials, or anything else. Name one area in which they have an unfair advantage. And it is not enough to say they are not paying taxes, I say they are in the form of money extracted from them against their will that acts as a tax taken from the free markets natural price.
We each need to give details exactly what the financial advantage or disadvantage is. I already have but will elaborate if I have been unclear. Now you need to tell me how these schools are getting more cash by not paying direct taxes, only disguised indirect transfers in the for of artificially lowered prices. Something the grocer and the car dealer do not face.
If you want to make it ‘fair’, then when you initiate taxes against the schools, you must at the same time set up ‘free’ food stalls to drive down the grocer’s income and ‘free’ car giveaways to drive down the car dealers income. That will be far, but frankly I think the government might take that idea all to seriously in the name of ‘fairness’.
BTW, have you ever had to compete with government subsidies? I have. I couldn’t. I had to take them or lose my business. I almost did. See MarkE’s comment at 10:13. The government destroys these things deliberately and you’re not seeing the wonderfully devious ways they do it.
I don’t want to see the last best alternative to state indoctrination fail because of a surreptitious tax.
Regarding where the enemy incubated and hatched from, you could be and probably are right. But at this point that is moot. They have thorough infested government, and it is the government that holds the gun on us.
They have expanded their incubation chambers down all the way nursery schools now. Anything that helps to defeat or at least provide some alternative places for children to be educated for parents who know, care, and can afford them is better than nothing.
I’m heading to bed soon. You really must work all night. The joys of owning your business.
That makes no sense at all, MW. If the state were handing out free food and cars then that would be a real problem for grocers and car dealers. It would be communism, and no private sector can survive that. But that demand you made doesn’t make sense anyway. We’re not talking about education being a free stall to drive down private schools’ income (although that is probably its political objective, yes).
We’re talking about whether some businesses should be tax exempt on “social” grounds. I’ve written a great deal explaining my view on why they shouldn’t. I’d also like to see compulsory education abolished and ultimately welfare schooling abolished too. But the thread says we must work withing what is currently the situation, so I am.
All your arguments, and all those from the people arguing against me are, so far as I can see, a demand for special treatment for a particular business sector because you happen to like it. Well you’re entitled to that view, but however you present it you’re asking for other people to pay for it, and using the usual rent seekers’ “social good” argument to justify it. You’re doing the “I’m a libertarian except for this thing I’m in favour of” thing. And in so doing, you’re supporting the inevitable degradation of the very thing you support, by demanding it receive government patronage and thus become a de facto arm of government; which is precisely what we see happening now with government demands on the private schools regarding what products they supply and to whom.
You can’t have it both ways, however much you may want it both ways.
Supposed to be in the form etc.
I don’t think anything at all should be done on social grounds. Preserving private schools is a matter of our survival. My sister home schooled all of her children. Believe me, it is a huge financial burden for a family to pay for the education of two families. And that is exactly what they are doing and that is what private schools are up against.
But it is. The private school is directly in competition with a ‘free’ government school down the street. It is communism.
And no, I don’t think it should have special treatment because “I like it”, but because there is a government communist alternative paid for with tax money that is stealing its business. Any business that is in competition with a communist government program should be tax free if we can manage it.
There is also a bit of something else in my stand. When I first started hanging out here, I was a lot closer to your position. But months and years here and Perry and others have moved me a lot closer to the fisherman’s principle. All though I’ve never heard it called that. Mainly it is hang on to everything you got and try not to give any more away. If a liberty is being torn away from us, fight it has hard as we can without breaking. Reel in whenever and wherever you can. I’m not quite to that extreme, and I will make tactical exceptions, but I am definitely moving that direction.
And it will then inevitably become the creature of government. Your tax break achieves the opposite of your intention!
I think that’s a fundamentally broken idea. You can’t “reel it in”. You might think you’ve “won” in one area (e.g. abolition of exchange controls was something Perry presented to me as a “win”) but meanwhile a whole shoal of other stuff is rushing past you. Worst of all, you’ll end up aiding statism by streamlining it and making bits of it work, which was all that Thatcher really achieved. You’ll never be in any better position than a Roman pagan hoping the Christians will let you keep your shrine open for now. The tide will always be against you.
