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Are we afraid of tax or just afraid to talk about it?

30th May 2017
Tax Consultant freelance
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Or are some of us really afraid that people will get to understand it?

Whatever the system, people will complain they personally are taxed too much; for evidence witness the cries of horror at very low levels of taxation when income tax or death duties were introduced. Sometimes people extend their overview to “everybody is taxed too much” or “everybody is taxed too much except for X who is on the fiddle”. In fact everybody knows (absolutely) of somebody (or some class of people) who they are convinced is on the fiddle

Attitudes to this vary. Some, especially on the libertarian right, admire it as a blow against The Man, others, especially on the left, mutter darkly about one law for the rich and another for the poor.

In Lewis Carroll’s Sylvie and Bruno there is a scene in which the crowd chant “less Bread, more taxes” but this remedied by the flick of a switch, all rather reminiscent of contemporary attempts at people-herding, if perhaps more effective.

The small state radical right has a long history in the USA, as you might expect in a country founded on a rebellion against taxes (though protesting their legitimacy, not their level), but not in Britain. The homegrown right has always flirted more closely with fascism in the economic sense, where the state is all powerful, with an ugly side helping of racism.

In post-war Britain there was a consensus about the role of the state, and that the state should be properly funded to look after health, education and security (national and policing), with that extending to the control of certain branches of the economy – energy (including coal), railways and other infrastructure. As far as this country was concerned, small state politics begins with Margaret Thatcher, and it came under the rubric of lower taxes, especially for the rich and for corporations. Of course a substantial part of this was the breaking of the trade unions

It is clear why the business classes might want small statism as a policy of self-advancement. As many of them already subscribed to a peculiarly British notion of education (that it must be better if you pay for it and besides it leaves someone else to look after your kids) and had no time for the unsuccessful, the recipients of “welfare”, it made sense for them. The great achievement of the modern small-statists (even followers of Ayn Rand) has been to convince those protected by the state that this is a bad thing and that they should either get a grip or curl up and die.

In recent years the right wing press has had great success with putative tax rises that will not actually affect very many people – look at the fuss they manage to create around inheritance tax, paid by fewer than 10% of estates, or to increases in higher rate income tax paid by about 10%. They have succeeded in alarming people who are never likely to have to pay those taxes. Just the word “tax” makes them gasp and stretch their eyes. One might say to them “get real” but in these days of voting with guts not brain, it won’t get far.

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chips_at_mattersey
By Les Howard
30th May 2017 16:02

(I do like to talk about a particular tax!)
Interesting comments that small statism was effectively introduced through Margaret Thatcher, so we have 'enjoyed' it for less than 40 years. Yet, it seems to have been around forever, and many people assume that there is no alternative. Perhaps, if Labour win the election, we will see an alternative.
(and I express no preference either way!)

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Replying to leshoward:
Hallerud at Easter
By DJKL
30th May 2017 22:06

It is very interesting how the economic arguments have developed, when I first studied economics at school (1977-78) there certainly ,at that level, was a far more Keynesian viewpoint, circular diagrams showing households, business and the Government and an emphasis on making Y=C+I+G+(X-M) at a maximum, effects of accelerators and multipliers etc and the impact of decisions on employment. I even took part in a school competion where we played with such software at HP. (We did not do well)

When I went to University in 1980 the role of a Keynesian thought process, the Government would use its spending to smooth fluctations (the famous man digs a hole one day and fills it the next approach), was still there, but there was also a coldness in the new approach, money supply ex Chicago (Friedman) was becoming dominant, IS-LM and tax were the favourite levers to control the economy, and hand in hand with this was the view that efficient markets involved reducing the role of G in the equation, small government was good, large bad.

The other major difference was emphasis on Imports/Exports, both visible and invisible, in the 1970s/1980s the news was always littered with stats re same, my second year Economics course had a whole course on International Economics and the history of its development, Bretton Woods et al, again this seems to have diminished; when was the last time the news reported the trade figures, they have become irrelevant to the discussion?

Economics appears to have become cold, a technical exercise, the interventions of the 1970s in particular industries, subsidy, all became dirty words- an ideology developed that brooked no opposition and people seemed to get forgotten, self reliance became the watchword not safety nets.

Now Labour tried to counteract this in the 1980s, but the baggage they carried re the Unions, CND etc gave them a political mountain to climb, and when in 1997 they returned to office they were nearly as Conservative as the Conservatives, their badge of a lack of economic competence (true or otherwise, they carried it) resulted in them grabbing the safe middle ground.

