Wednesday, April 22, 2009

One Day in the Life of a UK Tax Serf

Jack Maturin, Yesterday

So what do you do to get away from having to look at Gordon Brown's fat corrupt face?

Obviously, you go down to the gym to hit the treadmill, iPod in hand.

So what's that up on the huge gym screen staring down at you, just over your treadmill? Yes, it's Gordon Brown's fat corrupt face on Sky News Live, his mouth hanging open in that bizarre way as he listens to his Darling puppet read out his prepared lines in the Budget, a.k.a. the Mafia's exposition of how much it is going to rob from you this year.


Oh well, I had my revenge. I listened to a splendid talk by Tom Di Lorenzo instead, on the socialist recipe of how to create a Great Depression. While listening to this, and watching the mute Darling puppet, I read the Sky headlines as they scrolled by about higher taxes for people with good accountants who will avoid them, thereby breaking a manifesto pledge, and higher taxes for everyone else on fuel, alcohol, and tobacco. Except of course for all 'public sector' people, and all other tax eaters, none of whom pay any kinds of tax on anything at all.

And some footling loose-change nonsense about 'the environment'.

Funnily enough, everything Professor Di Lorenzo said you should do to create a Great Depression was included in these Sky highlights covering the main points from Darling's speech! Remarkable.

No doubt those few genuinely wealthy people who are actually affected by the new 50% tax rate will up sticks and leave the UK, taking their wealth, ingenuity, and industry with them, as Professor Di Lorenzo predicts, but so long as the tax eater muppets in the Labour heartlands have their envious urges fulfilled, 'So What?', as Ed Balls might say.

As I approached my third mile, I did succumb to the temptation to listen to Cameron's response, and I thought it was quite good, as these things go, with some nice digs at Gordon, almost entirely ignoring Darling - which is quite reasonable, seeing as Darling will have only been handed his speech five minutes before he delivered it.

Apparently, there's going to be economic growth of something like 3.5% per annum, in two year's time, which will mean the UK government 'only' having to borrow £160 billion.

But as Jeff Randall said on Sky News, when the chancellor predicted a 1% contraction this year, only six months ago, to then announce a contraction figure of 3.5% today, makes talk of massive growth in two years' time pretty rich beer. Unless of course it's all purely nominal values he's talking about, with a massive explosion in price inflation causing nominal GDP figures to rise.

Got any pounds left in your wallet? You soon won't have. Or possibly you'll have lots of them, but none of them will be worth anything. Get out of the Pound. Do it now.

The best we can hope for, following this pathetic budget, is Japanese style stagflation, with zero growth rates year on year, for at least five years. Maturin Towers predicts it will be much worse than this, with small real-term declines each year, until someone finally gets a grip on the tax eating spending monster, or the markets stop supplying the government with borrowed money, to force them to cut tax eater spending, whichever comes first.

I'm hoping that the markets stop lending them the money, and stop lending it to them real soon. I mean, would you lend money to Iceland? So why will they lend to our miserable government. No doubt the printing press will then be used to fill the gap, when the borrowing gap hits.

And God alone only knows what destruction this will wreak upon Britain. Argentina anyone?

What an utter shower.


Anonymous said...

"Except of course for all 'public sector' people, and all other tax eaters, none of whom pay any kinds of tax on anything at all."

Oh dear, I have been reading your blog (with some enjoyment) for a while without realising that you are a rabid and delusional libertarian. You don't think teachers or firefighters pay any tax? Or do you just think that society would be better off without these redundant leeches?

Jack Maturin said...

No, nobody in the public sector pays tax. It is nothing but an accounting sleight of hand.

It is, unfortunately, very difficult to see, but eveyone unconsciously knows this effect is there, which is why, if we are to generalize, public sector people (including MPs earning more than £150,000 a year) are generally in favour of increased taxes, and private sector people (including those earning under £150,000) are generally against higher taxes.

So how do you spot it consciously?

If all other people, stopped paying taxes tomorrow, what would be the wages of someone in the private sector, let's say an unsubsidised farmer producing organic meat for export, and a state-school teacher?

Well the farmer would see in an increase in their wages. The state-school teacher's wages would collapse to zero, despite the nominal levels of tax that they supposedly were paying previously.

(We will ignore, for the moment, the ability of the government to inflate - also, under such circumstances, the government would not be able to borrow, because they would have no income available to pay off debt interest.)

If you would like to tell me how the state-school teacher would have an income above zero, please do englighten me?

Therefore, the state-school teacher is paying absolutely no tax on anything. I'm not saying that they're not in any way useful. Just that they are paying no tax. For anything.

Try it another way, if you're finding that confusing. Let's imagine a desert island with two people on it. One is earning 100 coconuts a year, and is taxed by the island government at a rate of 30 coconuts a year, for direct taxes, and 20 coconuts a year for indirect taxes.

