Archive for the ‘Tax’ Category

Scrap the FTT, have a Bourse Tax instead

January 20, 2012 1 comment

At 10.53 on 20th January 2012, the Telegraph reported on their live blog:

10.53 A German Government spokesman says that an EU-wide financial transaction tax is still the goal, but that there may be a possible bridge with the UK via a bourse tax.

What is a bourse tax?

Frankly, I have no idea beyond speculating that it’s a tax on transactions within a stock exchange. A bourse is an organized market where tradable securities, commodities, foreign exchange, futures, and options contracts are sold and bought. The very things which would be taxed under a FTT anyway.

The fact that it is limited to the individual exchanges would mean that it is an attractive deal to the British. However it does raise complications, considering that the largest Pan-European exchange, Euronext, merged with NYSE in 2007. Another large European exchange, OMX is a Scandinavian exchange with activities in Norway. Confining finance and the taxation of finance to the Eurozone will only create more problems than solutions.

However, with the smaller exchanges, such as the Deutsche Boerse, this confinement could happen without angering any non-eurozone interests.

The Threat of the Tea Party

September 21, 2010 1 comment

The American right has always seemed a strange and outlandish place to me, with its strange mix of total faith in the constitution, xenophobic isolationism and neo conservative Christianity. I used to assume that this was mostly based on poor education levels and the inherent size and isolation of the United States. However the recent rise of the Tea Party seems to mark a shift in the future of the American right. It has lost a little of its loony fringe look and is beginning to gain support. It seems to me that the world of American politics is heading back to a 1968 scenario when George Wallace ran as an independent candidate on a pro segregation populist wave in the Deep South. I am not suggesting that the all of Tea Party is in favour of segregation based on race, but there have been some high profile incidents including the photo of founder Dale Robertson holding a sign with the slogan “Congress= Slave owner Tax Payer= Niggar [sic]” there were also several shouts of nigger and faggot at congressmen on the hill at the vote on the Patient Protection and Affordable Care Bill. But I will discount this for now as the idiocy of a few on the extreme of American politics. I will instead focus on the political gains and aims of the Tea Party as it moves further into the mainstream of American politics. So far this year they have won four primaries for republican nomination for senate positions and won the election of Ted Kennedy’s replacement. They have also won the seat or the republican nomination for around a dozen state legislature seats and one governorship.

I will now turn my attention to the principles and policies of the Tea Party. Just in case anyone is unaware; the party inhabits the right of American politics and is named after the Boston Tea Party. The party wishes the United States to return to ‘the good old days’ when life was simple and life expectancy was low so there was no need for social security.

Listed below are the 10 agenda items that the Tea Party wishes candidates to follow, this was created from a survey of just under half a million votes.

  1. Identify constitutionality of every new law: Require each bill to identify the specific provision of the Constitution that gives Congress the power to do what the bill does. (82.03%)
  2. Reject emissions trading: Stop the “cap and trade” administrative approach used to control carbon dioxide emissions by providing economic incentives for achieving reductions in the emissions of carbon dioxide. (72.20%)
  3. Demand a balanced federal budget: Begin the Constitutional amendment process to require a balanced budget with a two-thirds majority needed for any tax modification. (69.69%)
  4. Simplify the tax system: Adopt a simple and fair single-rate tax system by scrapping the internal revenue code and replacing it with one that is no longer than 4,543 words – the length of the original Constitution. (64.9%)
  5. Audit federal government agencies for constitutionality: Create a Blue Ribbon taskforce that engages in an audit of federal agencies and programs, assessing their Constitutionality, and identifying duplication, waste, ineffectiveness, and agencies and programs better left for the states or local authorities. (63.37%)
  6. Limit annual growth in federal spending: Impose a statutory cap limiting the annual growth in total federal spending to the sum of the inflation rate plus the percentage of population growth. (56.57%)
  7. Repeal the health care legislation passed on March 23, 2010: Defund, repeal and replace the Patient Protection and Affordable Care Act. (56.39%)
  8. Pass an ‘All-of-the-Above’ Energy Policy: Authorize the exploration of additional energy reserves to reduce American dependence on foreign energy sources and reduce regulatory barriers to all other forms of energy creation. (55.5%)
  9. Reduce Earmarks: Place a moratorium on all earmarks until the budget is balanced, and then require a 2/3 majority to pass any earmark. (55.47%)

