The Leave campaign have helpfully reminded the good people of the UK that if the UK were to leave the EU, it would be possible to eliminate VAT on domestic heating. This is one of many ills of the monstrous regime of Value Added Tax, which bring with it a gruesomely complex web of regulations and case law, quietly throttling economic activity throughout the EU.
In fact, if we left the EU, we would not need to have VAT at all. There would of course be an even bigger hole in the public finances without VAT revenue, but it would be an opportunity to simplify taxation, reduce rates and make an improvement to most people’s standard of living.
VAT was a modest 8% when Mrs Thatcher came to power, having promised not to double VAT, she allowed her Chancellor, Sir Geoffrey Howe, to hike VAT to 15%, which had been the plan all along.
The Conservatives secretly agreed plans for a “massive” increase in value-added tax from 8 to 15 per cent almost a year before the 1979 general election, party papers from the period, seen by the Independent, show.
The charge that the Tories would double VAT on taking office was levelled during the election campaign by the Prime Minister, James Callaghan, and other leading Labour figures. It was denied both by Margaret Thatcher, the leader of the Opposition, and byGeoffrey Howe, the shadow Chancellor, in a campaign in which the impact on prices of the Conservative’s declared plans to switch from direct to indirect taxation played a significant part.Sir Geoffrey (now Lord Howe) declared: “We have absolutely no intention of doubling VAT.” The allegation was depicted as one of Labour’s “dirty dozen” lies in a Conservative press release.
But papers marked “secret” and circulated in numbered copies only show that proposals for a “massive” hike in VAT to 15 per cent or even 17.5 were canvassed in February 1978 by Lord Cockfield, a member of Sir Geoffrey’s economic team.
I recall reading musings in the press in the 1980s to the effect that moving from direct to indirect taxation was an improvement in terms of liberty. Now at least there is talk of removing some things from VAT.
Even in the dying days of the last Labour government, there was a backhanded acknowledgment that reducing taxes is good, when the rate of VAT was lowered from 17.5% to 15% for a year, (with howls of indignation from the Conservatives and Lib Dems) before it was hiked again to its current (Standard) rate of 20%. For some reason, as part of the ‘Single Market’, VAT has to be levied on goods and services in line with EU law at rates that seem to be between 17 and 27%. Quite how this helps free trade is, frankly, opaque.
However, as a rule of thumb, the crappier the government, the higher the VAT.
The final sentence is spot-on. Also, the fact that in the US there are calls for a federal version of VAT shows how crap the public finances are.
We need a campaign against such taxes that carry the same vigour and passion – and appeal to the progressive, liberal mentality – of the Anti-Corn Law League of the early 19th Century. Alas, far too many people who think of themselves as “liberals” are keen on taxing the “wrong” kind of consumption (sugar, tobacco, certain foods, holidays, travel, fun generally).
How it helps free trade is that if everyone has the same tax system, it’s less distortionary. If England has an income tax and Europe has a VAT, then physical manufacturing gets pushed to England to dodge VAT and ownership of the capital gets pushed to Europe to dodge income tax, regardless of the underlying economic fundamentals. I’m entirely on board with tax-rate competition, but tax-type competition just gets weird.
“Tax-type competition” may indeed get weird, but that doesn’t mean it is without value. Mr Ed’s final sentence is certainly true, but it is also axiomatic that hidden taxes are the worst sort, as they inevitably rise to ridiculous levels. People can see the impact of a personal income tax, or a straightforward sales tax; the true cost of hidden taxes such as VAT or excise taxes is hidden. Their effect is higher prices but most people (predictably) blame businesses, not government, for that. This is the reason such taxes are so popular with politicians: they are imposed on a non-voting entities, are easy to collect, are invisible to most taxpayers, and any displeasure if deflected to others. It’s a perfect scheme (from a politician’s perspective), which is why any politician who advocates or supports such hidden taxes should be called out as even more dishonest that the ordinary politician.
Consumption taxes are, aside land tax, least harmful to the economy. The regressive nature of VAT can be lessened by zero rates on essentials.
However the point about consumption taxes is they should replace direct taxes not add to them and disguise overall increased taxation.
If VAT increases it should be accompanied by a reduction in direct taxation.
