I had some good, challenging feedback on my post on the magic money tree. So here, in more detail, is why i think the schedule is so idiotic:

• The schedule appears to include the value of public services received. But can we trust these valuations? It's unclear how they've been calculated.
• Even if the valuations are right, it's very misleading to include them. An individual's income is in cash, so it's misleading to show income in cash, tax deductions in cash but to add back public services at fair value. Alternatively, the tax deductions could be valued at fair value too, by recognising the opportunity cost of depriving an individual of his money. 
• There's no real indication that the public services are actually what an individual wants. Imagine that you're robbed in the street of £10. It's no consolation to be given a voucher for a lobster dinner "worth" £30 instead if it's not what you want.  Even if you're hungry.
• An individual doesn't really have more than he started off with. At the end he has much less cash but some 'vouchers' for state services. That means he now may be unable to buy things he really wanted to buy because those vouchers can't be bartered.

Many of these concerns may be applicable to the 'personal tax statement', depending on how the government finalises it. Assuming that it ever does.

Filed under: Politics, Taxation with tags benefits in kind, income tax, office for national statistics, welfare benefits
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Er, dude, I think you'll find they were.

Filed under: Politics with tags eoin clarke, house of lords, idiots, nhs, richard murphy
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Nick Clegg wants to give tax breaks to employee-owned companies.

Give John Lewis tax breaks, says Nick Clegg

The John Lewis department store and other employee-owned companies could be given capital gains tax breaks, under plans being unveiled by Nick Clegg

Well, it'll all rather depend on the precise wording, of course. But a major beneficiary could be the major audit firms. As they are owned by some of their employees, with no external investment.

If anyone can work out how to access a benefit intended for more traditional mutual organisations, you can bet the Big 4 can. Watch this space.

Filed under: Politics, Taxation with tags big 4, idiots, john lewis, nick clegg, tax avoidance
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In a brief discussion with Twitter blowhard Spitefuel about the Vodafone tax avoidance case, he dismissed the facts of the situation, claiming that it didn't matter because Ukuncut's case was a moral, not a legal  one.

I disagree wholeheartedly. It's simply untrue that you can remain disinterested in the facts of individual taxpayers. In each of the cases raised by Ukuncut, there have been very serious errors in their fact-finding, analysis or judgment. You cannot legitimately paper over these cracks by claiming the moral high ground.

• in the case of Sir Philip Green, they are claiming that Lady Green, a non UK resident, must be treated as Sir Philip's property. And therefore that her income should be taxed as if it is his income. Conveniently, this would have increased the amount of tax paid by the Greens to HMRC in 2005, a year in which Arcadia, owned by Lady Green but controlled by Sir Philip, paid a very large dividend.
• in the case of Boots, they are claiming that it's unfair that Boots should get a tax deduction for interest paid on its loans.
• in the case of Barclays, their analysis was just plain stupid. This "evidence" was so flawed that it provided no meaningful support for their hypothesis that Barclays avoids tax (even though, thanks to their own disclosure, we now know that they have sought to reduce their tax bill).
• recently, it has been claimed that companies that move jobs to countries with lower employment costs should be fined. So you get idiotic claims like this (from Google+):

• in the case of Vodafone, it was argued that Vodafone should just accept UK law as written, even if that law appears both to be illegal under European law and leads to double taxation.

Ukuncut also employs some very unorthodox strategies for executing its campaigns. For example, disrupting Saturday shoppers, supergluing themselves to the insides of shop windows, setting up fake hospitals and libraries, trespassing in Fortnum & Mason, and aligning themselves to the ill-fated OccupyLSX movement. Ukuncut likes to take credit for things it didn't do, but denies responsibility for things it fairly clearly did. Most shabby was its ludicrous insistence that the custard pie attack on Rupert Murdoch by a Ukuncut founder was nothing to do with them.

Both the errors of analysis and the methods are justified by its moral purpose. The ends justify both the means and the very campaign itself. But this is self-referential. Over a year after Ukuncut started, it has yet to provide concrete evidence of any of its allegations. At best, it has the hint of wrongdoing. At worst, it has it plain wrong.

