Entry for most inapropriate paraphrasing of “First they came…”

Fuel Duty, stamp duty, council tax, parking charges. People HATE these taxes and campaign on the basis that these taxes are “unaffordable”. Well, they’re not, because people keep paying ’em. QED. It might hurt, but that’s a feature, not a bug. I’m not arguing they’re fair or reasonable. But this really is a case of liking taxes levied on other people. People whinge when they’re taxed on what they like to do.

The underlying problem is that the British state spends 50% of GDP and is raising 40% of GDP in tax. We’re taxed too much because the Government is spending too much. It’s spending too much because for 10 years from 2000, when the one-eyed Scots maniac abandoned Tory spending plans, the Government spend with the care and attention to effects, of a man urinating after 10 pints. When the Government is spending 40% of GDP or less THEN people can whinge about wanting a tax cut. Until then…

First they came for the smokers, and I didn’t speak out because I am not a smoker.
Then they came for the petrol, and I did not speak out because I drive a prius.
Then they came for my drink and I didn’t speak out because I drink less than my doctor.
Then they came for my house, and because I’d supported every other tax rise, while voting for Labour to piss other people’s money at my problems, everyone else told me to “suck it up, you selfish twat.”

(With apologies to Martin Niemoller) More tax needs to be levied, and if you’ve ever voted labour, it’s your fault. With consumption and property taxation, at least you have a chance to avoid it, if you wish. Give up smoking, buy a bicycle and drive less, get your booze from Calais cut down the drinking, or buy a smaller house when you no longer need four bedrooms. This is much fairer than income taxes, which everyone seems to think are paid by the rich alone. Look at your pay statement. How much extra consumption tax could you pay, if that big chunk of your income didn’t dissapear into the Government’s maw each month? Consumption taxes are taxes on idiots buying a new BMW because his penis is small, rather than making do with a cheap 2nd hand runabout.

If people decided to take a bike or walk to the shops, they’d be healthier, and free the roads for those who need to drive. Fewer smokers, better health; (I don’t like saying this) more expensive booze, possibly less blood and vomit on the street on a friday night. A tax on of big properties will increase the supply of family homes for families, as it creates an incentive for Grandma to downsize BEFORE she’s incontinent. These taxes have positive, as well as negative effects. Income tax is just a punch in the face with no redeeming qualities. National insurance is a punch in the face which comes with a P45, without any redeeming features. Corporation tax is an just income tax (upon whom does the incidence of corporation tax fall?) which comes with a rejection letter from applying for a job after you’ve been fired because of NI increases, with no redeeming features.

To be honest, I think tobacco and alcohol are probably already taxed enough, but the principle of taxing activities with negative externalites is a sound one. Cut taxes on payroll, income and profits. Raise them on use of resources with short supply, specifically roads and big houses, to ensure more efficient use by those who value them most.

Why is it worse to pay council tax than income tax?

Is Vince Cable Right?

The 50p rate is a silly tax and raises little if any money, so needs to go. Osborne appears to want this. Both the Tories and Lib-Dems want to raise the income tax threshold to £10,000. This makes sense too. Why tax people earning less than a “living wage” and make them beg for some of it back? This seems perverse. This tax cut offsets any benefit cuts suffered by low-waged workers and makes a great deal of sense and seems fair. Politically, I can see why “the rich” need to be seen to pay more, even if I disagree they do.

Economically speaking cutting the 50p rate is a free win for the exchequer because it’s raised a great deal less than expected and may actually raise more money at 40% (the jury’s still out on this one, though I suspect the IFS will show the 50p rate has cost the exchequer…). Raising the tax threshold however is a genuine tax cut. As such, we at this blog are not punk-Keynesians who believe that more deficit is any form of “stimulus”. This means a raising of the tax threshold to £10,000 either needs to be matched by spending cuts (the best option) or a tax raise elsewhere.

Given that further spending cuts are not on the table, the question is what to tax. I am in favour of cutting income and payroll taxes, as well as those on capital and profits in order to raise taxes on consumption. I am also persuaded by the economic rationale for land value taxation, which is why council tax doesn’t get much abuse on this blog.