The real problem is we now have the bulk of the population born into a World where the propaganda is relentless (hands off our dear NHS) and it is instilled in them that they are entitled to live at everyone else’s expense. Since everyone is ‘at it’, everyone is not able to create wealth at a rate even close to the rate that everyone is consuming it.
Until that reality is exposed AND accepted, taxation must always increase via new ways – carbon tax springs to mind – and debt will ever go up but alas there will be less and less to share around.
France right now is a stark example of ‘we want’!
I agree with John B. VAT and consumption taxes are preferable to income taxes. Income taxes are inherently biased against saving and against capital accumulation.
You know, on one hand, I’m opposed to all forms of taxation. But on the other, here in the United States, as I understand it, part of what Reagan did was to put through tax cuts while not cutting expenditures, resulting in an increasing deficit. And that deficit is going to have to be paid for, if not directly, through taxes, then indirectly, through the economic distortions of inflation. But it’s not a source of obvious pain; it’s effectively an invisible tax, one that makes the cost of government appear lower than it is, and thus encourages people to demand more government. I can’t see that as a good thing in libertarian terms. Properly, every government expenditure ought to be paid for by taxes that are as visible as possible, and ideally as evenly distributed as possible through the entire population. So I really have mixed feelings about tax cutting proposals. The long-term goal isn’t merely to have less tax, but to have less government.
@William H. Stoddard
> Reagan did was to put through tax cuts while not cutting expenditures, resulting in an increasing deficit.
The theory here is that if you leave more money in the hands of private individuals they will make the money productive instead of leaving it moribund if government hands. And so the size of the economy grows to compensate for the reduced skimming by tax. Whether that happened I’m not sure but it is the theory.
Honestly, some thing I have been thinking about is this. In the USA the federal government already spends something like 40% more than they take in taxes. Under Obama the federal debt doubled, and under Bush before him it also doubled.
So if, as appears to be the case, the feds don’t care about the debt, why not have a one year tax holiday when the tax rate is zero for everyone. It’d spike the debt, but nobody seems to care too much about that, and like I say nearly half of spending comes from debt anyway.
A year of tax free income for private and corporate individuals would cause a spike in the economy the likes of which we have never seen. Plus it would have the wonderful benefit that everyone would finally understand how much they actually pay in taxes. An understanding largely robbed them by withholding in the USA and PAYE in the UK.
I don’t care for VAT anymore than the next person. But we should not forget what it replaced – the truly evil Purchase Tax, with rates up to 100%, which was levied on goods in an entirely-arbitrary manner, based on class envy, political whims and (sometimes, it seemed) on no discernable motive at all. At least VAT is more-equal-opportunity confiscation, compared to that.
That being said, all the points about it being introduced in addition to other, existing taxes are well-made. And VAT in the UK, with its bizarre trail of charging-then-recovering as goods pass through the system of manufacture and distribution, and its Byzantine system of applicability, exemption, refunding and reclaiming, is a Kafka-esque nightmare that creates the kind of vast bureaucracy that is so beloved of statists, but which only drags on an economy. In its way, VAT is becoming/has become as politicized as the precursor Purchase Tax was, as a glance at the current tax rate tables will show.
llater,
llamas
Fraser, think of a household where the family spends more than it earns (complementing the excessive spending through debt). Now imagine they stopped working for a year, while still maintaining the same level of spending (all from debt, now that they no longer have any income).
Laird, I do certainly agree that hiding taxes is bad. Where I live, we have a 13% sales tax, and each firm in the chain gets to write off the tax they paid on the stuff they bought from the taxes they collect on their sales. In other words, it’s basically a non-hidden VAT. I certainly prefer that to the hidden manufacturing tax that used to serve the same purpose 30 years ago.
I’d like to see a discussion of how and why government greed is more harmful than private greed.
Intuitively, to me this is obvious, but perhaps the details would be interesting ?
@Alisa
> Fraser, think of a household where the family spends more than it earns
I’m not suggesting that it is fiscally responsible. However, let me offer you a different example. Think of a guy diagnosed with terminal cancer. He has three years to live, so he mortgages everything, spends to the limit of his credit cards, borrows whatever money he can, knowing that when he dies all the debt will be wiped away.
