I really, really hope that Nick Clegg, leader of the UK Liberal Democrats, does not hold the balance of power at the next General Election, if this Spectator article, “Can Nick Clegg Sing the Blues?”, is a guide (the article is behind the Speccie’s subscription firewall).
Mr Clegg, the article says, is trying to reach out to supposed Conservative voters by arguing for tax cuts. But as is clear, the cuts are only for low-earners and not for anyone else (I certainly do support tax cuts for the poor, in case anyone brings this up). He wants, for example, to impose a so-called “mansion tax” on properties worth £2 million or more and wants to raise the level of capital gains tax from its current 18 per cent to 50 per cent – a huge jump – on those whose annual income is £150,000 or more. In other words, CGT will skyrocket for the sort of entrepreneur who can, or hope, to make a decent capital gain on a business that has been launched. As the supply-side school of economists likes to point out, once depreciation for wear and tear and inflation is taken into account, a 50 per cent CGT rate can in fact be more like 70 per cent, largely nullifying the gain and likely to hammer entrepreneurial activity. Given that top earners are already due soon to be paying 50 per cent income tax, not to mention other tax hikes, the process will drive yet more folk abroad and deter wealth creators from coming into the UK. The likely upshot of this will be a less active stock market – which will hit pension fund investments – hardly a great idea from the LibDems’ point of view – and likely as not, erode, rather than acquire, more revenues.
There is also a quote, on page 14 of the magazine, that also proves to me that Mr Clegg is a numbskull: “The Tory inheritance tax cut, he said, would help people who don’t actually spend their money, they just squirrel it away'”. In other words, if you have wealth, either from your own efforts or from inheritance, and save it – you are a parasite, a dead weight. Mr Clegg clearly thinks that saving is bad, that “hoarding” of money in a bank account, or whatever, is a terrible thing, and that we should all be spending our money like mad down the High Street. Maybe he thinks it would be better if trustafarians were all down the dog track or the casino rather than sitting on a portfolio.
It is almost hard to summon breath to point out that it is precisely the high level of consumer spending, funded by debt rather than by real savings, that in part explains much of the current economic mess. We need to encourage, not discourage, savings. And given that as folk get richer, they typically invest and “hoard” a relatively high percentage of wealth, it is folly to hit them since they are a key source of capital for future investment. Folk on low incomes, by contrast, have low savings for the rather obvious reason, of course, that they struggle to make ends meet with what little income they have.
In fact, if the Tories have any sense – not much unfortunately – they should boldly confront the insane, Keynesianism-on-drugs mindset that says that spending is always a good thing and that savers are all rich, selfish bastards who should be taxed. Many years ago, FA Hayek likened this form of economic thinking to quackery. As usual, the great Austrian economist was being far too polite.
Cleggie is a profound ignoramus.
Isn’t he suppossed to be going down a Yorkshire Dale in a bath-tub or something?
Ah! The savings paradox.
If someone “saves” in the normal way, the saver puts the money into a bank or investment vehicle. The bank in turn will lend the money to someone else — who will invest it in something to earn a return, such as a farm, factory, or Chuck e Cheese franchise.
“Saved” money gets spent, just by someone else. Money circulates.
Of course, a left-winger could point out that the money government takes in taxes also gets spent — so why are taxes bad? What’s the difference between taxes & savings?
The answer has to lie in efficiency. Savings that get invested in an orchard which will produce fruit for 20 years has much more vaue to the human race than taxes which get spent on a welfare drug addict’s temporary high.
In theory, a government could invest taxes wisely. It certainly has happened, e.g. German autobahns and US interstate highways. But the track record is undeniable — government have real problems “investing” other people’s money wisely. We should learn from experience.
When my sister was little, my parents opened her a bank account, into which she put her pocket money. One day, she decided she wanted to go to the bank to see “her” money, and my father explained that it was not actually there, it had been lent to other people, at which point she started to cry. She had thought her pennies were kept safe for her at the bank. She was about five at the time. What’s Nick Clegg’s excuse?
You beat me too it.
Further proof that Clegg is unfit for our Legislature.
An inheritance tax is supposed to “help” people who saved their money all their lives? How is it supposed to “help” such people after they’re dead?
Clegg campaigning for the zombie vote?
What a maroon.
Maybe Cleggy has been reading Lenin. Lenin boasted that he had debased he currency even more rapidly and effectively than the French Revolution, and that as a result, the Middle Class, having had their savings wiped out, now had no source of income except for a wage that the State would pay them. As Lenin observed, people with no source of income independent of the state have a tough time mounting a counter-revolution.
Stalin took the idea even further. On rumours of unrest or discontent in a region, he would cut off supplies of tobacco.
“I certainly do support tax cuts for the poor” ?? How many “poor” pay taxes at all, net? How can you cut something they don’t pay? Any such putative cut is merely more welfare. Next I suppose you’ll say that the poor should have their BBC TV tax thingy paid for them – by whom? Gee, I wonder!
Don’t forget liberty.