Thus, their 'take-home' pay is 70 coconuts, out of which they must spend 20 coconuts on 'tent property' indirect local taxes.

The government's income is thus 50 coconuts, and the real income of the private sector worker, up in the palm trees all day collecting coconuts, is also 50 coconuts.

There is on other person on the island, holding a gun, who 'provides' all government services, such as 'guarding' the coconut picker and providing them with 'protection'.

The nominal wage of this 'protector' is 80 coconuts a year, out of which they 'pay' 20 coconuts in nominal direct tax, and 10 coconuts a year in nominal indirect tax, say a local property tax on their tent. So their real pay is also 50 coconuts, the same as the picker.

Thus, although the government only receives 50 coconuts a year in income, it is able to 'pay' the government 'worker' 80 coconuts a year, because by an accounting sleight-of-hand, this 'worker' is nominally paying 30 coconuts a year in nominal taxes.

Thus the circle is squared, of the government paying out much more nominally than it receives.

Still with me? This is as simple as it gets by the way, so if I'm losing you, there's little hope.

What happens if the government worker loses their gun and becomes unable to threaten the coconut picker to pay 50 coconuts in taxes?

The coconut picker's income will double, and increase to 100 coconuts a year for the same effort, and the government 'worker's income will drop to absolutely zero, despite their protest that 'I pay taxes too'.

What's even better about this, is that the government worker will start picking coconuts too, or starve to death, probably not as well as the other guy, but perhaps at a rate of 50 coconuts.

The private picker will probably also increase their production, because they will be able to invest the extra 50 coconuts into more capital equipment (better knives, sticks, ladders, etc) to produce even more coconuts for the same effort.

Also, because the original picker is now keeping everything they pick, their incentive to work harder will also be magnified. So let's be conservative and say that this increased capital investment and increased motivation enables the private worker to boost their income to 150 coconuts a year.

So with taxes removed entirely, one productive worker has their income tripled, and one bone-idle government layabout becomes productive, keeps the same income they had before, and together they increase the overall wealth of the island by 100%, thus enabling a much greater rate of savings, which can be further invested in capital equipment, to further increase wealth and productive capacity, rather than being constantly wasted on propping up the original bone-idle government worker in their monopolistic luxury of being the compulsory provider of protection services, via the magic of government 'spending'.

So let's tackle the second part of your question. The coconut picker will of course use private services, in a non-tax island world. They may even re-hire the government worker for 'protection' from marauding island pirates, but this time privately.

Do you really think that if taxes were entirely abandoned, that the private sector would not require nursing or fire-fighting services? Do you really think that private insurance companies couldn't provide both? You may be under the sad delusion that only the state can provide these services. But do you think in an entirely private world the AA, the RAC, or even Green Flag, couldn't figure out how to provide fire-fighting services, or if the NHS was abolished, that BUPA and others would find it impossible to create a private health system?

Or that if all schools were privatised, that it would be impossible for the rest of us to figure out how to provide private schools?

Do you really think the NHS is efficient, provides services that people want, at a quality that people want, for a competitive price? Or that it is the greatest use of the available scarce resources?

Of course nurses, teachers, doctors, and firefighters are useful. Of course we will still use them in the future. But they will be in the private sector, where competition and the complete voluntary purchase of their services, will keep their service provision responsive, and efficient, plus providing a much wider diversity of services at much better prices.

Can you just imagine what it would be like if we had an NFS, a national food service? You'd have to queue all week for an expensive mouldy bag of potatoes. But would my call for the abolition of the NFS, and its non-tax paying workers, and its replacement by private services, mean that I didn't want people to help provide me with food by working in private shops?

But the point still stands, whether or not these people will be hired in the future; absolutely nobody who works full-time in the state sector pays any taxes of any kind.

They may feel they do. It may even appear that they do. But it is entirely nominal.

So why go through this subterfuge? Why not just exempt them from all taxes, so they don't pay national insurance or income tax but just get their current 'net' wage as a non-taxed gross wage. Also, cut tha 'net' wage again but exempt them from the community charge, no road licence tax, and a 15% discount on all VAT-able prices, plus exemption from all other taxes?

I.E. Make it explicit that they don't pay any taxes. And never have.

Why not indeed. It would probably save a fortune in moving all of these sums of money around.

But can you imagine the outrage of all of the rest of us the moment we realised that none of these people paid taxes?

There would be a revolution, instantly. Which is why the feigning and the sleight-of-hand must continue. And I'm really sorry for you that this has fooled you.

It fooled me too, for many years, so I sympathise.

But if all of that was too much for you in one hit, Anonymous, I'll make it simple for you.

Please explain to me how a state-school teacher would have an income above zero, if everyone stopped paying taxes?

I really would love to know.

Just answer me that simple question, and I will start voting Labour again, as I stupidly did for so many years.

Jack Maturin said...

Still waiting for your answer, anonymous. Any time soon will do.