Or consider the family that has a very sick child and weak medical insurance. They spend all the money they want on the child, max out credit cards and loans, take the kid to Disney etc. Then when all is said and done file for bankruptcy.
The American federal debt is unsustainable, especially what has happened to it under Obama when the % of GDP has doubled since he came to office. All I am saying is that we should “Eat drink and be merry, for tomorrow we will die.”
I would disagree completely that land taxes are in anyway whatsoever desirable, which is to say a tax on the ongoing ownership of land, rather than just a transaction tax for buying or selling land.
Taxes on on-going ownership of anything are the very worst of the worst taxes, the most toxic to the very notion of ‘several ownership’ that underpins capitalism (not to mention liberty). It means you do not own it, you just rent it from the state and they will take it if you do not keep paying. Land taxes turn people into feudal retainers of the state unless it is a genuine service fee for sewerage etc. and not an actually ‘land tax’ at all. And land value taxes are where fascism and feudalism intersect, for they push the nominal ‘owners’ into uses that generate rent in order to pay the taxes, and force ‘owners’ into uses that serve the interests of the state rather than, say, just building a house in which you want to live without much broader economic aims for the property.
There is an amazing virtuosity in “taxation policy” opinions; the following included:
We begin with: the purpose of (governmental) taxation is to provide revenues for the functions of government.
But, that is not the approach to taxation in the most common forms of democratic processes is it? (Of course not, we have human conduct to influence)
All taxes should be “earmarked;” decide on the “function, then how to fund it; specifically. Is that what occurs? (Of course not, that would require evaluations of functions)
Some revenues are obtained by borrowing and fees and taxes are assigned to repay that particular debt (bond issues). That’s about as close to earmark as we come.
All taxes are “transaction” taxes, even those of excise and asset or property.(Demonstration available on request)
There are instead determinations of “how many feathers may be plucked from the geese;” and then, how shall they be distributed amongst “functions” chosen to palliate the geese and preserve that part of the democratic process for the benefit of the functionaries.
Turn the procedures upside down and require that every function have an identified source of revenue, then construct the least destructive (efficient) methods of the extraction of that revenue. In that case, the forms of extraction (user fees, VAT, Incomes, Land Taxes, etc.) will sort themselves out.
Never happen in our current forms of democratic processes.
Fraser, in your first example, the guy with terminal cancer has children (as do many of us in the non-metaphorical reality of government debt), so his debt is not wiped out at all, it is passed on to his children. As to your second example, I don’t even see how it is applicable as a metaphor.
Alisa,
Is not Fraser pointing at the short-time preference of politicians generally, e.g. the term-limited President, for whom political death looms one chilly January noon in Washington? (Barring some bizarre wish to serve as Vice-President, first in the line of succession and not disbarred from office by the 22nd Amendment*). Spend it all, get your legacy and then retire and watch the chaos.
*Is Bill going to be Hill’s running mate? You heard it here first!
Have to agree with Laird regarding ‘hidden’ taxes / taxation.
Two of my favorites –
gasoline – the price you see on the pump INCLUDES the tax so that most pay it no attention. Most also have NO IDEA how much it is. Oil companies, if what I read is true, make about 8 cents per gallon of gasoline. the tax where I live is 37 cents per gallon. You tell me, who is shafting who here ??
The other is tobacco. Again, the total taxes on a pack of cigarettes is never shown ANYWHERE. You have to figure it out on your own and it’s not necessarily simple ( depends on where you live ).
Also have to agree with Perry regarding land tax. One NEVER really owns ANYTHING that is taxed the way real estate is taxes. He is absolutely correct in stating that you are merely renting it from the government PERMANENTLY, as in FOREVER and you will never actually own it as you do other things ( they will seize it and throw you out literally, at gun point if necessary for failure to pay the taxes ! ). On top of that, where I am, school taxes are 75% of my property taxes. It’s ‘for the children’ after all !! Problem is, I DO NOT HAVE ANY CHILDREN going to the schools here, so WHY IN HELL do I have to pay for the things ??
Hidden taxes are one of the favorites of ‘those in control’ because rarely does anyone complain.
VAT, from what I can see is just another ‘trip to the well, so to speak and since it is in essence, hidden or ‘included in the price’ if you like, again, very few actually ever stand up and say HELL NO. Another example of the, apparently, universal inability of government to ‘live’ within its means’!
