Stupid, and stupider

Polly Toynbee's response to George Osborne's speech merely illustrates how debased political debate has become.
First, we get Osborne utterly misunderstanding the case for tax cuts. In ruling out a promise to cut taxes he said:

That will be a disappointment to a few in my party. They think the key to winning general elections is to make up-front promises of tax cuts.

No, George. Conservatives don't want tax cuts because they're popular. They want them because they are the right thing to do. They believe the state is too big, and should be cut back. Osborne never addresses this point.
Then we get Polly's almost wilful stupidity. First, she interprets Osborne's speech in a completely opposite way to almost everyone else, so as to fit in with her pre-conceived worldview: "'Simplification' is new Tory code for cuts."
Then she utterly misunderstands the point of a flat tax, describing it as "the most regressive". This is plain false.
And then she misunderstands Tax Freedom Day:

Who exactly are the "people" who stop working for the state on June 3? Only the very, very rich, of course - the Notting Hill people. [Tax freedom day] can't be calculated exactly, since you can't apportion to individuals such things as corporation tax, nor individual VAT spending habits.

First, the Adam Smith Institute is open about the fact that the day applies to the average tax-payer, not to the rich.
Second, Polly's idea that you can't apportion VAT to individuals is true, strictly speaking, but  misleading. In table 21 of this pdf, National Statistics does apportion VAT to deciles of the population.
And it finds that the tax burden upon the rich is actually lower than that on middle incomes. In 2004-05, the fifth decile of households with children - those with average incomes of £30,052  - paid 35.8% of income in direct or indirect taxes. The top decile paid just 35.6%.
Polly's idea that the tax burden is higher on the rich than on average earners is, therefore, just false. It's a fiction designed to give the impression that Gordon Brown is an egalitarian Chancellor. He's not.
Granted, these numbers are lower than the 42.2% implied by Tax Freedom Day. But that's because the latter include taxes upon companies.
Of course, these can't be apportioned to income groups. But it's a fair bet that corporation tax reduces some combination of wages or jobs, or means higher prices. So they fall on average earners.
And finally, she boasts that tax credits have reduced child poverty at the fastest rate since records began, without asking the question: could other arrangements have done so more efficiently? She thus perpetuates the illusion that the only policy alternatives are Cameron's statism versus Brown's statism.
I don't mention all this merely to bash Polly. What's really frustrating here is that there is a political vision that both Osborne and Toynbee are oblivious to. It's a vision of a smaller state which taxes the poor less and redistributes more.

Comments

[Matthew]

In a piece titled 'stupid and stupider' you need to be a bit more careful. You assert, without any evidence, that "Conservatives want tax cuts because they are the right thing to do. They believe the state is too big, and should be cut back"

Osborne isn't the brightest of chaps, apparently, but he presumably has a grasp on what Conservatives think about tax cuts, and that they would help win an election is not the most unlikely.

The most likely, I would suggest, is that Conservatives want tax cuts mainly because it would lower the amount of tax they pay.

The idea that there is a great mass of Conservatives out there who want tax cuts because its the 'right thing to do' is not stupid, but maybe a little naive.

[chris]

It's rare for me to be accused of being overly generous to the Stupid Party.
You're right. I should have qualified the noun "Conservatives". "Some" would have worked. So too might "proper".

[Phil]

On flat tax: while it's true that a single rate of 50% on all income over £25,000 (say) would be more progressive than the current system, I think Polly can be forgiven for conflating flat tax as a principle with the flat tax schemes that people are actually advocating. The ASI's 22%/£12,000 scheme, for example, would be considerably less progressive than what we have now.

(But Polly does deserve all she gets for calling flat tax *regressive*. That's the Poll Tax and the Lottery, not income tax.)

[Matthew]

I would disagree though that she 'utterly misunderstands the point of a flat tax'. Those who advocate it (with the exception, perhaps the sole one, of this site) do so with the intention it would be less progressive than the current system and that they (high earners on the whole) would pay less. Steve Forbes and George Osborne are not in their fighting for the poorer half of the community.

