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Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]

Samizdata quote of the day

When David Cameron used his speech to Conservative party conference to announce that he wants to increase income tax thresholds there was uproar from his critics on the left. How dare the Prime Minister promise a tax cut when the UK is still running a giant deficit and adding to the debt burden with each passing day?

The UK Treasury’s ‘Ready Reckoner’ estimates that the changes to the higher rate of tax and an increase in the personal allowance would “cost” £7 billion. Officials have been briefing that they have concerns about whether the threshold changes are “affordable.”

But this is nonsense, pure and simple. A hike in the thresholds doesn’t cost a penny – it just means politicians have less of our money to spend. So you can either cut back, or you can borrow; we’ve tried the latter, and we’ve now got a £1.45 trillion debt pile to deal with whilst paying more in debt interest every year than the country spends on defence. I’d counsel, therefore, that the former is a rather better option.

Indeed the very concept of tax cuts costing anything at all implies that all the money in the economy belongs to the government, and that which it deigns to allow us to keep is some sort of present from a Chancellor who once a year puts on a jaunty Santa hat to hand out alms to the masses.

Johnathan Isaby

15 comments to Samizdata quote of the day

  • Paul Marks

    Agreed – the idea that “we must not cut taxes it will expand the deficit” is nonsense.

    The problem is the level of GOVERNMENT SPENDING.

    As for the leftist reply “you rich types are in favour of cutting the Welfare State – but say nothing about the welfare for bankers”.

    I am not rich – I am dirt poor.

    And I denounced the banker bailouts. And I have been a foe of credit bubble banking (rather than being a money lender of REAL SAVINGS) for more than 30 years.

    One of the reasons I am where I am is that (both in politics and in commercial life) I have always been open about my beliefs – and although I hate my life, I do not regret being open about what I believe.

    Because what I believe is the truth.

  • Richard Thomas

    Yes but

    Governments are incapable of reducing spending. The “austerity measures” have been a joke and have (rightfully) been very damaging to the image of the Tories. Even Thatcher was only able to slow the growth of government.

    The simple truth is that reduced spending must come first (if ever). You probably don’t even need tax cuts then. If there’s a surplus, the government can pay off the debt and then throw the rest in a big hole in the ground. As Paul Marks states, it’s the spending at issue, the miss-allocation of resources and labour. Everything else mostly amounts to moving numbers around on a spreadsheet. (Though inflation robs from the poor and middle classes to give to the rich)

  • Mark

    This reminds me of Ludwig von Mises talking of opposition to loopholes as though a persons income rightfully belongs to the state and the loophole is a fault in the tax system that allows someone to keep more revenue than they should.

  • Mr Ecks

    With BluLabour on the job it will be a scam because that is all they are capable of. If this had been announced AFTER the 2015 election (assuming they won) it might have some validity. As it—another electioneering con.

  • bloke in spain

    S’pose the question is: “Can THEY afford you to keep your own money?” In which case, the answer’s probably “No!”
    But they don’t regard it as your money, anyway. You’re just using it with their reluctant acquiescence.

  • Lee Moore

    Governments are incapable of reducing spending.

    Mostly. But government spending, and taxation, collapses to almost nothing in a hyperinflation – which is the phase after unsustainable deficits. You obviously need to watch out for rioting mobs, straightforward confiscation of property, Bolshevik revolutions and suchlike, but arithmetic eventually bubbles back to the surface.

  • pete

    It is sensible to take stop taking tax cash from the lowest paid.

    I know a few people who are paid a pitifully small wage by their high street catalogue shop employer.

    They still pay some tax, but they also get benefits from the state so they and their children don’t starve.

    There’s a lot of bureaucracy involved in taking money of these people and giving it back to them.

  • Jeff Evans

    Well, it’s all about the language of public service PR men, and lazy journalism that doesn’t bother (or doesn’t want) to examine what is really going on. Like “Bedroom Tax”.