@Alisa
> Fraser, in your first example, the guy with terminal cancer has children
Yes sorry if I wasn’t clear. My point is that the USA is beyond the point where it can legitimately pay off its debts. It has two options, either bankruptcy, which is to say default, or overprinting money, which is just bankruptcy by default.
Since neither is going to happen until it is forced upon us, then we might as well enjoy the pretense in the meantime. And you never know, perhaps all that extra free money floating in the system might actually allow the economy to grow.
Over the past few years President Obama via the Fed has done something akin to this by printing lotsa money. Unfortunately he didn’t print enough or distribute it fairly, and so we didn’t really enjoy the ride all that much. The only people who did were the fat cats in Wall Street who were rescued from their bad decisions, like druggies begging their parents to help them out “one more time.”
BTW, if you want to know all about why he printed lots of money and we didn’t see much inflation you need to look into the deep guts of the deception that we have suffered. Normally commercial money (M3) goes up in proportion to circulation money (M1) because commercial money is created by banks in proportion to the reserve capital required by the FDIC (or equivalent.) However, if you look at the growth in the money supply over the Obama years you see a massive acceleration of M1 and an almost flat M3. It is also an interesting fact taht during this time the Fed decided to stop reporting M3.
This is pretty much unprecedented. Banks with oodles of cash to lend and nobody borrowing. Why? Dodd Franks is one obvious culprit. Too big to fail another. The screwing with bond rules is another, SarbOx which killed the IPO market (pre Obama) and many many others. The consequence is that all that free money is floating around and it wasn’t invested, and new businesses and new jobs weren’t created. If these jobs had been created, if that investment had taken place, inflation would have accelerated due to the massive over printing of money during QE1 and 2. But by keeping business flat, we kept M3 flat, and thus we also kept inflation flat.
It is a Faustian bargain for America, but a great PR stunt for short time horizon politicians.
Perry de Havilland,
I actually don’t agree with you about land tax. Ownership of land inherently requires the services of various legal agencies to keep track of the boundaries, judge disputes over them, and evict trespassers; as Rand said, the government that provides those services needs to be a paid servant. The need for the services isn’t going to go away. So a continuing series of payments makes sense.
I’m not in favor of compulsory taxation. But I wouldn’t think it unfair to say that if you don’t keep paying your land fees, the courts no longer have the obligation to order squatters off the property; effectively the land reverts to public domain until someone else gains title by adverse possession and starts paying the fees.
Fraser Orr,
I’m still baffled by the claim that the US isn’t experiencing inflation. Apartment rents are rising steadily, and nearly everything I buy from day to day is getting pricier. This must be some strange definition of “inflation” that has nothing to do with how much people actually pay for stuff. And yes, I’ve heard the statement that food and energy costs don’t count toward inflation; that seems very convenient for the people who manage the economy, but I don’t see how it makes any sense.
But there is always, for our American friends at least, the right enshrined by the Second Amendment.
Actually none of those things inherently needs the state.
Fine by me, because I think you will find courts are under no obligation whatsoever to order squatters off your land, you have to take action to evict them. Indeed it is the state that limits people’s ability to use force to evict squatters.
One does not logically follow from the other, unless you first accept that the state owned the property in the first place, i.e. it is the feudal owner of all land and you only hold it in fief, occupying it in return for feudal rent rather than actually ‘owning’ it.
Personally I take the view that if I own property in freehold, I should own the property in freehold regardless of whether or not I pay protection money to the local mafia, or indeed the state. I am quite prepared to hire people to break heads to enforce my ownership rights if the state withdraws it services because I would rather not pay a feudal rent. But I did not buy the property from the state, so why should it ‘revert’ to them?
Indeed if only the state can defend my property, presumably the same is true of all my assets. Why should it not decide I should pay an annual ownership tax (i.e. rent) on my computer, clothing, refrigerator, cat, cash, gold, paintings, carpets etc. etc., effectively abolishing the very notion of ‘ownership’ and replacing it with rent from the state for the privilege of controlling anything you acquire for a while.
