NEWS

admin admin

Times Letters: Share private pain

Slug path
asi-in-the-news/asi-in-the-news/times-letters-share-private-pain-
Joomla-id
3509
Old Teaser

altGovernment's belt needs to tighten a bit more before it will feel the pain of the private sector

Sir, So local councils are suffering job cuts, too (“Town halls cut jobs as local government loses £2.5 billion of income",May 11. The fact remains that it is the private sector that is taking the full brunt of this financial storm.

In the last quarter of 2008 local government staff levels indeed fell by 6,000. But Gordon Brown simultaneously presided over a 19,000 increase in central government numbers and a 2,000 increase in public corporations. Overall, the seasonally adjusted number of public employees rose by 15,000 just when the rest of us were wondering whether not only our jobs but also our employers would survive.

Looking at last year as a whole, the private sector lost 105,000 jobs while the public sector actually gained 30,000. I am afraid that the Government has a bit of belt-tightening to do yet before it can be claiming to “share our pain".

Dr Eamonn Butler

Director, Adam Smith Institute

Author, The Rotten State of Britai

Published in The Times here

Read More
admin admin

The Times: It's GCSE economics: high taxes don't work

Slug path
asi-in-the-news/asi-in-the-news/the-times-its-gcse-economics-high-taxes-dont-work
Joomla-id
3445
Old Teaser

altWritten by Dr Eamonn Butler, Director, Adam Smith Institute

The Chancellor would get a C for his new tax rises and fail history outright. He will also leave the Treasury worse off.

Given the damage that the new 50 per cent tax rate will probably inflict on the UK economy, the Chancellor seems to have been very cavalier about it. When the House of Commons Treasury Select Committee asked how he decided to impose the new rate on everyone earning £150,000 or more, he replied: “There was no science behind it. It was simply my judgment."

No science? If there is one part of economics that lends itself to scientific analysis, it is tax policy. Taxation has been under the microscope ever since Adam Smith first distilled the principles of good and bad taxation in the 18th century. Two hundred years of evidence later the science is clear: high taxes don't work. They bring the Treasury less revenue, not more. And on the way, they really mess up your economy.

It's shocking that the Chancellor, in his desire to wrongfoot the Tories, has simply ignored this evidence. In the science of taxation, he wouldn't merit a grade C at GCSE. And he would fail history outright, having completely forgotten the lessons of an earlier Labour Chancellor, Denis Healey.

Healey actually relished the “howls of anguish" from the 80,000 people rich enough to pay his top tax rates of 83 per cent - or even 98 per cent for those who lived off investments. But as capital took flight and brains drained from Britain, Healey was forced to go to the IMF for a bailout. Labour's reputation never recovered and, 30 years ago this week, the country fell sobbing into the arms of Margaret Thatcher.

Despite these economic and political warnings, the Chancellor's “judgment" is that it makes sense to impose higher taxes not on just 80,000 people but, according to Treasury figures, on 283,000 - the top 1 per cent of UK taxpayers. That's a lot of folk.

And the tax rise is massive, too. It might sound like just another 10 per cent, but if you're paying tax at 40 per cent and the rate goes up to 50 per cent, you are actually shelling out 25 per cent more than you did before.

Which means a lot of people face a lot more tax, and Darling's unscientific tax rise will have a large - and damaging - effect, just as Healey's did. A 25 per cent tax hike is well worth avoiding, even if you earn £150,000. People will simply hire expensive accountants to find ways round it, or do what Sir Michael Caine is threatening and shift themselves or their money abroad. Or take longer holidays and retire early.

In fact the Treasury itself thinks that 69 per cent of those hit by the new tax will find ways to escape it. That's why the respected Institute for Fiscal Studies figures that the tax won't raise anything like the £1.3 billion that Darling forecasts - if it raises anything at all. And the Centre for Economic and Business Research reckons that 25,000 entrepreneurs may simply emigrate, costing the UK £800 million.

Raising taxes, then, can leave the Treasury worse off - a simple piece of tax science popularised by the American economist Arthur Laffer with his “Laffer Curve", and of which the Chancellor should be fully aware.

And contrariwise, scrapping high tax rates actually boosts both the economy and tax revenues. In 1979 the Conservative Chancellor Geoffrey Howe slashed the top rate from 83 per cent to 60 per cent. Before the cut, the top 1 per cent of taxpayers - Darling's target group today - paid just 10 per cent of the total tax take. By 1988 they were paying 14 per cent of it.