So, we have an indifference to facts, an inability to analyse, a refusal to accept criticism, an unwillingness to correct error and a catalogue of disruptive and dangerous antics. This isn't a moral campaign. It's a feral one. And it's time for Ukuncut to get a grip or to get lost.

Filed under: Politics, Taxation with tags boots, feral, fortnum & mason, idiots, moral, occupylsx, sir philip green, spitefuel, topshop, twitter, ukuncut, vodafone
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Perhaps the most deleterious concept of Labour's feckless 13 years of power was "progressiveness". Broadly speaking, a policy is progressive if its benefits impact the poor more than the rich and its costs impact the rich more than the poor.

However, rather than being a good guiding principle, a rule of thumb, it became an all-consuming dogma. Even now, as Labour have been rejected by voters, progressiveness is still an important concept, because it's used by Labour in opposition as a stick with which to beat the government. We saw this at the emergency Budget in June 2010, which was criticised because the totality of the tax and benefits system was deemed to be less progressive after the Budget than it had been before it.  Even though, the richer you get the more tax you pay and the less benefits you receive, it progressiveness was still used by the Opposition to rubbish the government's proposals.

This is bad on public interest grounds. Firstly, measures of progressiveness are only as good as the experts who measure them.  People tend to cherry pick the statistics that suit them best. So, if the measurement of poverty misses out something like, say, access to Council Housing (which richer folk can't get), it may understate the actual progressiveness of a suite of policies. Other benefits, such as free dental care or prescriptions are similarly overlooked. Even worse, someone about to retire has a massive asset in their state pension accrual. But, again, this isn't recognised as an asset, while any private saving held by the rich is. Readers may recognise this as a form of Worstall's fallacy.

Secondly, the ratchet effect of having to be permanently progressive ultimately causes significant problems. The "most" progressive tax system would be one in which rich people pay 100% of tax and poor people pay none. Indeed, a cruel country in which rich people must hand over 100% of their income such that their slightly poorer brethren can pay none is more progressive than one in which the very rich are allowed to retain more of their income.

This failure to account properly leads to bad outcomes. In a system that purports to increase fairness, it can actually undermine fairness, as assets are redistributed from those with limited means to those who actually have more. It can lead to punitive rates of tax on the rich, which can stifle entrepreneurship and discourage investment. And it delays much-needed change to correct flaws in benefit systems. This is particularly difficult when trying to reduce the extraordinary marginal effective rates between benefit withdrawal and taxation.

You can hear echoes of this problem when commentators like Richard Murphy compare the benefits cap to the amount of pensions tax relief that can be reclaimed by 50% taxpayers. We need the ability to make the system fairer in the main. Sometimes this may mean increasing a tax or withdrawing a benefit in a "regressive" way. Fairness cannot be reduced to this silly, mechanistic approach in which no amendment can itself be regressive. It's time to consign this abuse of progressiveness/regressiveness to history.

Filed under: Politics with tags labour, progressive, regressive, richard murphy, state pension, tim worstall, welfare benefits
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I know it's not big and not clever to swear. But how else can you describe this?

The deputy prime minister told the Telegraph over the weekend that he has uncovered evidence that hundreds of millionaires are paying a tax rate of less than 20 per cent on their earnings by using an "army of lawyers and accountants".

Clegg told the newspaper that he is willing to support the scrapping of the 50p top rate of income tax provided that millionaires are "properly" taxed in Britain.

Evidence, you say? Then let's see it. Because I'm fairly confident that the "evidence" will turn out to be rather less than persuasive if reviewed by experts.

He believes that a specific minimum rate of tax should be written into law to ensure people are "paying their fair share" and not "massaging" the system.

The deputy prime minister said he decided on the need for a tycoon tax after Mitt Romney, who is expected to be the US Republican presidential candidate, disclosed he was paying just 13.9% tax on his multi-million-dollar earnings.

