We now have the manifestos for the election. We know what\nthe parties now say about tax, even if we cannot know what they will actually\ndo.<\/p>\n\n\n\n
The differences in opinion are stark. Addressing, due to\nspace, those parties standing in most seats, it is clear that none of the\nparties come close to understanding the true role of tax in the economy as yet.\nAll are fixated on the idea that current spending must be covered by tax and\nonly investment may be financed by borrowing. The household analogy within\nmacroeconomics is alive and well and living in the UK, and it\u2019s wrong. The role\nof tax in delivering social and economic policy in its own right is still being\nignored by all the parties, excepting the Greens, with their proposal for a\nUniversal Basic Income, and that will not be happening any time soon. This\nmisunderstanding is a massive contributor to economic mismanagement.<\/p>\n\n\n\n
Within that framework there is enormous difference in tax\npolicy on display. In particular, Labour\u2019s recognises a threefold need. One is\nto address poverty. The second is to end austerity. The two are, of course,\nrelated. And third, it wants to promote a Green New Deal. And it will spend to\nachieve all three. <\/p>\n\n\n\n
The IFS have said this plan from Labour is not credible.\nI disagree. The plan for investment is largely in small projects that can be\nratcheted up quickly as skills become available. And the social plans will\nachieve their goal, including of increasing incomes. This is a plan for the\nmoment. <\/p>\n\n\n\n
The tax dimension of it (and it\u2019s always an aspect) also\nmakes sense. To the extend that tax is needed the aim is threefold. Wealth is\ntaxed more, as it is dramatically undertaxed now. Labour is right to tax it\nmore. The same is true of corporation tax, where Labour\u2019s proposed unitary tax\nbase for international taxation will lead the world, whilst the increase in\nrates will simply bring the UK back into line with the world. No one is actually\ngoing to change their behaviour as a result of either reform. And nor, when it\ncomes down to it, will almost any one those who are well off enough to earn\nmore than \u00a380,000 a year flee the country, or even work less, as a result.\nFirst, most of those people are on contracts that do not vary pay with tax\nrates. Second, most people have no clue how much tax they pay. And third, most\npeople work harder when they earn less if (as is true of many of those on high\npay) they have fixed and very expensive commitments. The plan does, then, make\nsense. Inelastic behaviour will result in the higher taxes being settled with\nlittle issue arising.<\/p>\n\n\n\n
The Tories on the other hand are locked into the belief\nthat tax sells election victory, and so are committed to maintaining the status\nquo. But in so doing, a very small change to national insurance apart, they\nalso lock in the existing social infrastructure and with it the income and\nwealth inequality that even organisations like the OECD and IMF say is harmful.\nNot only are the Tories not using spending to break austerity and defeat\ninequality, they\u2019re refusing to do anything at the top end either, meaning that\nall the divisions in society that have been so destructive of our well-being\nwill be maintained. In this sense the Tories are really being true to form\nconservatives.<\/p>\n\n\n\n
And in the meantime the LibDems are so far out in the tax\ncold that they think hypothecated taxes for the NHS might work with the\nelectorate and in practice. But that is not how tax works, and even given the\nterribly low level of understanding of tax that pervades the UK I suspect\nenough of the electorate realise that is the case to be indifferent to the\npromise. The LibDems do really need to try harder.<\/p>\n\n\n\n
As for the Greens, carbon tax dominates their agenda. It worries me. They are almost always regressive. The Greens proposal would be, I fear. And I am not wholly convinced a universal basic income makes up for that. The Green manifesto is only of interest on tax because it is a place where ideas can be explored. I suggest that this one still needs a lot more exploration.<\/p>\n\n\n\n
Overall? Labour has a good offering that makes economic\nand social sense. It has, thankfully, abandoned its fiscal rule. But like the\nother parties it still shackles itself unnecessarily on tax by adopting an\ninappropriate and discredited macroeconomic view of tax. The Tories do the same\nto reinforce division in society that will cost millions a great deal\nfinancially and even more in their wellbeing. And the rest took part, but without\nserious intent. <\/p>\n\n\n\n
All of which leaves only one rational choice when it comes to tax, and that is Labour. <\/p>\n\n\n\n