10.  Reduce Taxes: Permanently repeal all recent tax increases, and extend current temporary reductions in income tax, capital gains tax and estate taxes, currently scheduled to end in 2011. (53.38%)

I will now take a closer look at these main points. Number one, identifying the constitutionality of every federal law. This may seem to fit with the founding fathers idea that all laws should be constitutional it just takes this one step further and means that a law must prove it is constitutional first. This seems to remove some of the checks and balances and removes the Supreme Court from interpreting the Constitution and instead hands the power to the legislative branch. This of course is unconstitutional. However this is just the tip of the iceberg with the problems of the American Constitution. I have the highest praise for the ideals of the founding fathers and the framers of the Constitution. The document in its time, was a dramatic leap forward, it codified the ideals and laws of a new country and was necessary to forge it as an independent country made up of 13 states. The Constitution was well thought out and reflects the ideals of a new country founded in the 1787, but how could the framers envisage, the digital age, nuclear weapons, the cold war, globalism, electronic surveillance, non-state terrorism and all the other changes the world has seen since the beginning of the twentieth century. The Constitution was not designed to be able to cope with these changes,  the mechanisms for changing the Constitution are to lengthy and a large number of  American people still have faith that it can see them through any future legal issues.

Point number two is not a wholly ridiculous idea, its sentiment may seem to be a good and realistic idea to help combat climate change by recognising that profit is foremost in a company’s mind-set as opposed to social and environmental responsibility. However, as I am a cynical individual and this idea acknowledges the greed of corporations and it also identifies the greed of the Tea Party and American politics in general. Big business has long been an effective lobbyer and today they are more efficient than ever at conducting this and securing politicians at all levels who are sympathetic to their cause. The sheer cost of running for office in the United States means that almost all politician’s will have to shed some moral or political standing points to ensure endorsement by businesses with enough financial clout to help finance their election campaign.

Point three is achievable now if it wasn’t for the amount of partisan politics that are played with the budget and the attachment of amendments totally unrelated to the budget. The right and left are equally at fault for this.

Point four is to adopt a simple and fair tax system, this is the economists and politicians holy grail, if it could be achieved it would be immensely popular and used the world over. This seems a legitimate and sound idea. However it is the next part of the sentence that gives the Tea Party an incredibly bad name from anyone who understands economics. A single rate tax system means that there is only one tax. For example a household pays a tax of about 10% of income for a year and that is all. It scraps things like inheritance tax or payroll taxes. The system is usually as simple as possible and does not allow for any tax deductions. Every household must pay the same amount of tax regardless of any other circumstances. This is a grossly unfair system of taxation which I am sure Mr Oldfield can explain in greater detail. In short it burdens the least affluent with the majority of the costs of running the state in proportion to their income. Also having a tax code restricted in length by a document written in 1787 is just stupid.

It has always been the dream of the right in America to devolve everything in the country back to the states with very few things remaining in the purview of the federal government.  This is what they wish to do with the fifth idea. They wish to assess the constitutionality of all the federal agencies and programs. This is based on a document that was not written to govern a geographically large, ethnically diverse and regionally split country like the United States. The Tenth Amendment of the Constitution says “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” This has thrown up all sorts of issues especially with issues that concern more than one state, or the whole country. A major one is education, it has been echoed so many times that some people believe that they know what is best for their children rather than a lot of bureaucrats in Washington. This of course does not take into account the millions of dollars the federal government could spend on researching the best methods of education.

Item six is a bad idea as it does not take into account future unpredictable events such as war or large environmental disasters. The limiting of federal spending may not be such a bad idea in these tight times but some flexibility is needed if the limitations are too strict the United States may suffer at a later date.

