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The vexed issue of taxation....

6/24/2014

1 Comment

 
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The vexed issue of taxation……


People always like to complain about taxes,  public spending and growth and so I thought it would be fun to start from scratch and build up a system in a naive copy of Plato’s Republic. 
If we make certain assumptions such as people’s desire for economic wellbeing and growth and a desire to live in a fair and just society we can try to work through what might make up a tax
system.


Why taxes?  Well  taxes are used to take care of market failures – things that aren’t provided for a by a market mechanism.  There is no need to subsidise soft drinks firms and phone companies as people will happily pay for these and it is easy to see ownership and control. Streetlights, on the other hand, cause us the problem that ‘pay-as-you-go’ would see towns in darkness and Pied Piper like lines following the one sap who is paying.  
 
Looking back in history we see that kings raised taxes to pay for armies and to build palaces.  We can forget the second one and the first shouldn’t be an end in itself.  What we really need first of all is a way for us to do business.  We need some way of being able to enforce contracts and secure legal title.  In the absence of this business will not flourish.  So sort form of judiciary is equired and that needs to be freely accessible and independent – so we need to cover that with a tax and a bit of central dministration too.    Ok so now we can do business and get paid, we really could do with infrastructure.  We could build toll roads and perhaps we should, though that does restrict the movement of people and goods somewhat.  Probably best the state builds and maintains roads.  Electricity and water are also required and these can be either state or private.  Either way though we pay
to use so no tax is required there. 



Ok so we have a country that has enforceable contracts and infrastructure.  We haven’t forgotten the army – some sort of defence force needs to be added and  that will require more tax.   To ensure we have an effective and efficient workforce we will need education – most people won’t be able to pay for that and so again we will need to raise some taxation.  Ideally this education will extend to as high a level as required but should at least secure literacy and numeracy to adult levels.  
Of course we need to help people manage their health – we need to ensure vaccines are used and communicable diseases are managed and reduced.  Again people may not be able to pay for this – and certainly we don’t want to leave it to chance so some form of health care provision is needed.  We can’t do business with ourselves though so need to fund embassies and aid overseas to increase our customer base and influence.  Some of this can be privately funded but we probably need some state
intervention.


In summary we have a judiciary (to include police), infrastructure, defence, education, health and foreign affairs.  People do get old though and probably won’t have saved enough so some sort of basic pension is required, alongside some sort of fiscal help for those  unable to work due to health.  Should this utopia not provide enough work then there needs to be some  subsistence allowance for those not working.  
 
So what do we do in reality?


 20%  Pensions
 19%  Health
 13%  Education
 10%  Other benefits (inc. tax credits)
 7%    Debt  Interest
 7%    Culture, sport  etc.
 5%    Defence
 4%    Public Order
 4%    Personal Social 
 3%    Housing & env
 3%   Transport
 2% Dept for  Business

Most of our money is spent on paying pensioners.  There are lots of them of course and so that’s a big bill.   We spend a fair bit on health too – though we have one of the lowest spends per head in the developed world (we are 15th).  With education we are 17th –though we have very crammed classroomsso that may help explain that.  We spend a lot on tax credits, subsidising low paying companies –  about 10% of the total.  Then of course a big chunk goes to  private landlords in the form of housing benefit.  Paying for the banking crisis is our next big spend followed by sport and  culture.  Defence is relatively cheap and policing even cheaper.  Infrastructure and business are last of all. 
 
Let’s take a step back though and ask again why.   For example £53 billion doesn’t need to be spent on sport and culture –
they are not market failures.  The  FA is wealthy beyond the dream of avarice after all.   Numerous billions could be trimmed from pensions if people had paid in to  their own schemes.  Housing benefit  could be reduced if the housing market was freed to operate properly and  councils freed to build.  Health is  a tricky one – we don’t pay that much by international standards. 
Perhaps though efficiencies can be made centralising and reducing the  number of local GPs?  
 
All in all though the tax system doesn’t seem that mad – at least on the spending side.  Perhaps we should look again at the tax raising side though?     


1 Comment
Sarah Davis
6/24/2014 08:32:14 am

Perhaps we should start with a decent living wage. In reality our world would grind to a halt without the army of low skilled, low pay workers who clean our hospitals & other places. Clean the streets, empty the bins, assist teachers, serve food & work in shops etc, etc. A married couple could work a 60 week each on minimum wage & without receiving any benefits & paying their tax & national insurance after paying for a mortgage or rent, bills, transport & food in real terms still be in relative poverty, Something wrong there.

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    Dr Bryan Mills

    "There he goes. One of God's own prototypes. Some kind of high powered mutant never even considered for mass production. Too weird to live, and too rare to die" Hunter S Thompson describing the author in 1971.

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