According to the BBC news, the options are extra council tax bands at the top, an increase of stamp duty, or a mansion tax on properties worth over £2m. A Mansion tax is silly. Why introduce a new tax, when there are land value taxes in place which could be modified? Although this was in the manifesto of the wooly-inbetweens and will probably be the most politically easy to implement, it’s not the right option. It’s distortionary, creating an arbitrary cut-off at £2m and will hardly raise any money at all, and with an additional bureaucracy for a new tax, is gratuitously inefficient.

There are not enough of these to make a “mansion tax” pay

An increase in stamp-duty on the most expensive homes is probably the next most politically likely. After all, you only pay it when you sell or buy which for most voters is far enough away to be ignored. Gordon Brown did this, and the result was a much less efficient market, one we’re still suffering now. Transaction taxes like this reduces liquidity in the housing market. A Tobin tax is a silly idea for shares, and houses are no different. Such a tax will encourage people to hang on to homes they rattle around in, thus increasing prices of four bedroom family homes for those, young families, who need them most, but can’t afford them. They’re paying income taxes, effectivly subsidising grandma’s three spare bedrooms in which nick-nacks gather dust. Transaction taxes are stupid. They decrease liquidity and predictability of markets, and therefore increase volatility. These are not good things in a market as central to an economy as residential property.

By far the best, most economically efficient tax, with the fewest economic side effects and one or two positive effects too is to simply increase the number of council tax bands, increasing the council tax on the biggest, most valuable homes. This will encourage empty-nesters to move down the property ladder, freeing family homes for, well, families who need them. It will encourage a more liquid, and therefore less volatile and more predictable property market. The act of downsizing your property will free vast amounts of capital currently tied up in property, to be redeployed elsewhere in the economy. It will increase incomes for pensioners who downsize.

One of the biggest structural flaws of the UK economy is the love affair with bricks ‘n mortar. By taxing property to pay for an income tax cut you replace a damaging tax (high rate income) with a less damaging tax (property value), and improve the liquidity and assortiveness of the UK property market into the bargain. You also increase the amount of tax raised locally, increasing the power and prestige of local government, which fits the Government’s localism agenda.

However. This isn’t what will happen. The arguments in favour of raising council tax are too difficult, the tax too unpopular to be the vehicle to replace the taxation of income between £7,000 & £10,000. What will happen is that a “mansion tax” on “the rich bugger down the road” will be levied and an opportunity to reform council tax will be lost. There will be a tax cut. There will be a replacement tax, which won’t raise as much as income tax on income between £7,000 and £10,000 and therefore the deficit will go up. The property market will be made a little more complicated and a little less liquid.

The Tories are half right. (actually a bit more than half). The Liberal Democrats are half right (actually a bit less than half). Half times a half, is a quarter, so I suspect the coalition will be a quarter right. This is why tax systems should not be designed by a committee.

Sin Taxes, Incentives & the “War on the Motorist”.

For 50 years, the roads have been designed exclusively for the car, to the exclusion of almost all other means of transport. Branch lines were axed on the rail-network and the rest fell into unionised disrepair, motorways were built, tramlines ripped up and buses (outside of London) were neglected as the choice of the underclass. Little thought was given to the bus, cycle or pedestrian in the design of roads, or if they were, it was about controlling the pedestrian with cages and detours, in order to keep the motorised traffic flowing. Town centres were wrapped in urban dual carriageway circulatory systems leading into and out of multi-storey car parks. Unfortunately, the experience of road-building is that any increase in capacity is rapidly filled, and despite the investment, the experience of the driver in most of the UK is pretty miserable.

As a result, any removal of road-space from the private motor car, for bus lanes, cycle lanes or other forms of public transport is enormously controversial, and seen as part of a “the war on the motorist”, who feels over-taxed, and generally put-upon. Because racism is no-longer allowed, the most vituperative comments on Local papers’ ‘sPeAK YoU’RE bRaneS’ boards are reserved for cyclists who are all red-light jumping, suicidal, pavement-riding, road-hogging Lycra Nazis who are in the way. Angry yet smug, they are the cause of all that is wrong on the roads.

