Effective taxation ....

I am persuaded that the UK Government cannot continue spending £4 for every £3 it receives by way of income - it is simply not sustainable.  The irresponsible nature of the last Government in achieving this level of deficit has only served to increase our national debt to a level at which it will begin to affect our ability to grow - I remember reading that when a nation's debt exceeds a certain proportion of its GDP (some economists fix this at about 90%), then there is a corresponding reduction in the trend growth rates which has been estimated by some at 1%. 

There are economic arguments to be made - but they are not enhanced by, for example, Danny Blanchflower asserting his own views as the 'correct' vision and anyone who disagrees with him as being a 'mad' or 'dangerous' 'zealout' or 'idealogue'.  Equally, there are those on the other side of the economic argument who cry out in a similar fashion.   Am I alone in finding the name calling irritating to the point that I simply refuse to listen to the argument made in that manner?

The problem in the UK is that we need to maximise income for the Government at a time when that income is reducing and we need to get a grip on Government exenditure at the same time - because the last Government irresponsibly and foolishly thought that it could maximise its political benefit by increasng expenditure at a time when its income was dramatically reducing.

Some will say, 'just tax the rich more' ... the problem for this argument is that there aren't enough 'rich' people who we can tax with effect.  If you want to save raise really large sums of money, you cannot target the richest 1%, as they are so few in number that even if you confiscated their income above, say, £100,000, you would not increase Government income very substantially.  Further, you need to define who you mean by the 'rich' - for someone on benefit, the 'rich' are people who pay tax on income - for those in the middle, the 'rich' are people who earn more than them - for those who are in the top 10% and who earn over about £40,000, the 'rich' are those who earn more than £100,000 - and so on ...

Some will say, 'close the loopholes' ... the problem here is that without specific proposals as to which 'loophole' it is impossible to know what the effect would be.  If you decided to tax people on their worldwide income on the basis of 'habitual residence' and simply abolished the distinction between residence and domicile, how much would actually be raised and what would the cost be?  I happen to believe that the benefit of having billionaires resident in the UK but domiciled abroad is marginal and so I would support a tax simplification measure that abolished the distinction - it would have the added advantage that it would place us in the same position as most other developed and developing tax jurisdictions.

Having written that, we have a system of taxation that allows for tax avoidance - tax mitigation - tax minimisation.  Whatever we do, rich people (and many not so rich people) will use the services of accountants and lawyers and others to keep their tax liabilities as low as they possibly can - the higher the marginal rates of tax, the more use will be made of these services.  Is there something morally wrong with people saying that they wish to pay no more than they are required to?  I happen to think not - others will disagree.  We have rules that limit and eliminate the power of schemes that are designed solely to reduce tax liabilities and I support those rules.  The fact is that taxation is a legislated system of confiscation that is required to pay for public goods - and we can argue about the extent of the need for those public goods til the cows come home - and it is my view that it is simply not good enough for people to talk about evasion and avoidance in the same terms - there is a substantial difference between people honestly trying to ensure that they pay no more than they have to and people dishonestly evading their obligations to pay tax.

The problem arises that, at the margins, there will be argument: and people will want to test those margins, in court if necessary.  If they are found to be wrong, then they will pay; both in terms of penalties and interest that the tax authorities are entitled to charge, and in terms of the costs of the litigation.  That people want to test the margins is understandable - especially where the impact is substantial for them.  I cannot see how their wishing to do so is wrong.  They take on a risk and pay out if they are unsuccessful.

What we need as a country is not simply a 'fair taxation' system, but an effective one.  Simplification is part of the process by which it will become more effective - but at the margins, particularly where there is a 'progressive' system (in the sense that marginal rates are increased as the sums involved increase), there will be elements of unfairness.  That is an unfortunate consequence of all laws - and we need to remember that it was to meet the 'unfairness' of the common law that the laws of equity evolved.