When Perry took me to task about my “Gabbian” view that we’ve entirely lost, it struck me that this fisherman view as you describe it sees statism as a cluster of individual policies which you take on one at at time, you win some you lose some. I think that’s fundamentally wrong. Statism is a coherent ideology and a trajectory. You have to see it as a coherent whole and seek strategies to oppose that wholeness. There may be no strategies. In that case we’ve lost. But the one certainty is that “fishing” won’t achieve anything in the long run. We’re a less free society than we were 10 years ago, and then we were less free than 10 years before that, and so on. Statism is a bit like the internets is supposed to be. It just routes around interruptions.
Or perhaps a better analogy is it’s like quicksand. Every time you think you’ve “won” (with a tax break, say), you’ll eventually find you were just dragged in deeper all along.
You haven’t got anything, except that which has not yet been taken away.
The state does not act without constraint, neither does it “decide” anything like a free agent. I am confident that much of what the state does is not intended by anyone, but rather, is the emergent consequence of institutional incentives and millions of individual decisions, each guided by different motivations and circumstances. In fact, I also tend to believe that many, if not most, politicians and bureaucrats simply do not understand what they are doing, and how parasitic their relationship to society is.
There are many politicians and bureaucrats, I think, that honestly push for lower taxes and liberty, within the constraining incentives which they face, though their efforts are thwarted by the institutional incentives of the state, which forever work to undo the work of such people.
I am sure that you are correct, that most tax “breaks” to one economic sector are reflected by tax hikes in another. However, given the incompetent, disorganised and ineffecient character of much of government, I suspect that they are not always so quick to act and coordinate these decisions. It is quite probable, to my way of thinking, that some politicians and bureaucrats try to lower taxes, perhaps securing a tax break from some business. This results in a temporary lowering of taxes, but also shifts the incentives so that some other politician of bureaucrat will eventually raise taxes somewhere else.
The way that you depict the process is that of a scheming politician carefully balancing each decision to his advatage, who promises and applies tax “breaks” with the intent that tax hikes will hit somewhere else. Perhaps this is not your intent, but it is the way your posts come across sometimes.
Ian, this is the difference. If a company is productive because it enjoys tax “breaks”, then unless these tax “breaks” are accompanied by a corresponding tax hike for another economic sector, then they are not productive at the expense of anyone. It is even somewhat misleading to call this preferential treatment a form of rent-seeking, because it involves demanding less rent. If this was the only method of “rent seeking” which politicians had at their disposal then the world would be a much more pleasent place.
I agree that it has a similar effect of ghettoising communities, but then I didn’t say that tax “breaks” were wonderful, but only that they were one of the better things which the state might do, and come dangerously close to doing something right. I am hardly inclined to get too wound up about someone being awarded a tax “break” unless it is accompanied by a tax rise somewhere else, which I doubt always happens quite as smoothly and intentionally as you depict.
That is an interesting fact, but doesn’t contradict what I said, because I didn’t propose any particular values. I simply meant that there will be some tipping point, and it will act as a constraint.
Ian, this is inconsistent with basic economic principles. If the state confiscates everything above what people “need”, then people will have no incentive to be productive beyond that which provides for their “needs”, since they will not enjoy any of the extra productivity. The state is constrained here, unless it actually turns totalitarian and resorts to the whip to make people productive.
I agree with that, but there are also worse things that tax “breaks”.
Tax breaks are a danger for the reasons given above and for the danger that the “givers” of the “break” will demand that conditions apply; I’d urge any self-respecting managers of a private school to turn the tax breaks down and protect their independence.
The smartest schools will not suffer, and I doubt that the removal of the tax break will kill the sector; it is clearly a spiteful move by a government that is desperately trying to curry favour with the left while it enters its death-throes.
It’s intended to come across that way because that’s what happens. Ministers make a shopping list, then go shopping with other peoples’ money. They decide what to buy (5 billion more for the NHS, say) then ferret around figuring who they can take it off. That’s how it works.
In case you haven’t guessed, I don’t see them as mere incompetents (though they are incompetent as well). They are actively malign, and know precisely what they are doing. They genuinely hate vast swathes of society, and see them as nothing more than prey. They hate the rich (other than themselves of course) and they hate the poor. They use monies stolen from the rich to aggress against the poor. There are no words in my vocabulary sufficiently purple to describe my feelings regarding this.