Of course driving can be fun. The open road (ha!) or a race-track. And we’ve all experienced the joy of giving it the beans when given the opportunity. This is what people think driving SHOULD be like. It isn’t.

Driving is NEVER like this…

Driving is uniquely stressful, especially in stop-start traffic. This is why cyclists are so hated. The unexpected flash past the window merely adds to the stress of the motorist in the urban queue who immagines actions to be far more dangerous than they actually are. The disconnect between how driving is, and how it should be, combined with the envy of the cyclist, as he makes progress, ignoring the red light (when safe, I do so to get out of your way…) and nipping in and out of the traffic, leads to these feelings of hate and rage. Of course, if you’re sitting in traffic, you’re part of the problem, not me…

Now my principal interest, as an occasional motorist myself, is to have smooth traffic flow and as stress-free a journey as possible. The problem comes at pinch points which set the capacity for an entire system. For example, the M4 (of Jeremy Clarkson’s bus-lane fame) into London from Heathrow has its capacity set principally by the Hogarth Lane roundabout in Chiswick and a 2-lane overpass between junction 2 & 3. There’s no point having a 3 lane black-top if it just pours vehicles over a bridge which will be backed up for 6 hours a day as a result. The thinking behind the bus-lane is that a significant chunk of that traffic will be doing one route: Heathrow to West London. A bus will take cars off the road, freeing capacity, for people who want to use a car, and presenting another option for those who haven’t a car parked at Heathrow, and for whom the train or tube is inconvenient. It takes excess capacity off the road, leading to the pinch-point, meaning at peak hours, the traffic flows slower into the junction, leading to fewer tail-backs. Thanks to Clarkson, the bus lane is no more, and there are more delays as a result.

This is also the thinking behind variable speed limits when the road is clear – for example to ease the congestion at Junction 6 (spaghetti junction) of the M6 whose capacity is exceeded almost every day, you often see 50mph limits on the overhead gantries for 20 miles leading up to it. Of course everyone ignores variable speed limits and Junction 6 stops moving every day (Advice: the M6 Toll road between junction 4 & 11 is well worth £5. If this blog can teach you anything, never, unless you absolutely have to approach junction 6 of the M6. You will be there for hours…).

So here’s the rub. Traffic engineers can look at a system and suggest that IF everyone does X, we can have capacity Y. But motorists don’t like being told what to do, and rarely believe it’s for their own good. The legacy of the hated Gatso camera (which I want to see removed), speed bumps (cyclists hate these at least as much as motorists), one-way systems, all designed to make traffic flow better, but end up making drivers even more stressed. And a stressed driver is an aggressive driver. And that makes no-one happy least of all, me on my bike.

From a recent twitter thread: “£8bn in spending on roads, but motorists pay £30bn in taxes.” or variations thereof is an oft heard refrain. So let’s look at this in more detail. Vehicle Excise Duty (a tax I’ve long argued should be abolished) raised £5.4bn and fuel duty raised £24bn. Fair enough. But this isn’t a hypothecated fund for road building. It’s more akin a usage fee for a scarce resource, in this case road space. It is also designed to cover the externalities of CO2 emissions (whatever you think of this, I’m not interested right now), noise, pollution, and congestion.

England (see comments) is the world’s 3rd most densely populated country (ignoring micro-states) after Japan and the Netherlands. The greater south-east is the most densely populated area in the world. There just isn’t the room for everyone to use their cars at the same time. So bear that thought in mind when reading the next few paragraphs. What this enormous £30bn tax bill represents is a colossal mis-pricing of an asset. Roads are far too expensive for 12 hours a day (9pm-6am). They are far, far too cheap between 7:30 and 9:30am or between 4:30 and 6:30pm. They’re probably about right (given that they’re full, but running smoothly) during the rest of the day.

So. You’ve a problem for 4 hours a day, across much of the south-east as everyone tries to get to the same places at the same time, by the same means of transport. You’ve got 3 options.