[1skeptic]

I would think its very unlikely Steve Forbes or George Osborne are paying 22% or higher on their total real income at the moment, given the dodges available to anyone who can afford a good lawyer and accountant. The taxing organisations are judged based on tax collected per spend, and tend to go for the softer targets. Wasn't there a millionaire Labour minister who paid no tax at all?

In my opinion, the beauty of a real flat tax is not just that it provides one simple number, but also that it would take away all the scams that are currently available only to high income individuals and companies, such as tax holidays for promoting business investment, avoiding 'unfair' double taxation on dividends etc.

[Bob B]

Could it be that one persuasive argument for tax cuts relates to the monumental and well-documented waste in this government's spending, especially spending on various education programmes?

I'm saying little that hasn't already been raked over and analysed in umpteen HoC select committee and NAO reports but much of that attracts only passing attention before being swamped by other news. It seems to me the opposition might do a good deal more about highlighting the extent of wasted spending of taxpayers' money before championing tax cuts. The important electoral consideration is that swathes of the electorate will - with due prompting by government spin - simply equate tax cuts with cuts in public services and that won't go down too well with those wanting action on road congestion, those dependent on healthcare services or employers worried about the basic skills of school leavers and the fact that the stay-on rate of 17 year-olds in education or training is low by the standards of many OECD peer-group countries.

The tax burden in Britain is raising but it is stll relatively low in comparison with most other west European countries.

[dsquared]

I'm with Matthew on this one Chris; given the title of this post, and the neighbouring one "The Necessity of Insincerity", is it really on to be accusing someone else of not understanding the flat tax proposal when it looks to most onlookers as if PT has entirely correctly understood the purpose of it and you haven't. The possibility of progressivity in a flat tax is your own personal hobby horse, and you must be aware that almost everyone else who is in favour of it (and certainly the Adam Smith Institute) is in favour of setting the rate at a level where it would be highly regressive and/or using it as a device to force cuts in public spending.

in related news

[Of course, these can't be apportioned to income groups. But it's a fair bet that corporation tax reduces some combination of wages or jobs, or means higher prices]

Surely it's a fairer bet that a tax on profits has its main incidence on profits?

and

[In my opinion, the beauty of a real flat tax is not just that it provides one simple number, but also that it would take away all the scams that are currently available only to high income individuals and companies]

this is a pipe dream. No it wouldn't, not in any systematic way. Capital gains would still be taxed when realised rather than when accrued, trusts would still exist and there would still be other countries in the world with lower tax rates, even if we did decide to go down the route of eliminating capital allowances. This is one of the few - perhaps the only - issues on which Oliver Kamm not only got it right but put his point succinctly; the complicated thing about the tax system is not that it has three different rates. For any flat tax proposal that you care to mention, I can construct one that gives more progressivity for the same overall average rate, simply by setting a lower and higher tax rate.

[chris]

We're at cross purposes here. D2 and Matthew are of course correct to say that most proponents of a flat tax want an even more regressive tax system than we currently have.
My point is merely that there's nothing inherently regressive in theory about a flat tax. Though of course, D2 is correct that some tax systems are more progressive than a flat tax.
And let's keep an eye on the big picture here - the current tax system is not progressive. It's absurd for the left to defend it as if it is.

[dearieme]

Phil, don't forget the TV licence.

[Phil]

"My point is merely that there's nothing inherently regressive in theory about a flat tax. Though of course, D2 is correct that some tax systems are more progressive than a flat tax."

This is getting silly. When Osborne talks about flat tax, he's not using that phrase to mean "the broad general principle of a single rate of income tax coupled with a single tax-free allowance, irrespective of whether the figures in question are set at 22% and £12,000 or 66% and £36,000". He's talking about the ASI proposal or something in its general area - and, when Polly Toynbee hears Osborne talking about flat tax, she understands that perfectly well. Maybe she should have written "flat tax - which, at least in the form represented by the ASI's widely-circulated proposals, represents the most regressive of all tax systems currently being advocated by any prominent organisation" - but even if she had it would probably have been edited down to the words that were printed. (She's still wrong to use the word 'regressive', but since you and Daniel are using it as well, never mind.)

And I think Daniel's point would be more accurately rendered as "any conceivable flat tax is less progressive than some alternative system".