Point seven is plain and simple it means no to communism. Of course a universal public funded social healthcare system belongs on the left of the political spectrum, however that does not mean it is a bad idea. The American healthcare system is in tatters with the people most at risk from health care issues being those without access to healthcare. It is a shocking statement when the comparison of GDP and ranking of healthcare systems are shown. According to the IMF and the World Bank the United States has the highest GDP for last year and according to the WHO it has the 37th best healthcare system. The federal government is clearly not spending enough on healthcare if it is ranked one place below Costa Rica who are ranked 85th by the IMF and World Bank with a GDP of $29,318 million compared to the GDP of the United States which is $14,256,275. In percentage terms the United States spent twice as much of its GDP on health care as did Costa Rica and still is ranked one place behind them. So yes there needs to be a major readjustment in the provision of healthcare in the United States but scrapping the first attempt at free healthcare is not the way forward.

Point eight simply says lets drill for oil in the Arctic Circle especially in the arctic wildlife preserve. This is just a silly idea as anyone with half a brain can see that the United States is heavily oil dependent and no matter how much more oil it can procure it will never be enough. To solve the American fuel crisis will be the next big challenge to face the United States.  Hydrogen fuel cell technology needs to be developed at a hugely inflated rate as well as save storage and transportation of this volatile fuel. Now to solve the power problem, solar energy has to be the way forward. The United States covers 3,794,101 square miles, Dr. David Goodstein, Vice Provost and Professor of Physics and Applied Physics at Caltech worked out that if a 300 square mile area in the Nevada desert was covered by photovoltaic panels it could produce the amount of power the United States currently gets from burning fossil fuels. This is just 0.008% of the total landmass, now while the cost is prohibitive with large funding now energy prices in the long term will more than cover the deficit, I do not think the Tea Party have the stomach to make the kind of decisions that are required now.

Point nine is a budgetary peculiarity that is not possible in the United Kingdom so for those unfamiliar with it I will provide a brief explanation. The federal Office of Management and Budget defines earmarks as funds provided by Congress for projects or programs where the congressional direction (in bill or report language) circumvents Executive Branch merit-based or competitive allocation processes, or specifies the location or recipient, or otherwise curtails the ability of the Executive Branch to manage critical aspects of the funds allocation process. For a party determined to limit the ability of the federal government this seems a strange idea to add more federal oversight. However I believe that this particular piece of legislation if it was passed would allow the right greater scope to block funding of anything it considered liberal, secular or Un-American.

The final point is the most silly of all, a permanent repeal of all recent taxes. This would immediately require a new emergency budget. This would probably bankrupt the country just as it claws its way back out of the recession. But the Tea Party believe that this will allow for economic recovery as people will have more money to spend. This of course does not include the unemployed or those on very low incomes or the retired who are not taxed as heavily or at all. This is the republican dream to cut taxes to the bare minimum and provide no support to the individual but allow them to succeed by themself through hard work and achieve the American dream. The biggest downside of the American dream is everyone plans for the day they become a millionaire.

The rise of the American Tea Party has been greeted with dismay by the majority of the Republican Party especially those on the moderate side. Christine O’Donnell (who as I have been writing has been shown to have dabbled in witchcraft during her youth, a revelation that of course will endear her to the religious right who form her voter base) with her win in the Delaware Senate GOP primary has caused senior republican party figures to openly fret that the Senate is now out of reach. The Democratic leadership on the other hand is overjoyed. She and the Tea Party push the right further right and allow the left a bigger control of the centre ground.

If the Democratic Party is as smart as I am, they should take the moral low ground in the advertising war. Paint all the Tea Party candidates as right wing nuts, like Sarah Palin. ‘Do you really want someone running the country who believes that the world was formed two thousand years after the domestication of the dog?’ Is an apt slogan.