  1. Build capacity. The problem is that if you build enough capacity, you get Milton Keynes or in it’s extreme form, Los Angeles. Free Parking in LA has been a curse. A 2 bed semi in Milton Keynes costs £315k compared to £500k in ‘war on the motorist’ central, Cambridge. This differential despite the fact that Milton Keynes has better connections, and is an easier commute into London (the strongest correlator with house prices). People don’t choose to live in a car-paradise, because cars though lovely to be in, impose enormous externalities on everyone around them – noise, pollution, danger – when they move faster than 20mph. The market has spoken. People like their car. They don’t like other people’s, and they will put up with restrictions on its use for quality of life.
  2. Encourage alternatives, which means laying on buses, trains, trams and designing the roads so they aren’t savagely hostile to all but the most aggressive and confident cyclist. The fact I am not in a car, is one less car in the queue up the hill to the roundabout. Motorists should recognise this and welcome it. The problem is cycling is uncomfortable to the weak (yes I do feel utter contempt for fatsos in boxes…), and buses are just nasty. So that in itself is not enough.
  3. Discourage motorists at peak hours. This is the argument behind the congestion charge. I don’t like road pricing mainly because of the surveillance aspect of it. I don’t like ‘the man’ being able to track my movements. Instead I prefer the widespread use of parking charges as a proxy for road pricing. This isn’t a “nudge“, but an application of the principles of the market to road congestion. Councils encourage short-term parking for shopping, with nominal short-term ticket charges, rising sharply should you wish to park all day (which is often not possible at all in a council car park). Further more, councils charge an annual tax on office parking spaces -£600 in the last example, to discourage commuting and encourage the use of alternatives. Clever use of technology will allow motorists to pay when they leave for what they’ve used, rather than using penalties and traffic wardens, which just creates more stress.

On top of the externalities motorists impose on themselves, like congestion, cars impose externalities on everyone else when they move. (Don’t even try to deny this. Would YOU want to live next to a main road…?) especially when they move faster than 20-30mph: These externalities which reduce the qualitiy of life for those around them are principally Noise, pollution and danger, which are reduced to almost nothing when the speed drops. This is the reason most residential streets are being closed off at one end to prevent “rat-running”. The campaign for 20mph zones in urban areas isn’t a war on the motorist, but an attempt to help people who live there, live with cars safely and without stress. Intelligent road design can achieve this without further stressing the motorist. The point is, where the road design is intelligent, the average motorist doesn’t notice it. I do, because I am a road design bore.

So, motoring & parking charges are seen as “sin taxes” on what most people regard as a necessity. They aren’t. Nor are speed limits below what you think “safe and reasonable” or traffic calming measures a politically motivated restriction on your freedom. They’re mostly about demand management and safety. This is why the Tax Payers’ alliance is wrong on ‘Sin Taxes‘ which according to them “either work, or raise revenue. They can’t do both”. They can, of course, it’s just a question of where any particular tax is on its laffer curve, something the TPA is fond of pointing out in other contexts. If a 5% rise in tax leads to a 2% drop in use, you have raised money AND had an effect. In any other context, a market-pricing system for use of a scarce resource would be lauded by the TPA, but not, it seems when applied to the motorist, which is bizarre. Because the TPA are firmly of the (correct) belief that market price-setting anywhere and always leads to more efficient use of a resource, and therefore greater wealth for all.

So. All this stuff I’ve been writing about these last few days isn’t about a “war on the motorist”, nor is it particularly about cycling. It’s about a fair crack of the whip for all means of transport, which all have their place in a sophisticated, decentralised, efficient means of getting people to the right place at the right time. If all you have is a hammer, everything looks like a nail. The UK is too car-centric, and needs to invest in alternatives, mainly to make the car itself work better. A benefit of fewer cars in our town centres MIGHT be a more pleasant and relaxing environment for us all.