Aaarrgh, Mitt Romney is an American, not a Brit, you total fucking moron! He pays taxes under the laws of the United States of America, not the UK. So the evidence appears to include someone from a foreign country who pays a low tax rate under the tax laws of that country. What, genuinely, can we learn from American tax loopholes that means we need to change UK tax law?

Of course, Clegg has form on lunacy, having described people who pay low tax as literally living in another galaxy.

Like I said, the man's a twat.

Filed under: Politics, Taxation with tags idiots, income tax, mitt romney, nick clegg, pwned, tax avoidance, twat, uk, us
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There has been much discussion recently about whether pensions tax relief should be changed. Currently, amounts paid into pensions are relieved from tax at the marginal rate. This is the right answer. This blog post aims to show why.

It's obvious that it's good public policy to encourage people to save for their own retirement. There are two main periods in your life when you can't support yourself: when you're very young and when you're very old. The young, by and large, have parents to look after them and pay for them. It's not so clear who should take responsibility for the old, as they may not have children in a position to help them. Also, we don't like the idea of people working until they drop. Yet, in order to avoid people gaming the system, it's better for people to save for themselves rather than forcing the taxpayer to cough up.

Therefore, in between your two periods of non-work you have (hopefully) a big period of work. The objective of pension saving is to defer some of the earnings from that period of work in order that they might be taken during retirement.

Because earnings are being creamed off the top, leaving less for consumption now, it's right that it's that lower amount that is assessed now for income tax purposes. And, because they're earnings, it's right that pensions should be taxable when taken in retirement.

Now think about it from the Lib Dems' perspective. If you take some of your income from this year and push it into your pension pot, you will still pay some tax on it. And, while it may earn dividends and generate capital gains free of tax up until retirement, it will be taxable again once taken as a pension. It's totally incoherent. Ritchie likes to talk about higher rate tax relief "costing" more than basic rate tax relief. But this is totally incoherent too. A person who gets pension tax relief at the basic rate can earn a maximum of £42,475 ¹ this year, on which they'll pay income tax of £7,000. Whereas a person who earns £100,000 will pay income tax of £30,010 ². If each of these people pays £10,000 from their pre-tax income into a pension plan, the basic rate taxpayer will get relief of £2,000 ³, whereas the higher rate taxpayer will get relief of £4,000 ⁴. Is this unfair? Of course it's not. The higher rate taxpayer may have got a bigger discount on his tax bill, but he's still paying tax of £26,010 ⁵. The basic rate taxpayer, by contrast, is only paying tax of £5,000 ⁶. It's idiotic to claim that the higher rate taxpayer gets a 'better deal' than the basic rate taxpayer, when s/he's still paying over five times as much tax as them, even after pensions tax relief has been accounted for.

We want people to save for their retirement. We need them to save for their retirement, in case we store up terrible problems for ourselves in the future. Pensions aren't a perfect structure, but it's essential that they bring with them a tax benefit that's conceptually coherent and is generous enough to reward the saver for locking their money away for decades. The Lib Dem proposal is stupid, it's unfair and it will cause untold damage to people's propensity to save in pensions because they will suspect - rightly - that government simply cannot be trusted not to meddle with the tax system again and again and again. Who in their right mind would lock up their savings for 30 years - 6 Parliaments! - when it's obvious that government can and will steal from them?

For these reasons, I hope Osborne decides on Budget day to tell the Lib Dems where they can stick their pensions tax reform proposals. 

Filed under: Politics, Taxation with tags danny alexander, george osborne, idiots, income tax, liberal democrats, pensions, richard murphy
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Ritchie on the mansion tax:

Is the mansion tax an answer to the 50p debate, therefore? No, of course it’s not. We need that 50p tax rate to create a progressive tax system.

Just as we need a land value tax.

And a local income tax one day, maybe.

A proper wealth tax should also be on the agenda.

Ugh. What an undisguised load of old Ritchiebollocks.

We already have a deeply progressive tax system. Once you layer the benefits system on top, it's even more steeply progressive.

To pretend that we need 50% income tax plus the other things on his list to make the tax system progressive is totally deceitful.