Robert, even preventing that money going round in circles – from taxpayer to state to welfare recipient back to the state… – is a win for advocates of a smaller state. And that’s assuming that by “the poor” we mean only welfare recipients. Someone working full-time on minimum wage here will pay income tax.
So let me get this straight.
I work for 20 years to get the stake to start my own company. I pay tax as I earn my money and the money I save is earning less than inflation.
I then borrow some more money, sell a property (paying tax on it), and after paying for/applying for various licences and “allowed” to start trading.
I pay tax on the money my business earns, recive some of that tax back to offset new capital purchases and have employed one person so far.
I have made no money for myself in the first year, and have outlayed well over $200,00.
Second year I have taken out about 8,000 for myself, my employee is on 60K a year.
I have invested another 100,000 of the businesses turnover, next year I have to try and make a living wage out of the business and support my family.
In effect Ive risked 20 years of work and savings for my families future wealth.
If i fail ill end up with nothing, and probably not enough productive time to start again.
If Im sucessful Ill be milked for my money by the govenment, and seen as a parasite by the “Guardian class”.
In addition if I use my wealth to create another business for my children that will be seen as them having an “unfair advantage” by the same Guardian class.
Well F*ck them, they can go and shear sheep, work on trawlers, mines and prisons for 20 years at no more than an average wage before they get to preach their greedy, grasping sermons.
They have no comprehension that my business will employ more workers, buy and distribute more goods, and most important of all, keep my customers happy.
No they will just look at the flash car and big house i will buy in 10-15 more years and think “look at that rich c*nt, doing it easy”….
God forbid I should sell that business in 20 years, because all Clegg would want is 50% on my “unearned” capital gain…. Squeezer
Robert Spiers asks:
That is not a very intelligent comment, if you forgive me for saying so. People on incomes that are very far from high already pay income tax and of course, pay VAT and National Insurance.
In addition, taxes contribute to higher prices, which are suffered disproportionately by the poor. This is a point that socialists who call for things such a “Robin Hood” tax on the banks fail to understand: a tax that is imposed on a company will, through higher prices, lower service or reduced growth, affect the poor probably more than anyone else.
So I support tax cuts for the poor, and it is hardly akin to welfare. In fact, as well as favouring taking low-earners out of the income tax net, I believe that welfare must be cut. At the moment, the “tax wedge” effect of taxes on the poor/welfare is a major reason for high unemployment. That is hardly a sentimentalist policy, but a pretty hard-headed one, Mr Spiers.
If we want to make the case for free markets and private property rights, it is essential to show how those at the bottom of the heap have the most to gain. The great 19th century champions of free trade, such as messrs Cobden, Bright and Robert Peel, grasped this point intuitively.
In Britain, they still interpret ‘Liberal’ as small-government, so why doesn’t someone sue the Liberal-Democrats for false advertising?
John Micklethwait editor of the “free market” Economist magazne was on BBC Radio Four’s “Question Time” on Friday night.
He cited the “sensible” position of the Liberal Democrats on fiscal matters – i.e. their belief that government spending must not be reduced because this would threaten economic recovery, and their belief that taxes on higher earners should be increased.
Mr Micklethwait also expressed support for yet more government spending (this time on high speed train links – on land confiscated via compulsory purchase of course) and his backing for an alliance between Mr David Cameron and the Lib Dems after the next election (which, of course, would lead to the purging of the remaining pro freedom people within the Conservative party).
And people wonder why I despise the Economist magazine.
“Saved” money gets spent, just by someone else. Money circulates.
That’s certainly the theory.
That saved money should be lent or invested in new business ventures and thus the economy self grows.
The problem we’ve had and seem to still be having is that the money isn’t going into ventures or businesses but has been “invested” in higher risk/higher gain endeavours which don’t necessarily trickle down into the economy as a whole and, in extreme cases, end up with the tax payer having to backroll the whole damn thing so we can actually access our own money in our own damn bank accounts.
I would welcome a return to old style banking like that myself where deposits are actually used to fund lending and investment in industrial and other activity.
And don’t get me started on current US attempts to fix this because it looks like they’re going to make matters significantly worse when it comes to Angel and Equity investing.
Agreed Daveon – but also remember that most of this money was never really savings in the first place.
Lord Keynes insisted that credit money expansion was just the same as real savings – but he was just flat wrong.
The government (via the Federal Reserve) supported this credit money expansion every step of the way – and whenever there looked like there was going to be major correction Alan Greenspan “saved the world” by pumping out more money.
And the government also guided where the money went – via Fannie Mae and Freddie Mac (“private” organizations that just happened to do whatever Barney Frank and Chris Dodd told them to do) the banks and other such were guided into the property market.
“Do not worry you can always turn the loans into securities and trade them on round the world” was the message.
An inverted pyramid of debt was duely built.
And, yes, all the efforts of governments have been concentrated on maintaining the credit money bubble (even the housing and commercial property bubbles).
Liquidation of the malinvestments has not happened – the basic position is a nightmare.