I mentioned three countries more densely populated than the UK – The Netherlands, Belgium and Japan. All have embraced the bicycle as a means of urban transport, and both invest heavily in public transport. They do this because in parts of the world where lots of people live together, there just isn’t room for everyone to drive. Motorists know this, deep down, and fear the loss of their privileged position in the hierarchy on the road. That is why any comment which involves addressing the necessity to control traffic is dealt with in such an angry way. Humans are irrationally loss-averse, and blind to opportunities. Just as benefits recipients fear the changes to the benefits system more than is reasonable, the motorist fears any alternative to the car more than is reasonable.

Note, I am not suggesting YOU can’t use YOUR car, merely suggesting that government has a role in providing safe alternatives, even if you’re a libertarian. If you’re a libertarian, you should be in favour of market pricing mechanisms. This isn’t government promoting anything, nor is it isn’t a war on the motorist. Can we really go on sitting in traffic for hours (when I say “we”, I mean “you”. I’m long-gone)? Wouldn’t it be better if, on a sunny day, you weren’t put off taking a bike to work for a change because of a perceived danger? It’s about giving the options, not taking them away. Wouldn’t it be nice if there was an incentive for your employer to allow you to work at home? Do we really ALL need to make the journey to work at the same time? Without a pricing mechanism which captures at least some of the externalites, you will not have the most efficient use of resources, and we’re all poorer for it.

Finally, and much more broadly, we have the wrong basis for taxation. Why do we tax jobs, leading to fewer jobs; why tax profits, we want more; why not tax externalities instead? Pigovian taxes make more sense than income taxes because the tax can create a positive outcome in more efficient useage of resources. Wouldn’t that make sense?

The Darwin Economy

Robert H. Frank, professor of Economics at Cornell university has written a very interesting book called the Darwin Economy. The central Idea is that Humans are prone to decision-making which is optimal for the individual, but damaging to the Group, in a manner similar to the evolutionary Arms race which sees Bull Elk producing enormous antlers every year. Such adornments are costly, not only in the resources of calcium and protein, but also in the difficulty of moving in forests with such ungainly headgear, leading to predation by wolves.

Thus spending on such display items as cars and houses is excessive and sub-optimal. Humans being status-conscious beings, we feel it necessary to keep up with the Joneses, leading to an arms-race of consumption cascading from the super rich all the way down to the very poor.

This is market failure, but not in the way the left thinks, as is explained at some length in the book. Instead Professor Frank suggests it is a failure in the basis of taxation. Why do we tax things that are good, like income or jobs which we need more of? Why not tax things like status consumption or use of scarce resources, in which the effect of the tax is beneficial (lower mileage driven, fewer resources consumed, less excessive status arms-race) over and above the tax raised?

This isn’t to say that tax doesn’t take out of the productive economy, of course it does. But that the blow would be softened if IN ADDITION to the tax raised, there was some compensating behaviour change which made some people a bit happier. No-one benefits from a payroll tax like National Insurance in the UK. Many people benefit from lower congestion as a result of high fuel duty, not least the people paying it who would otherwise find traffic much more problematic than they do now were taxes less than 65% of the cost of their fuel. Perhaps a brand-new BMW (which as everyone knows will immediately turn you into a sociopathic tail-gating arsehole) should be taxed at a higher rate than a more utiliarian vehicle?

It’s an interesting idea, but is perhaps over-argued. I’m not sure I appreciate the endless repetition of the zero-regulation, zero-tax Libertarian caricature in the book, which has me screaming “STRAW MAN” in almost every chapter. Most libertarians, on this side of the pond at least, accept the need for some regulation, especially in competition. Zero tax isn’t a realistic propostion either and I am convinced by the Rahm Curve, with a peak at around 20%. Many Libertarians (including this one) even accept the need for some redistribution of income, to compensate people for the extent to which people’s station in life is defined by luck (a lot more than most people think). Finally, redistribution is an important guarantor of social cohesion, preventing, in final analysis, the rich ending up swinging from a gibbet.

Where the book is strongest is in its defence of free markets. Many leftists think “market failure” is the observation that the rich have more options than the poor. It isn’t. I would urge my left-wing friends to read it simply to hear a cogent and well-thought out explanation of how markets benefit ESECIALLY the poor. It is also why cash transfers are better at increasing utility, especially for the poor, than “free” top-down administered services, all areas which had me nodding in agreement.