The views of some of the Tea Party candidates are so far to the right as to be laughable here in Britain, but are they too far to the right for the average American? Only time will tell. A brief rundown of the view of Christine O’Donnell show she opposes the right to an abortion (granted by the Supreme Court in Roe v. Wade in 1973) even in the cases of rape or incest. She is endorsed by the NRA which tells you all you need to know about her views on the Second Amendment. She is an advocate of teaching Creationism and wrongly stated that evolution is only a theory and therefore should be ignored. There is a misunderstanding of the term theory, she believes that the word theory means that evolution is in doubt. Evolution is only a theory in so much as it is waiting to be disproved, like all science it will be amended when it can be shown that there is a better explanation. Sharron Angle, who is running for a senate seat in Nevada, believes that the UN is a bastion of liberal ideology and “the umpire on fraudulent science such as global warming.” She also is a homophobe who believes that gay men and women do not deserve the right to marry and her views on abortion are the same as Christine O’Donnell.

Once they have finished showing the Tea Party Candidates for who they really are the Democrats should seize the moral high ground in the debates. The Democratic Candidate should patiently explain why the Tea Party are not a progressive movement for change but a populist venting ground for the current economic situation that they are trying to fix.

I think my analysis of the new American right has shown the large gulf between British and American politics. The Tea Party could never be anything but a loony fringe in this country. I am glad I live in a country that attempts to be socially progressive and seeks the best for all its citizens and does not constantly look to the past for ideas on how to face future challenges. I have been criticised before for taking too tough a stance on American politics and asked why I care so much. There are three simple reasons for this. Number one the United States has the largest and most deadly nuclear arsenal in the world and I want that to be under the control of a well-educated, sensible person who will use it only as deterrence, not as a stick to threaten, or worst of all use it without proper provocation. Secondly the United States isolationism has been shown to dramatically affect global military stability. An isolationist policy by a conservative American government can never be a good thing for the world. Thirdly the economic depression that so badly affected and continues to affect the U.K. began in the United States. A return to the dark days of the 1930’s, which is what I think will happen if Tea Party economic principles were enacted, could only be bad for my country.

Income Tax Reform: A Revision

Income Tax Reform

In a bid to restore the public finances to normality taxes must be raised and spending reduced. Reduction of spending alone will not reduce the structural deficit, currently standing at £150bn, fast enough for international fiscal stability nor will it maintain public investment in the economy whilst the recovery is still relatively fragile. That is why taxes must be raised and also reformed in order to maximise the potential offered through the tax system. This report will look at a potential model for income tax which will increase income tax revenues by £17.5bn per annum from the current £134bn.

This report has utilised data from the Office of National Statistics'(ONS) Labour Force Survey (LFS) and Annual Survey of Hours and Earnings(ASHE) and Her Majesty’s Revenue and Customs (HMRC). This report will establish the methodology used and the model for the reform of income tax.


Using data from the LFS for the usual hours worked per week for those in employment, given by LFS in a percentage, and converting the total in employment aged 16+ from a survey sample of 28,865,000. Therefore the actuals for those working less than 6 hours per week is 432,975 people. Between 6 and 15 hours inclusive 2,020,550 people. Between 16 and 30 hours inclusive 5,599,810 people. Between 31 and 45 hours inclusive 15,269,585 people and for those working over 45 hours per week 5,542,080 people. However the survey sample of 28,865,000 neglects the 1,735,000 remaining tax payers that are included in the tax receipts for HMRC from 30,600,000 people. Therefore the model will exclude the 1,735,000 people of which there is no data for.

The data from ASHE gives a 10 group percentile breakdown of those in employment, both part-time and full-time workers, along with hours worked and average pay for the corresponding percentile groups. For the purpose of the model each percentile group has been allocated a 10 per cent division from a total of 100. Using the percentile groups for hours worked and the actuals from the conversion of LFS data a new set of data has been created with hours worked, pay earned and numbers in employment. See Table 1 and 2.

