Fair Taxes


Here's an intelligent article by Philip Collins, a former Labour adviser, who argues that the emphasis of tax policy should on vast accumulations of wealth via land and inheritance taxes. 

Instead of taxing the earnings of entrepreneurs and people who work really hard and often take risks to get what they achieve in life.

I imagine Philip Collins' views are out of place in today's Labour Party where under Ed Miliband's leadership the party has discovered an interest in a 50p tax rate that it never displayed during 13 years of Labour Government.

In this day and age you would think it possible for politicians on a cross party basis to come up with a tax policy that is progressive but still allows people to keep most of what they earn, while tackling tax avoidance and targeting unearned income through sensible inheritance and land taxes. 

'There are no pockets in a shroud', as they say, so why not develop a policy which encourages people to help and provide for their families in life, but discourages great wealth being passed on from generation to generation. 
  

Children don’t earn their inheritance. Tax it


By Philip Collins - The Times

Philip Collins: A fair society would let people keep as much of their earnings as possible but take a cut from property and land

The best argument for inheritance tax is that it prevented Gordon Brown from winning an election. In 2007 George Osborne’s pledge to lift the threshold to £1 million inspired a Tory surge that prevented Mr Brown from calling a ballot he may well have won. This week David Cameron revived an idea that is popular, comprehensible and entirely wrong.

Of all the imposts in the land, inheritance tax is the most loathed and it is easy to understand why. Loving parents do not regard their wealth as theirs alone. They think of the family as a single unit and children as extensions of themselves. Passing down the heirloom is often part of the incentive for acquiring it in the first place. This is the bond between the generations, the material expression of the human desire to leave a legacy.

This is why inheritance tax is feared even though, in 2011-12, no more than 3 per cent of estates paid out. A regular above-inflation lifting of the threshold, which started at £100 in 1914, means that inheritance is largely a phantom tax. A levy of 40 per cent begins when an estate is valued at £325,000, unless the recipient is a spouse, a civil partner or a charity. This is already a tax on a fraction of the wealthy and raising the threshold to £1 million would be, in effect, abolition. Britain would become like India, Australia, New Zealand and Russia in permitting its citizens to pass everything down.

I am not immune to the appeal of this case, but the Liberal Democrats should be congratulated for blocking it all the same. I believe in merit, I believe in labour and I believe in enterprise. These are virtues that should be, for preference, taxed not at all and, for the need of revenue, taxed as lightly as possible. Inheritance is not a virtue like that. As a parent I have earned the money. As a child I have not. I have just had the good fortune to be born into a good fortune.

The State we have needs close to £600 billion in funds. That has to come from somewhere and, ideally, the confiscation of our cash should be conducted according to clear principles. At the moment politicians take the route of least resistance and most revenue. That is why we take 45 per cent of all tax revenue from our earnings, which we should be taxing as lightly as we can.

The Liberal Democrats have again been right on the personal allowance. The justification for taking anyone who earns less than £10,500 out of the income tax system is simply that they have earned the money and it is good to allow them to keep it all. It is not true, as it is often said, that people are taken out of tax altogether. They pay council tax and VAT and all manner of other taxes. They just no longer get taxed on the fruits of their own endeavour and this is a fine thing.

The fact that raising the personal allowance is not the best way to help the least well-off is a legitimate but different point. The underlying justification of raising the personal allowance is not the greater equality of the group but the greater liberty of individuals to earn their pay.

Business is taxed for a further 15 per cent of what we need. This is also too great a percentage for what is, in effect, a levy on ingenuity. There is a way we can lighten this load on individuals and on businesses and if we adduce clear tax principles it is not difficult to know what to do. It is just very hard to do it.

The governing idea for taxation was supplied by John Stuart Mill, whose distinction between earned and unearned income informed the liberal Budgets of Asquith in 1907 and Lloyd George in 1909. In an image he used often in his work, Mill despaired of the idle rich and the wealth that “falls into their mouths as they sleep”. The two ways in which, these days, we drop wealth into sleeping mouths are by inheritance and by the favourable tax treatment we allow to property and to the ownership of land. Inheritance tax gives us less than 1 per cent of the required revenue. Property is good for just 7 per cent.

It will hardly be popular but the case for taxing property and land is clear. Property, unlike income, is hard to hide and taxes on it hard to evade. In a regime in which domestic residences attract no capital gains tax, property becomes a prime investment. As a nation we give a series of tax incentives for the creation of housing bubbles, then we wonder why prices keep going up.

A mansion tax on properties worth more than£1 million would raise money and would also redress the imbalance between the North and the South. All of England, from Birmingham northwards, would contribute just 2 per cent of the revenue from a mansion tax.; 60 per cent of it would come from four London boroughs and a fair portion of that from foreign owners.

Then there is land, a commodity that retains its value because they have stopped making it. As Mill said, land is “a monopoly, not by the act of man, but of nature”. There are 60 million acres of land in Britain with a total value of £5 trillion. A land tax of 1 per cent would raise £50 billion, which would allow income tax to be cut by a third or, instead, the elimination of corporation tax.

The politics of the moment feel a long way distant from a principled regime like this. A government that had no concern for its own survival but had instead a disinterested regard for whatever was best for the nation would start to dismantle the pensioner welfare state and the huge corpus of unearned income that is dropping into the mouths of the elderly as they sleep. That government would tax the homes of the elderly and it would tax the gifts they give. The Budget, with its bounty for savers, signalled that this is no such government. The Prime Minister’s pledge on inheritance tax confirmed the same point.

It would be excessively high-minded to call this outrageous. Faced with electoral death by pensioners, what would you do? The imperative of democratic politics is to do something the people want. It will take a government far stronger than this one to join this argument.

The argument does, however, need to be joined. We are allowing one generation to hoard the cash and we are taxing the wrong things at random. Everyone knows the line that Benjamin Franklin stole from Daniel Defoe, which in its original form, in The Political History of the Devil, reads: “Things as certain as death and taxes can be more firmly believed.” We need to be braver about how we tax. The Government even has a slogan ready minted, because death really is the one place where we are all in it together.

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