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Filed under: Politics, Taxation with tags idiots, lies, mansion tax, progressive, richard murphy
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The fuss this week over how to remove child benefit from richer people without creating absurd incentives and cruel unfairness at the margins has a simple cause. It's because we want to tax on an individual basis but administer benefits on a household basis. And that suggests a simple solution: why not let people be taxed on a household basis too?

This has been an option in the US tax system for a while. You may elect to file separate tax returns  or you may combine them into a single return that has a different set of reliefs.

It used to be available in the UK too; in fact it used to be mandatory and it's this that ultimately led to its demise. In this day and age, it's wrong to require a woman to be treated as if she were the property of her spouse. So it was inevitable that it had to change, and in 1990 married women accounted for their own tax affairs for the first time.

But as an option, it has its attractions. It greatly simplifies the administration of benefits, where these are assessed on the household income, such as is proposed for child benefit. And it is a great opportunity for households with either a single earner or a single higher rate taxpayer, because it allows them to share the tax across their joint personal allowances and tax bands. It's also the way many households manage their budgets. Why not let them pay tax on this basis too, if they want?

It would also meet another government objective: to recognise the value of marriage within the tax system. So I suspect the proposal would have broad support across the Conservative party's current and potential voters. It's a good way to recognise those who have made a long term commitment to each other, which is good for the stability of the UK and the establishment of the next generation.

But it's not a free option. Depending on how it's implemented, it could be expensive. It seemingly rewards those (eg married employed well-off people) who might not be felt need help as much as others (eg single childless workers on the minimum wage).

Yet, if government can shift from its high tax/high spend track towards a smaller state, it could do worse than look at the married filing jointly option. Does Osborne have the balls?

In this article I intend "marriage" to include civil partnerships too.

Filed under: Politics, Taxation with tags child benefit, civil partnership, conservatives, george osborne, marriage, means testing, nigel lawson, tax credits, uk, us
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As everyone (including me) predicted, attempts to means test child benefit are hitting the rocks. This is because the government wants to stop paying child benefit to households where there is a higher rate taxpayer. But this may mean two people just below the limit would keep their child benefit, while a household with a single higher rate taxpayer and a non-earner would lose it. This looks unfair, given the income of the latter household is lower than the former.

It's an inevitable problem in cases where you want to tax people on their individual income but pay benefits based on their combined household income. Once upon a time, we used to tax women as if their income belonged to their husband. We don't want to go back there. The US deals with it by permitting, but not requiring, households to file tax returns as individuals or jointly. And there are no signs that the government is thinking about that either.

But if you don't adopt that approach then you're in a spot of bother. The original proposal was to stop paying child benefit to households where a single earner pays tax at 40%, with the child benefit claimant stating at the point of claim that their partner doesn't pay tax at that rate. But it's a blunt instrument. Incomes can change, and you may get some unfair treatment at the margins.

We have some information about household income for the purposes of paying tax credits. But this information may not be timely enough to feed the child benefit system.

The papers think that the government will fudge the issue by raising the threshold to, say, £50,000. This doesn't really work. It just shifts the problem to a smaller group of people. And, instead of asking the spouse about whether they pay tax at a particular rate, individuals would have to ask a much more intrusive set of questions about the income of their spouse.

There's one thing that hasn't been covered today, though. Higher rate tax is supposed to be a tax on rich people. Yet today the rhetoric is that a household with a single higher rate taxpayer earner isn't rich. So doesn't this rather suggest that the threshold for paying higher rate tax is too low?

If government wants this problem to go away, it should raise the amount by which 40% tax is payable substantially, perhaps to £50,000 or £60,000. This would cost. A lot (offset a bit if government simultaneously - and unpopularly - raises the upper rate for national insurance). But government has to take drastic action to fix the problems caused by a tax on rich people that hammers people we don't seem to think of as rich.

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Filed under: Politics, Taxation with tags child benefit, higher rate tax, married filing separately, married filing together, means testing, national insurance, tax credits, welfare benefits
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