Now this worked against a divided Conservative party but gradually they firmed and 2007/2008 tainted the Labour economic confidence badge that had been getting better in the eyes of the public, whilst there were factors outwith Labour's control, they had not balanced spending during the cycle so the UK was off balance when the crisis hit, the failing was not to cause the crisis but being vulnerable after all the years of growth that had been enjoyed.

They ran the 2010 election on the centre ground , but when both offer the same the electorate choses perceived competence when there are no policy differences. 2015 they again still tried similar, slightly more spend, but really arguing at the edges.

This is therefore the first election in years when a far more keynesian philosophy has been presented to the electorate, there is clear water between the parties so it is fought not just on competence but on philosophy, a marked change. I suspect Labour have chosen the wrong candidate and they will fall short but it is interesting that the idea of spending to boost recovery is at least, after all this time, getting an airing and I suspect with a better front bench Labour might have carried the day; there is a wind of change evident with the electorate and in the post mortem I do see Labour going slightly back to tighter budgetary control but there will still be a visible gap between them, especially if the Conservatives lurch further to the economic right.

I have mixed feelings re the approaches, whilst I do believe in fiscal prudence over the longer term I also do believe there is an investment role for government; paring back training, education etc is shortsighted and we see its shortcomings re difficulties re recruitment across various industries, frankly in Scotland FE is a disgrace. (cannot speak for rUk)

So, the debate is welcome , the alternative views are welcome, this has at least been the most entertaining election re content in years (since the 1970s) and if our media commentators would spend more time on the actual economics and less on the he/she fluffed x/y it might actually be educational for the public.

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By johnjenkins
31st May 2017 10:04

When the ordinary person gets "taxed" up to the eyeballs, people will shout. When small business starts to get "taxed" up to the eyeballs they try and find ways around. When big business start (whoops, they never get "taxed" up to the eyeballs cos they have "clever dicky Accountants and Lawyers to get them out of it).
Inheritance and Capital Gains taxes shouldn't even be on the statute books.
So Governments use stealth to overcome not having to put basic rate up so that they can't be compared with each other.
There comes a point in which taxation implodes. I believe we are on that brink.
On the other side, the country needs finance to keep us in the "High Tech" luxury that we all enjoy.
The question is Simon, are we really better off?
Although I'm a Tory I happen to think if JC was PM it would be a breath of fresh air - for a short while.

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Replying to johnjenkins:
Hallerud at Easter
By DJKL
31st May 2017 13:02

John

The catch is everyone has a set of different level eyeballs.

I also disagree with you re CGT but do agree on IHT.
CGT on death and bringing PPR into tax at some point (downsize/ death) makes sense to me, but I do not believe you cannot dispense with a tax on gains (however defined) otherwise everybody will seek to avoid tax on income by restructuring transactions.

I agree with you the potential discussion is a breath of fresh air, I do however have some reservations re JC and his shadow team, then again I have similar reservations re TM's team and am not fully sold she is a good captain anyway.

To me it has been a TM car crash election campaign which does not inspire confidence and I suspect if JC had not started the race having to carry two extra large cases of dirty washing from previous holidays he would possibly be ahead, or at least neck and neck. I have come to the conclusion that given his ability to fight off his own party etc he is probably personally more strong & stable than May in some regards.

Last night's YouGov poll was a shock re a hung position; I knew the Conservatives had been poor but did not think they could blow their starting lead-public seem to be fickle friends and not yet sure I buy it is as close as suggested.

My son asked me to throw £5 on Corbyn as next PM a few weeks back ,if we do overcome betting at 7:1 on a two hourse race it will be some result (Though not sure how long £35 winnings will last if he is PM!!)

Frankly re the campaigns I have some alternative conclusions:

1. Our politicians are now an intellectual vacuum?

2. They do have brains but just do not display them in any way as the public, in their opinion, cannot deal with the arguments, so we do Janet & John politics?

3. Our media cannot actually report anything in a grown up manner, maybe they also believe 2 or maybe they themselves have become "bears of very little brain"?

We had a chance to actually have an election run on tax philosophy, a tearing up of the rulebook re the last 25 years, instead we concentrate on whether A or B can remember the costing figure for X or Y policy which frankly does not matter; these days I cannot remember allowances/bands etc, I just carry around a Whillans, as long as I know where to look knowing the figure is frankly irrelevant.