Then Nigel Lawson cut top rates even more, from 60 per cent to 40 per cent and revenues surged again. By the time of the 1997 election, the top 1 per cent of earners paid a whopping 21 per cent of the total tax bill. By halving the top rate of tax, Howe and Lawson had doubled the amount paid by top earners.

Other countries back up this simple science. The United States has had four big tax cuts over the past century. In 1921, President Coolidge cut the top rate from 63 per cent to 25 per cent. Five years later the top earners (people on incomes over $100,000) were paying 86.3 per cent more than they had before. The economic boost fuelled the Roaring Twenties.

In 1964 President Kennedy cut the top rate from 91 per cent to 70 per cent. Two years later the top 5 per cent of earners were paying 7.7 per cent more in taxes, while the bottom half were paying 9.2 per cent less.

When President Reagan cut the top rate from 70 per cent to just 28 per cent between 1981 and 1988, the share of revenues paid by the top 1 per cent of taxpayers rocketed from 17.6 per cent to 27.5 per cent. He cut capital gains tax as well, from 28 per cent to 20 per cent - and again, revenues leapt by half, from $12.5 billion to $18.7 billion in only two years. The cuts launched the longest period of wealth creation the world has known. And under George Bush's cuts too the wealthy ended up paying more, not less.

Nearer home, a dozen of the former Soviet countries, including Russia, Estonia and Latvia, have replaced their high, complicated, dysfunctional tax rates with a single-rate flat tax as low as 10 per cent. They enjoyed a huge economic boost as a result. Ivan Miklos, the former Finance Minister of Slovakia, told me that slashing taxes was the only decision he lost sleep over: but in fact his flat tax was a huge success, and Slovakia never looked back.

Alistair Darling, by contrast, has made several mistakes all at once. His new tax is so high that people will do their darnedest not to pay it. He won't pull in the revenues he needs to pay off his spiralling public debts.

At the same time, his changes to allowances and national insurance further complicates a tax code that runs to 10,000 pages - great for accountants and tax bureaucrats, perhaps, but not for the rest of Britain.

Third, he has forgotten that “the rich" don't just inherit their money any more. Most of them today earn it. His new tax on work will simply drive the UK's entrepreneurial spirits - and their money - abroad.

It's science, Mr Darling. But it's not rocket science.

Dr Eamonn Butler is director of the Adam Smith Institute and author of The Rotten State of Britain

Published in The Times here

Read More
admin admin

Radio Five Live: The Richard Bacon Programme

Slug path
asi-in-the-news/asi-in-the-news/radio-five-live-the-richard-bacon-programme
Joomla-id
3438
Old Teaser

altClick here to listen to Tom Clougherty as Prime Minister for a day in a discussion and phone-in on Radio Five Live. (Starts 2:07)

Read More
admin admin

Daily Express: Tax freedom day blow

Slug path
asi-in-the-news/asi-in-the-news/daily-express-tax-freedom-day-blow
Joomla-id
3431
Old Teaser

Britons won’t start earning for themselves until June 25, the latest date since 1984.

Theoretically, this year’s Tax Freedom Day – the date when we finish paying our tax burden for the year – is May 14, the earliest since 1973.

But the Adam Smith Institute think-tank warns that this does not take into account Gordon Brown’s runaway spending deficit. If that is factored in, Freedom Day does not fall until June 25.

Without Mr Brown’s spending deficit, Tax Freedom Day is early this year because tax revenues have plummeted and VAT has been cut.

The think-tank’s director,­ Dr Eamonn Butler, said: “Under Brown’s stewardship, the annual deficit went from near-balance in 1998 to more than three per cent in 2007 when the economy was growing strongly.

“Now the Chancellor is forecasting a 13.3 per cent deficit. Young people have the right to feel very angry because they will be carrying the burden for years to come.’’

Published in the Daily Express here

Read More
admin admin

Tax Freedom Day 2009 falls on 14 May

For Release: SATURDAY 2 MAY 00:01

But you'll have to work until June 25 to pay off Brown's borrowing binge.

Tax Freedom Day, the day in the year when the average Briton has earned enough to pay his annual tax bill, will fall on 14 May this year, according to independent think-tank the Adam Smith Institute. This means that for 135 days of the year, every penny earned by the average UK resident will have been taken to support government expenditures.

This is the earliest Tax Freedom Day since 1973 – on the face of it, good news for taxpayers. But there is a downside: the traditional Tax Freedom Day measure only reflects the money actually raised by the government in taxes, not the full amount it spends. If the government deficit is factored in, Tax Freedom Day does not come until 25 June (the worst figure since 1984).