Mr. Stoddard, the disconnect comes from the thoughtless conflation of “inflation” with the Consumer Price Index. The two are not remotely the same thing. Yet most people have bought into the fiction that the CPI is a true measure of inflation, and hence when the government fiddles with the measurement process (which it has done repeatedly over the last few decades) people accept it on faith that there is little inflation. And then, like you, they wonder why the cost of everything meaningful to them keeps going up.
Inflation is the process of inflating the supply of money, or debasing the currency.
One of the great confidence tricks of the past 45 years has been to elide ‘price increases’ (a symptom) with an increase in the money supply – inflation – (the cause) in the public mind (as it were).
So inflation is now a mysterious beast that might retreat when interest rates are raised, rather than what the Central Bank has been doing all along.
Fraser, unless you were being sarcastic as hinted by Ed, I do know that money floating around the system does not economic growth make – productivity does, when combined with absence of organized theft, and that is not where we are.
I do know why, or at least why it was so some 6 years ago. And yes, M3 vs M1 seems to be one of the symptoms. I couldn’t find any followup information on that, but maybe either Mid or Laird know what’s up with all that these days.
I’m with Perry (de Havilland (London), May 31, 2016 at 7:48 pm) that wealth taxes are inherently worse than income taxes and that land tax is not inherently required, and is only conveniently required to cover very small costs of maintaining a registrar of boundaries, etc., (which could be conveniently done by a contracted private agency). Perry also mentions partial law enforcement. In the UK, if people invade your land and make your life hell, the state can seem good at forbidding you to fix it (witness anything from landowners arrested for complaining about an illegal rave up to farmer Martin), and at continuing to enforce all your duties on you – including clean-up duties – while being poor at addressing the original crime.
The evil of partial (in both senses) law enforcement goes far beyond land tax issues of course. Dwellers in a ghetto in which PC attitudes empower criminals and disempower resisting them may envy the landowners’ situation with more reason than is in the more fashionable end encouraged kinds of envy.
Taylor (May 31, 2016 at 4:18 pm) wants to see “a discussion of how and why government greed is more harmful than private greed.” I’d guess I’m saying the obvious to all, or almost all, here (including Taylor, who did not ask for the discussion because he had any doubts) in pointing at the Government’s use of force as the main point. When a private citizen takes from another by force, the term used is ‘theft’. When a private citizen agrees with another to exchange money for services, the term used is ‘exploitation’ by the politically correct but ‘fair exchange is no robbery’ by the rest of us.
Where on this spectrum do we place taxes where, nominally after a majority or plurality vote, money is forcefully taken from some and given partly to the agents of government and partly to those it patronises? If those it patronises vote for it then the ‘giving’ part it is not charity but a form of purchase. When a gang boss gives a police commissioner part of his thievings to look the other way, no public benefit is claimed and we regard this as merely criminal. When soldiers vote for a government that will spend more on the armed services, but will also order them to go and get shot at abroad, things are different; compare charity payments to those who have lost both legs, where we’d think the amounts would have to become large indeed before people would start chopping both legs off to get them.
A society that spends nothing on so basic a function as defense is likely to die; I take the points in BrianM’s “In Defence of Mercenaries” and etc., but I’m not wholly persuaded by the idea of wholly private a-statist defence policies. At the other extreme, there is a point where buying power with money forcefully taken has blatantly become the sole true game in a nominal democracy, the propaganda being merely insolent; Venezuela is a very timely example. I’d expect to win in this blog – and would like to win in a few weeks – a vote on whether we’re too near the one, too far from the other, here in the UK.
Until the advent of the (now compulsory) registration of dealings in land in England and Wales, there was no register of titles in land. Some bright spark thought it a good idea to have a Land Registry (iirc Australia, or parts of what is now the Commonwealth, was in on this quite early on). Of course, with registration comes a State guarantee of title to land, putting us all at risk of taxation to cover the State’s errors.
Prior to the system of land registration being compulsory, the proof of ownership of land was by showing a ‘root of title’, usually a conveyance, (a form of deed that recorded the sale of land and described it) that was at least 15 years old. Land ownership passed for most land holdings by ‘adverse possession’, which was basically undisputed occupation as if of right for 12 years. I’m not sure why there was a 15 year requirement, but if you have a 15-year old conveyance showing that you own the land, then you also have the right by adverse possession in any event in all likelihood, so the buyer can normally proceed to buy knowing that the seller has ‘good title’ to the land described, and you can search the Land Registry for ‘registered land’ (which takes precedence over old conveyances’) and go by the register for proof of ownership.