Table 1 – Part-Time workers

Percentile Group Average Hours Worked Average Pay £ per annum Workers
1 6.4 2902 432975
2 10 4680 673516
3 12 5323 673517
4 14 5967 673517
5 16.1 7280 933301
6 21 10163 933301
7 23.2 12157 933302
8 24.4 13566 933302
9 25.4 15329 933302
10 28.8 21343 933302

Table 2 – Full-Time workers

Percentile Group Average Hours Worked Average Pay £ per annum workers
1 34.9 13872 1696621
2 35 16874 1696621
3 36.1 18249 1696621
4 37 19667 1696621
5 37.3 22575 1696621
6 38.8 29493 1696620
7 40 33750 1696620
8 40 36406 1696620
9 41 39680 1696620
10 45 51464 5542080


Using the new data set we can begin to apply the tax model. See Table 3. The increase of the Personal Allowance threshold to £10,000 excludes 3.3 million people from paying tax or just over 10% of 2010-11 tax payers. The Personal Allowance is also extended to the remainder, barring those earning over £150,000 per annum, so that, for the majority, disposable income is increased. The current graduated tax bands have been discarded in favour of a lump sum approach. This will ensure simplicity because one is taxed according to the bracket they fall into. The 10 per cent tax rate has been reintroduced in order to protect those less well off. A 30 per cent tax rate has also been introduced to encourage fairness within the middle income brackets whilst not creating confusion through an over complication of the system. The 20 and 40 per cent tax rates will remain for those in the low middling and high income brackets. It is fair to say that the most well off will bear the brunt of the reform. However, due to the increase in the personal allowance and a complete overhaul of the income tax system the effects of the increases can be regarded as negligible.

Table 3 – Income Tax Model

Income Bracket (£ 000s) Tax Bracket (%)
0 – 10 0
10 – 20 10
20 – 30 20
30 – 40 30
Over 40 40

As is similar with the current system, the first £10,000 earned will be tax free. However anything earned over the limit will be subject to taxation. If, for example, a person earning £39,000 pays tax only £29,000 of that is taxable resulting in a tax payment of £8,700 on the 30 per cent bracket that they would find themselves in. It would also leave them with £30,300 in disposable income. However this model does not take into consideration the effects of National Insurance Contributions on disposable income.

The revenue gained from the individual percentile brackets (see Table 4) would result in a gross revenue of £151,598,518,000. An increase of £17,505,518,000 from the current £134,093,000,000.

Table 4 – Tax Revenue from the Percentile Groupings

F/T Percentile Grouping Income from Tax (£ 000s) P/T Percentile Grouping Income from Tax (£ 000s)
1 656931 1 0
2 1166256 2 0
3 1399541 3 0
4 1640122 4 0
5 4266999 5 0
6 6614442 6 15212
7 12088417 7 201313
8 13440284 8 332815
9 15106704 9 497356
10 91918722 10 2253404
Categories: Analysis, Economy, Tax Tags: , , ,

Defending the Rise

May 13, 2010 7 comments

It may seem odd that a blog pertaining to be progressive is defending a rise in a regressive tax – but VAT needs to rise to 20% in order to reduce the deficit and bring public debt down to a manageable level if not eradicating it all together.

Each 1% increase in VAT yields, roughly, £4.5bn in revenue – this is an opportunity that cannot be passed up. It is true that VAT was introduced by a Conservative government and all subsequent increases have been implemented by Conservative governments. The mistake is not the increase in VAT but the reduction, in 2009, to 15%. VAT does not impact massively on peoples lives apart from big purchases. Big purchases being Luxuries. Luxuries are not needed for one to survive.

The reduction in VAT was felt little by consumers and was introduced more to aleviate the fears of the retail industry. The ‘benefits’ were not largely felt by consumers. The experiment cost HMRC £11bn in lost revenue.

Of course a supply-demand analysis of the market will have to be consulted to make sure that it does not impact too negatively on the psychological well-being of retailers. However a variation of VAT in the Nordic countries, MOMS, averages 25%, it is not unfeasbale, considering that the Nordic economies are smaller, to expect something similar.

In a time when fiscal austerity is becoming the norm throughout the Western World – it makes perfect economic sense to raise taxes and cuts in the public sector.

Whilst Mr Pike and I agree with the increase of VAT we also propose a full overhaul of the income tax system to make it fairer and progressive. We believe that a truly progressive income tax system would bring many people out of relative poverty whilst increasing revenue yielded. (Separate Blog in the pipe.)

Categories: Economy, Tax Tags: , ,