So, in our brave new world with clear water at last between the Tory and Labour hulls, lets see how things develop over the next 10 or so years.

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Replying to DJKL:
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By johnjenkins
31st May 2017 13:45

Therein lies a major problem. Taxation, via HMRC, seeks to keep all those eyeballs at the same level and impose it's own ideology on us instead of remaining impartial and doing what they should be doing (investigating and collecting). The battle not to put up basic rate tax (in some cases to even lower it) has resulted in utter chaos.
Let's just look at Brexit. TM will say, keep swopping info on terrorists, crime etc. UK rights to EU people that have settled prior to brexit and same for UK settled in Euroland. To include Pension etc. settlement.
So we are just left with trade. The EU have said access to the single market is dependent on people movement so, no deal, which I think is pretty much what TM is already saying.
Now JC will bend over backwards to get a deal and it looks as though it will have the outcome of a non brexit, which means we will eventually adopt a European taxation system.
So, yes the next 10 or so years will be pretty interesting. Let's hope Ed Sheeran and James Blunt aren't still singing.

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Replying to johnjenkins:
Hallerud at Easter
By DJKL
31st May 2017 14:40

Re Ed I think you will be disappointed, all male singers these days appear to be clones of Ed, I always ask my wife/daughter when in the car re the radio, is that Ed, as I cannot tell any of them apart.

Afraid we differ re Brexit, whilst I do not agree with the logic of leaving I accept we are getting it but am certainly not convinced we will get the deal as promised.(Which promise springs to mind)

My concerns are not re say WTO tariffs, tariffs can be adjusted into costings and the transaction either works or does not, my concerns are re product and service movements without vast red tape and paperwork; I suspect we will have this to look forward to for years.

I do not see an easy fix re UK goods and services sales into the EU, just one look at the EU website re trade from outwith the EU reinforces that there will be no simple route to sell into the EU, nor do I think trade outwith the EU will short term meet the likely reduced trade with it.

Ignoring the heads of state etc at a personal level we do not appear to be that popular in Europe- I chat politics with my neighbours in Sweden, one is a former editor of one of their papers, I think we are perceived by the Swedes as betraying them. No idea re rest of Europe but my son, now working in Frankfurt, will no doubt give me some feedback from ordinary people when he visits us in June, such unpopularity could also dent our sales into the EU.

I also fear production for the EU market moving into the EU to avoid such issues, the transition will be painful and to me the Conservatives have gambled their future from 2022 onwards on this, if they are wrong Labour will govern after them for years. (That is if Labour still exists)

So, irrespective of this election to me the political landscape , the future economic path, the composition of the UK and the consensus re the size/scope/range of tax and services will all possibly change as a result of a vote next week and the subsequent two years.

We may experience what it is like to live through a period of history that will feature heavily in school textbooks in 2100.

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Replying to DJKL:
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By johnjenkins
31st May 2017 15:48

I have many friends and relations all over Europe and the one common denominator is that they do not want the EU in it's present form. I think that us leaving will change the EU outlook on trade (do they really not want to sell their goods to us- BMW, Mercs, VW's, French Apples etc. etc.?). Us leaving the EU has been brewing for sometime and has been brought to a head with net immigration of 300,000+ every year. All because trade is linked to movement of people - ludicrous. However mainland Europe is now entrenched under German rule, which I can't see changing in the near future.
The only good thing about this election is if TM doesn't get the majority she wants, perhaps she will resign and Boris will become Tory leader as he should've been.
It might well be that once we are out completely taxation might not be as harsh.

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Replying to johnjenkins:
Hallerud at Easter
By DJKL
31st May 2017 16:02

John, re your last two points, be careful what you wish for and I will believe it when I see it!!

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Replying to DJKL:
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By johnjenkins
31st May 2017 16:59

I really do believe that Boris is the man and I really do believe that he should have taken over from the wimp. I also believe that the Tory party have totally lost their way and need a bit of a shock to put them back on track. Not allowing mortgage interest as an expense. Making small business do quarterly figures for no purpose. Come on.

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By chatman
05th Jun 2017 11:20

DJKL wrote:

I suspect Labour have chosen the wrong candidate

Rules introduced by Neil Kinnock prevented the selection of candidates who would have pushed the policies that Jeremy Corbyn is proposing now. Corbyn could not have been elected until Miliband brought in the one-person-one-vote system for electing the party leader.

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