Saving Britain by taxing the rich (1)
Paul Mason

Paul Mason missing a number of important points.

It’s easy enough to make ‘the numbers add up’. You simply levy a tax equivalent to the amount you want to spend. Less easy is raising that tax in a way that works (and by that I mean that it brings in the required revenue without doing damage to the wider economy).

Firstly, simply increasing tax rates for the rich, or big corporations, doesn’t necessarily bring in any extra revenue. The top 1% typically derive around 40–50% of their income from investments. Those investments, and/or their returns, could easily be moved offshore to avoid the tax completely. The very rich and big companies are financially agile mostly and avoiding taxes for them is a relatively easy thing to do.

Secondly, most taxes carry a deadweight loss — i.e. they reduce overall economic activity. So, raising another £1bn from businesses can reduce output by anything up to that amount. That reduction could reduce tax revenues elsewhere in the economy. There are exceptions to this: land value tax (which to be fair, Labour have flagged as an option) carries no deadweight loss (no matter how much tax you levy, you end up with the same amount of land); inheritance arguably works the opposite way — the less you receive, the more you work/add value; and sin/pollution taxes where you actually want a reduction in output in those areas which will have a positive knock-on effect to the rest of the economy (people are healthier etc).

Thirdly, even if successful and even if the extra taxes don’t reduce output elsewhere, the extra revenues you capture are already partly taxed elsewhere in the system (typically at around 33%). So if you raise an extra £1bn, that is £1bn taken from elsewhere in the economy where it is already being taxed at £333m (33%). So your net increase in tax revenue across the economy is only £667m.

A much better approach to taxation would be to shift the burden from the productive economy (working capital, workers — including higher paid workers, consumption of non-damaging goods and services) and towards the unproductive, monopolistic asset owners or polluting/damaging activities. So a land value tax, licensing public assets (such as the ability for bank to charge interest or create deposits) instead of giving them away for free, and higher taxes on pollution, tobacco, alcohol and other damaging activities. This would give all workers a boost in income, shift behaviours towards healthier, less damaging activities, increase productive activity across all areas of the economy and increase revenues for public services and infrastructure (if desired).

Simply raising tax rates and assuming the revenues will come (and that the economy will absorb those higher rates) is not realistic or desirable in my opinion.

It’s not the wealthy who are the problem. If you are rewarded for creating a lot of wealth, great. If you are rewarded for extracting wealth created by others, then you are the problem. I don’t see much in Labour’s manifesto that addressses that.

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