  • Pete,
    Indeed there is, and I’ve long suspected that to be the point. We are governed by bureaucrats after all, and as many people have observed the primary motivation of bureaucrats is to manufacture work for bureaucrats.

  • Regional

    It takes a large bureaucracy to rape the economy to provide largesse to the victims of politicians’ incompetence.
    There’re a lot of people in Parliament who don’t have the intellectual ability for the job and their pride and arrogance is proportional to their ability to fuck things up i.e. Gordon Brown, Tony Blair.
    This has always been the case worldwide i.e. If you can’t get a job and live on your own wits, become a politician.

  • Rational Plan

    But the governments spending reduction is on target, they have made the cuts.
    People can argue that the cuts should have been steeper and quicker than they have been, if just to avoid weariness on the electorates behalf over how long it’s all taking, but their are arguments about the effect of too big a cut in spending would have resulted in.

    The problem in the UK is that there has been not been any big growth in tax receipts. The problem it seems is that while we’ve had strong employment growth, it’s all been low wage stuff, where tax receipts are thin on the ground. Someone on £14,000 a year will only pay a quarter the taxes of someone on £28,000. With wages easy to push down in this time period and firms wary of capital spending. Firms are naturally going the low productivity route.

    But until productivity increases wages won’t rise. Over time I think this will right itself quicker than people expect. Their are signs, at last, of greater business investment, and at some point wages will begin to rise again, at such point tax receipts will finally flow in.

    In the end it’s hard to prove alternatives would have been better, we are where we are and I doubt George thought pushing cuts too hard would be an easy sell. It takes the Germans from the Eurobank marching into your treasury telling you what to do, for places such as Ireland making across board pay cuts for public sector workers.

  • Tedd

    Agreed – the idea that “we must not cut taxes it will expand the deficit” is nonsense.

    It’s not nonsense, it’s simply looking at the problem from the perspective of practical experience and realistic expectations. Yes, in theory the government could reduce spending commensurate with reduced tax revenue. But in practice that virtually never happens. So, when considering a proposed policy of tax reduction by an actual, real-life politician, it’s an entirely legitimate objection to say, “This is going to increase the deficit.”

    And, yes, I’m ignoring the possibility that lower tax rates could result in higher tax revenue. Separate discussion.

  • Laird

    “But the governments spending reduction is on target, they have made the cuts.”

    I claim no great expertise in the UK’s finances, but as I understand it actual spending has not been cut; it is only the rate of spending increases which has been reduced. Only politicians and the willfully ignorant would consider that to be true “cuts”.

    The key issue (from a purely fiscal perspective) is whether the tax cuts are targeted in such a way as to actually stimulate economic growth and thus result in more tax revenue. Tax cuts at the lowest brackets and other devices to stimulate consumer spending do not satisfy that test (orthodox Keynesian doctrine notwithstanding); only cuts directed at supply do. Unfortunately it is precisely those consumer-oriented cuts which Cameron is talking about.

    But it probably doesn’t matter anyway. Frankly, in this era of deficits as far as the eye can see, when clearly insolvent countries with unsustainable deficits and can still place their unpayable debt in the oblivious capital markets (Italy is now one notch above “junk” grade but its 10-year bonds are trading at a 1.93% yield!), it probably makes sense for a country such as Great Britain (or, for the matter, the United States) to continue running up deficits. Let your people keep their money; we can all enjoy the party while it lasts (which cannot be forever). Hell, drop the tax rates to zero; at this point, what difference does it make?*

    * No apologies to Hillary Clinton.

  • CaptDMO

    “But this is nonsense, pure and simple. A hike in the thresholds doesn’t cost a penny…”
    Sure it does.
    If the folks who get “free stuff” from the folks who it’s extorted from stop getting any, the “fairness” riots will cost buckets of cash to those who might care to rebuild for the folks who ACTUALLY live in the designated “activism” arenas.
    And those “Civil” court cases, and Civil Wars, “announced” to be concerning “fairness” and “unity”, don’t come cheap you know!