Over the last few weeks there has been a new intensity to demand more and higher taxes. There has been a crescendo in the voices of media commentators, various MPs, and the left of centre political parties. All they want is tax. Tax is all they want.
I have got tired of having to answer endless media queries about my views on a Mansion Tax, a Wealth Tax, an expensive houses tax, another bankers’ bonus tax, a land value tax, a pension savings tax and the rest. Let me anwer just one more time.
The UK is not undertaxed. If you could tax a country to prosperity our prosperity would be soaring after all the extra taxes and tax rate rises of recent years. You cannot tax a country to prosperity.
We are not short of new taxes. In recent years we have had the Carbon Tax, the bankers bonus tax, the Bank balance sheet tax, the landfill tax, higher Capital Gains Tax, higher Income Tax rates , Congestion charges, additional oil and gas taxes, higher fuel duty, higher VAT, the aviation levy, higher car park tariffs from public sector car parks, and a host of others.
My view is simple. The UK is now overtaxed. Taxation is now above the optimum level that will contribute to faster growth and rising prosperity in the future. We are overtaxing now in ways which will limit tax capacity in the future, because the economy will be smaller as a result of the current tax levels.
I suspect we are also at or above the level of sustainable tax. There are limits to how much you can get out in tax in any given democracy. There is a danger now, as some have written on this blog, that current tax rates are seen as too high by those who have to pay the taxes, and some of them will find legitimate and some illegal means of not paying all these taxes.
My remedy is to set tax rates that maximise the revenue from that particular tax, where the tax needs to be levied. I also think we should return to Mr ( as he then was) Lawson’s admirable approach of regularly abolishing smaller taxes that are expensive to collect but irritating to pay. It would help to improve the mood and raise spirits, if people thought there will be an end to this ever increasing demand for our money, instead of every year making it worse. We will need to get more out of people in the future to pay for the state. It will be easier to do that if we set tax rates now, and a smaller range of taxes now, that speed growth and make collection easier.
Sometimes less is more. Grow the cake faster, and then the public sector slice can be larger whilst everyone else is still better off. The government’s own forecast shows total income tax falling in 2011-12 compared to 2010-11, thanks to the large fall in top earnings and the top tax take. It then shows income tax rising to be just 1% higher in cash terms in 2012-13 than in 2010-11. The government needs to ask itself why Income Tax is in such a poor way with these higher rates.
The UK is saturated by tax demands. Some are leaving the country altogether, some are moving savings and assets abroad, some are working less, some are deferring income, some are finding ways round the tax system within the UK.