With all due respect I’m not sure you’re fully conversant with rent seeking as a concept. A rent is a transfer of money. Rent seeking as defined in public choice theory occurs when one agent seeks a rent forcibly imposed by the government to help themself at the expense of the rest of the economy.
So, it depends where you draw your datum. We start with a presumption in the statist economy of everybody paying tax- say 20%. Now let’s say rude cartoonists lobby for zero tax on rude cartoon businesses. The government agrees. Now we have an advantage over other sectors of the economy who are paying the full whack. Their businesses suffer, while mine prospers. I have transferred money from them to me- I now have more money, it must have come from somewhere! The answer is, it’s come from the tax burden on the other businesses in the economy. I have sought, and acquired, rent from them.
It always is. It may not be apparent where from, but that doesn’t mean it’s not so. This is what chancellors do at budget time.
I didn’t say they take all of what they see as your surplus money (though Labour did pretty much in the 1970s with their infamous 98% tax band). They take some proportion of it. They perform a balancing act of taking as much as they can, while trying to keep just below the figure that will make too many people vote for the Other Party. As we get wealthier despite their best efforts, the proportion they can steal rises- which is why government spending inflates faster than the economy itself.
I said-
Lee, I just read back through what I posted (yes, I’m that sad) and really regret the above sentence, it’s rather rude. Please accept my humble apologies. I said that because it seems you see a rent as money taken by the government, whereas AIUI in terms of “rent seeking” it’s money transferred between actors in the economy by government patronage. But I didn’t mean to imply I’m some kind of expert, because I ain’t. 🙂
Ian B,
I utterly disagree with your claim that untaxed companies competing with a free government handout have an unfair advantage over companies that do not face competition from a ‘free’ government product. That claim is utterly flawed. The only way it could even be a tie is if the taxed companies were taxed at 100% of gross (pre-expense) income. It is only the appalling awfulness of the government’s education product that allows private schools to exist at all.
However I agree with what I think is the underlying principle you are defending. Mostly because it is principled and not pragmatic. I am always more comfortable with principles.
You are right about tax breaks being a noose around the recipients neck. I’ve had my neck in that noose and payed dearly when the rope got yanked by a bureaucracy. I’ve discussed this big government tactic elsewhere but much of it may have been before you arrived here.
It is a matter of principle that when we are all under attack, each of us may choose our own plan of defense. I don’t think our individual methods of defending ourselves against government takeover should be collectivized anymore than anything else should. When under attack by government giveaways, if a person decides that the noose (regulation) is better than the firing squad (bankruptcy), it is not for me to overrule their choice. As long as they are not using government to take an advantage over free market competitors. And clearly when the competitor is a ‘free’ government handout (free education) I want the government alternatives to take every advantage they can and to fight their battles as wisely as they can.
re Rent seeking, as a matter of logic, when the government operated competition is giving a subsidized product away for free (education) it is not possible to rent seek via tax breaks. The only way to rent seek in competition with a tax funded ‘free’ product is to seek a subsidy. And I am 100% with you in opposition to that. But remember, tax breaks may be weapons in otherwise competitive markets, but tax breaks are never ‘subsidies’. We must fight hard to squash that meme as it means that our property really belongs to society. If the government ever starts using tax dollars to fund a distribute rude cartoons for free, then the rude cartoon industry should be tax exempted or it will be facing an extreme competitive disadvantage compared to its present tax paying status that is not competing with a government giveaway.
Big government tacticians give away tax payer funded products for the express purpose of destroying the private sector. And it works.
My argument is entirely pragmatic, to whit “If you join the system you oppose, you become part of the system you oppose”. This is precisely what we are seeing.
There’s also the question of whether public schools are in competition with state schools. At first sight, it seems obvious that they are. But. If two suppliers are competitors, that implies that they are offering the same product. Are state schools and public schools offering the same product at different prices? One can forcefully argue that people choose public schools precisely because they offer various things- beyond “quality of teaching”- which are not, and cannot be, offered by state schools. That’s an important factor to be taken into consideration- not least because government regulation (justified by patronage) will force them to discard those very product features.