This gap between Tax Freedom Day based on actual revenues and Tax Freedom Day based on government spending is now the widest it has been since the early 1970s – and possibly since World War II.

According to Gabriel Stein, Chief Economist at Lombard Street Research who calculates Tax Freedom Day every year, the figures indicate a bleak future for British taxpayers:

"Running up deficits can be described as a form of deferred taxation. The effect will be that when the economy recovers – as it will eventually do – the UK tax burden is likely to rise much faster than would otherwise have been the case and Tax Freedom Day is likely to creep later and later in the year."

 Moreover, the reason that Tax Freedom Day will arrive so early in 2009 is not so much that the tax burden has been dramatically reduced – although the temporary reduction in VAT is certainly significant – as it is that tax revenues have collapsed due to the sharp downturn in the economy. Dr Eamonn Butler, the director of the Adam Smith Institute, commented: 

"It's nice to see Tax Freedom Day come early, but our research doesn't leave me optimistic. Under Gordon Brown's stewardship of the economy, the government's annual deficit went from near-balance in 1998 to more than 3% in 2007. And that was when the UK economy was growing strongly. Now the Chancellor is forecasting a 13.3% deficit. Young people have the right to feel very angry, because they'll be carrying the burden of these mistakes for years to come."

 Notes for editors:

  1. The original Tax Freedom Day for 2008 was estimated at 2 June, based on figures contained in the 2008 Budget. Yet a year later we find that the day was 22 May – a difference of 11 days. This substantial change in the forecast and estimated Tax Freedom Day is due to actual economic growth and tax revenues being several percentage away from the government's forecasts.

  2. Tax Freedom Day shows the total tax paid each year by a taxpayer on average income, including indirect taxes, local taxes and National Insurance contributions, as a percentage of that individual's total income. It is calculated by comparing general government tax revenue with the Net National Income (NNI). The total of all government tax revenue – direct and indirect taxes, local taxes and National Insurance contributions – is calculated as a percentage of NNI at market prices. The result is then converted to days of the year, starting from 1 January.

  3. Tax Freedom Day is calculated for the Adam Smith Institute by Gabriel Stein, a Swedish economist who has lived in the UK since 1990. In 1981 he worked in the Israeli Ministry of Finance. From 1982 to 1991 he ran his own economics and public affairs consultancy, Stein Brothers. He is currently a director of Lombard Street Research Ltd.

  4. Tax Freedom Day web-site: http://www.adamsmith.org/tax-freedom-day/

 

Slug path
tax-freedom-day-2009-falls-on-14-may
Joomla-id
3420
Read More
admin admin

The G20 summit: weak, meaningless and self-serving

For Immediate Release

When you read the fine print of the G20 agreement, it shouts 'heroic hypocrisy, unreliable sums, weak promises, meaningless language and self-serving commitments' according to the City financial analyst Miles Saltiel in a briefing paper for the Adam Smith Institute.

According to the paper:

  • The headline $1.1 trillion of financial stimulus amounts to just $25 billion of new money.
  • The IMF's '$500 billion' and the '$250 billion' in Special Drawing Rights are just an underwriting commitment, with no new cash.
  • The '$100 billion' fund for the world's poorest had largely been announced already, and will come from private rather than government sources.
  • The extra '$250 billion' for trade finance is mostly a re-hash of old commitments, with less than $25 billion of new money to subsidize trade finance.
  • The '$6 billion' to be raised by selling the IMF's gold reserves boils down to a $2 billion trickle over three years.
  • The G20's promises to the poorest countries, and commitments to free trade, look extremely weak when the Doha trade round lies derelict.

Saltiel concludes:

"The G20 leaders are more concerned about their domestic problems than their international responsibilities. They turned up in London for a photo opportunity. Their talks convey a sense that there is little they can do to change events. And they are right. Eventually, the world economy will trade its own way out of the current confusion, as it always does."

ENDS

G20 – Less Than Meets the Eye is published by the Adam Smith Institute, 23 Great Smith Street, London, SW1P 3BL. It can be downloaded for free at http://www.adamsmith.org/images/stories/less-than-meets-the-eye.pdf

Slug path
the-g20-summit-weak-meaningless-and-self-serving
Joomla-id
3419
Read More

Media contact:  

emily@adamsmith.org

Media phone: 07584778207

Archive