Monday, 10 January 2011

Kaldor not Keynes: Time for an Expenditure Tax

State provision of welfare services takes a very large slice out of pay packets.  Much of the welfare goes to those who do not have pay packets - for whatever reason. Which leads to a great deal of bitter pointy-fingering going on towards that section of welfare-consumers who are of working age but not working.  Yet to reduce welfare expenditures, which go in great part to the young, the old, the sick, the excluded rather than the workshy, is near impossible.  Yes there can be savings, a trimming away of some marginal government provision, an ending of universal benefits (though arguably  that is the route to poor provision for poor people) but it is the funding of government welfare-provision that needs to change.

Progressive taxation  goes hand in hand with the creation of disincentives - one of the many heads of the Gorgon of moral hazard.  We will all act with invention, skill, determination and considerable behaviour modification  to avoid falling into categories that are tax penalised. Not just minor  body swerves but major lifestyle choices and changes that grossly limit the notionally fair advantages of graduated taxes on income.  This applies to all income levels and all types of means.  People attain statuses to avoid tax and people refuse work to avoid tax.  Yet we should all be paying for the welfare services we are all agreed ought to be available in a fair society.

Consumption taxes as the principal means of raising government revenue have been decried and denounced as unfair by the supporters of progressive everything for too long.    Everyone who consumes, whatever their source of income, should be  making a contribution to the tax base, and joining in  universal scrutiny of just how much government welfare provision costs. It's not enough, any longer, to cry wolf about the poorer paying more.  Yes, they would, but with our pay packets intact many  would still be better off relieved of income tax and national insurance burdens.  And the real wolf of moral hazard and universal life-warping avoidance measures would be slain.

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