I am not wholly convinced that the steeply progressive consumption tax Professor Frank advocates, should be the proper basis for Government revenue, but it certainly got me thinking. Certainly a properly constructed negative income tax or citizens’ basic income fulfils many of the benefits of the free market that Professor Frank supports, in that they give the poor agency in how they spend the resourses available to them, rather than ceding all that agency to well-meaning bureaucratic agencies. Where I disagree with Professor Frank is the extent to which status displays and positional goods (especially access to education) hurt the poor. The mansion-extension example which crops up though the book may lead to bigger houses further down the income distribution, but I am not convinced this is a wholly bad thing. Maybe amongst vulgar americans, where relative size is everything (over here, of course, we pay up for age, which is um… better or something). And the benefits felt by tradesmen who will build the mansion extension appears to be completely ignored.

Everyone engages in status displays amongst those either side of them, and by and large, aren’t that fussed by the lives of the rich & famous with whom they’re not competing, however much media bien pensants think they shoud be. A progressive handicap system to status displays, as proposed, won’t really change that desire to compete in status display. To decry as fundamental a human desire as competition as “waste” seems like social engineering and I’m not convinced by Prof Frank’s explanation. Even Guardianista’s eschewal of status displays can become competitive, as parodied in Viz’s Modern Parents. The evidence appears to be that the demographic most upset by high GINI coefficients appears to be relatively wealthy lefties who frot themselves into a state of deep mailaise over the statisitics. If there is one group of people for whom I have zero sympathy, it’s Hampstead sociailists. I like much of Professor Frank’s analysis, but I remain a flat-taxer.

On “Fairness” in political discourse

“All men are created equal” so says the American declaration of independence, putting equality of opportunity front and centre while the French revoloutionary slogan “Liberty, Equality, Brotherhood” put equality of outcome at the heart of political discourse. The word “equality” means very different things depending on its context.

The same is true of “fairness”. If all men are created equal, surely all citizens should pay an equal share of the burdens of state? This is the thinking behind poll taxes: a flat charge levied on all citizens. All men are equal, and are charged equally for the services to which they are entitled, surely that’s fair?

But, those with the broadest shoulders should pay more? Well that’s the thinking behind taxation as a percentage of income. Churches were the first to realise the potential in this idea, with the Zakat and the Tythe being set at a most-reasonable (by today’s standards) 10%. As society gets richer, so does the state/church levying the taxes. Everyone pays the same proportion of their income to the state. The poor pay the least. The rich pay the most. Surely that’s fair?

But then of course, this means that some people get very rich, and some very poor people still have to pay for services they might not use, and the payment is extracted at the point of a gun, is it fair to expropriate 10% of the income of someone struggling to get by? No. So the state set a rate below which it is immoral to take money by force. Let’s call this the personal allowance. Above this rate, everyone pays the same share of their income to the state. Surely that’s fair?

But then there are some people who are still successful and rich, and that will never do. So the broad mass of envious middle and low earners have taken the opportunity presented to them by democracy to see that someone else pays more tax. That “someone else” means, in effect “The rich” defined as “anyone earning more than I do”. The people ask the politicians to see to it that “The Rich” should pay a higher rate of tax “because they can afford it”. Some of that is returned to the broad mass of middle earners in paltry benefits of one form or another, to keep them quiet. Of course, in time, the state freezes rates at which the higher rate is levied and lets everyone creep into the bracket fomerly marked as “rich” which now includes almost anyone working. The politicians have managed to persuade the people that this is “fair”. Within a couple of decades, everyone working is paying tax. Everyone not paying tax is kept on benefits by 90% marginal tax rates – the Tories haven’t shown much interest in this demographic and the Labour party likes to keep its pets supplicant to the state’s teat. Is it fair that the poor face obscene marginal rates, while someone who probably uses public services less than average pays more absolutely AND as a percentage of income than the rest of us? If so, why?