There will be land in England and Wales where the proof of ownership would be some old conveyance (a document on which stamp duty would be paid in many cases), and if you are buying unregistered land you have to ask the seller for an old conveyance (i.e. the deeds) and if that is not available, some evidence of undisputed occupation for the requisite time. You can get insurance against someone coming along with ‘better’ title and throwing you off ‘your’ land if you buy it unregistered. Not ideal, but it worked for centuries. And your right to enforce your ownership is via the courts, the same as with anything else, it all comes down to the evidence of ownership being put in a legal case.
‘Indeed if only the state can defend my property, presumably the same is true of all my assets. Why should it not decide I should pay an annual ownership tax (i.e. rent) on my computer, clothing, refrigerator, cat, cash, gold, paintings, carpets etc. etc., effectively abolishing the very notion of ‘ownership’ and replacing it with rent from the state for the privilege of controlling anything you acquire for a while.’
Perry,
I strongly suspect that the above statement very nicely nails some peoples’ eventual goal !
If I’m wrong, let’s not be giving them any ideas !!
Perry & Jerry,
Indeed. Let’s hear it for the Wealth Tax!
. . .
Mr Ed, to be serious for a change (viz. certain recent comments of mine elsewhere), has anyone to your knowledge ever put forth a serious argument as to whether there’s some limit to the size of a population that can function effectively using the conveyance system of proving ownership of land that you describe, with (I assume) no “court of last resort” which adjudicates ownership disputes under compulsory land-registry systems?
“…with (I assume) no “court of last resort” such as those which adjudicate ownership disputes under compulsory land-registry systems?”
Julie,
England in 1990 coped with unregistered land, so that is around 45 million people. And the courts can and do intervene if the Crown’s Land Registry wrongfully assigns your title to another, the Land Registry guarantees title, but does not determine it, that is what the law does, as applied by the courts. I can see no limit to the population that would render non-registration unviable. It’s a question of evidence who owns land, and I have read of some corrupt civil servants re-registering land for criminal ends and getting caught.
But for unregistered land, the background matters, custom and experience build up to make people cautious in dealing with land. If you lost your deeds, you could make a sworn declaration of ownership on pain of perjury, and provide supporting evidence of occupation to provide the best evidence of title that a seller could expect (albeit perhaps devaluing your property).
Thanks, Mr Ed. That’s very helpful. There is a classical-liberal law prof here of whom I think very highly (albeit with many points of disagreement — beginning with underlying philosophy), whose initial training was in Roman law (at Oxford). He is less minarchist than I could wish, and he has stated categorically that government is necessary for some of the things required for a functioning society, or,at any rate, a modern one. One of these being a land registry.
So I was wondering how the round hole of actual fact might fit into the square peg of seemingly obvious necessity, and your comment brought the question to mind.
Julie and Ed, having recently looked at the land registry map of an English village, my impression is that a majority of properties are now on the land registry but there are still many properties not on it, i.e. properties that have have not been sold in recent decades. I’ve no idea how this scales up. Perhaps farms that have been inherited represent huge acreages not on the registry – or perhaps, to meet some other bureaucratic (or EUrocratic) demand, most are now registered. Perhaps more is registered in cities. Land registry maps show the pink areas, subdivided by the many boundaries of the registered properties, and the white “terra incognita” areas of the unregistered. Sometimes the white area is one property wide – it’s effectively defined by its registered neighbours.
Niall,
Land owned by bodies such as a spiritual or eleemosynary corporation might not be registered, they are not often involved in selling their land and the UK’s Limitation Act 1980 gives them a period of 30 years to recover land that has been occupied by ‘adverse possession’, so they can take their time in staking their claims, and with no ‘death’ of the owner occurring, it might remain unregistered indefinitely, as you say, a hole in the map, but who knows what rights lurk within those holes?
And one more point, if you squat on the foreshore for 60 years and a day without the Crown disputing it, it becomes yours, thus for a young and determined libertarian, one might find a way to demolish the ‘Crown owns the foreshore so controls immigration by preventing trespass’ argument that you occasionally see (if you are sad enough).