Tax for the Trotters: No Income Tax, No VAT
It used to be argued that class jealousy was fuelled not by excessive income or wealth but by excessive consumption or wide disparities in personal possessions. If tax is to be used for social engineering, it could then be argued that a tax on consumption (such as VAT) was better than a tax on income or wealth – particularly if combined with a tax credit that effectively funded the VAT incurred by the very poorest.
How has the world (or at least our bit of it) changed?
Wealth taxes (such as Inheritance Tax) have become more unpopular – possibly as more people come within the scope of such a tax (or at least aspire to the level of wealth that would bring them within its scope). The conservatives’ proposal for easing the impact of Inheritance Tax seemed to have a dramatic effect on their popularity – possibly well beyond their own expectations. Likewise, the idea of funding end of life social care by a levy on one’s estate has also been rubbished by the conservatives – possibly a pity given the lack of a well argued alternative.
It might also seem to be that people are no longer aspiring to have high incomes – they seem instead to aspire to possess or to consume without too much concern as to how the associated expenditure is to be funded. People want the foreign holidays that “celebrities” enjoy, they want the designer clothes and other aspirational goods. Who actually needs an iPhone? This possibly makes the idea of consumption taxes (such as VAT) into “the taxes that dare not speak their name”.
Which leaves us with taxes on income. An almost visceral dislike of “excessive incomes” has been fuelled by disclosure of city bonuses and media salaries (question: is West Bromwich big enough to raise sufficient TV licence income to fund Adrian Chile’s salary?). Perhaps this means that politically the only way that you can raise significant money is by taxation on high earners. The fact that the current (last) government succeeded in raising more than it expected from a levy on bankers’ bonuses, would seem to point towards the feasibility of such an approach. The fear of a tax driven “brain drain” to more favourably taxed countries seems to be unfounded – unless of course the bankers are lacking in brains to drain away.
There is however a problem with raising significant amounts from a sub-section of society. It encourages in the rest of us an irresponsible attitude towards control of public expenditure, because we can call for more spending (or fewer cuts) knowing that we will not have to directly fund even a fraction of that expenditure.