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January 06, 2009

Comments

Matthew

Also, as far as I can work out, it reintroduces a huge, possibly greater than 100% marginal tax rate.For example someone on the threshold of higher tax, with £30k in savings, who gets a £1,000 pay rise. But perhaps there is something I am missing?

Barry Williams

Its about encouraging thrift and saving among the whole population, everyone can benefit. If the public were not discouraged to save by Brown then they would have not have had to resort so much to credit cards for emergency and largish spending and they would have some cash reserves to see them through Brown's recession. This is a good move and essential for a more responsible financial framework.

Lower public spending is also to the good, far too much money is wasted by the public sector and they need the discipline of lower budgets to get good value and shake out the many pc non-jobs that have grown like cancer.

kinglear

I'm all for not allowing this government (any government actually) or the EU recycle our cash. Too much of it disappears in transit. I always liked the story of Donald Trump,who discovered New York was not going to have the skating rink in Central Park because it was going to cost too much.
$50,000 later he managed to earn $1m out of it the first season.That's his story anyway.

Richard J

If the public were not discouraged to save by Brown

Pls to be explaining without muttering about his 'raid on the pension funds' unless you can explain exactly what the change was, and what relevance this has to your point.

Dan

Chris - Ricardian equivalence effects also apply to deficit-financed tax cuts. For a tax cut the proportion that is added to AD is surely 1-MPS-Ricardian equivalence effects, whereas for equivalent government spending it is 1-Ricardian equivalence effects. Unless I'm missing something, I don't think it is irrelevant macroeconomically.

john b

Its about encouraging thrift and saving among the whole population, everyone can benefit

But thrift and saving are - in themselves - rubbish: they involve not spending money on things you want, and instead getting no benefit from it at all.

There are, of course, benefits to smoothing out spending through life, so it makes sense to pay off debts and save when you're doing financially well, so you can live off your savings if you lose your job, fall ill, etc.

But saying that makes saving *good*, rather than *a crappy thing you have to do, like paying tax*, is ridiculous.

john b

[forgot Chris's evil HTML ban - first paragraph above should be blockquoted]

Meh

Can we have some actual references to empirical situations (outside of banana republics) where long term possibility of moderately increased taxes has actually resulted in increased savings?

It may be the logical response, but I've struggled to find examples of it actually happening overall (rather than in individuals.)

The plural of anecdote is not data.

Bob B

From Anatole Kaletsky in Wednesday's The Times: "Punish savers and make them spend money . . "
http://www.timesonline.co.uk/tol/comment/columnists/anatole_kaletsky/article5469589.ece

From a letter in Wednesday's FT:

"Sir, You are right that granting further tax concessions to UK savers is a false priority . . in current circumstances.

"You could have gone further by pointing out that savers are already the most pampered group of UK taxpayers (apart from non-domiciled persons!), benefiting from a wide range of reliefs and allowances: the annual £7,200 Isa allowance, tax relief on pension contributions up to £225,000, tax-free index-linked savings certificates offered by National Savings and Investments as well as the relief offered to employees participating in share incentive plans to invest in their own company's shares. . ."
http://www.ft.com/cms/s/0/0346d564-dc5c-11dd-b07e-000077b07658.html?nclick_check=1

redpesto

"Let’s be clear about David Cameron’s call to abolish income tax on savings for basic rate tax-payers. This is just redistribution from a group he dislikes - public sector workers - to a group he likes, older richer people. No more, no less."

"I say no more, because this would not help us out of recession. Yes, the savers might spend some of their windfall. But this would be offset by lower public spending. It’s a wash."

Thank you - some of the slash 'n' burn nutters over at Comment is Free have been frothing at the mouth about how this idea is an act of political and economic genius. If you're about to retire soon, your best bet is a Tory government, this plan, and really, really high interest rates - you'll be rolling in it, even if public services go to pot.

Bob B

News update:

"Barack Obama declared yesterday that only unprecedented and urgent government spending could prevent the deepening recession stretching for years into the future. . . Mr Brown travels to Berlin for talks with Angela Merkel, the Chancellor of Germany, next week as she appears ready to announce another €50 billion (£45 billion) stimulus for its economy. . . "
http://www.timesonline.co.uk/tol/news/world/us_and_americas/article5478754.ece

Bob B

With all the stoked hysteria in the news about - horror of horrors - printing money to fund public spending or tax cuts to avert deflation (= negative inflation), I was reminded of Abba Lerner's illuminating personal brand of keynesian fiscal policy in what he dubbed "functional finance" so I went agoogling for links.

Relating Lerner's academic papers go back to the 1940s, culminating in his book: The Economics of Employment (McGraw-Hill, 1951) which BTW was good on the threat of cost-push inflation created by powerful trade unions pushing up wages in case any think this is all just another leftist plot to subvert Free Market Capitalism.

I couldn't find links of accessible Lerner papers but I came across this more recent topical survey in 8 pages: Functional Finance and and Full Employment - lessons from Lerner for today, by Mathew Forstater (1999):
http://www.levy.org/pubs/wp272.pdfhttp://www.levy.org/pubs/wp272.pdf

I guess that few read abba Lerner nowadays but he was a remarkable character, largely self-taught he wrote about hugely complex issues with amazing lucidity and made pathbreaking contributions - his eventual mentor, Lionel Robbins at the LSE, was a pre-keynesian economics prof who regarded wage cuts as the best way of reducing unemployment in a depression:
http://cepa.newschool.edu/het/profiles/lerner.htm

See also the entry for Abba Lerner in Wikipedia.

Bob B

News update:

"German Chancellor Angela Merkel and French President Nicholas Sarkozy have warned the US not to block attempts to build an international financial regulator, calling for a new economic body similar to the UN's Security Council."
http://euobserver.com/9/27373/?rk=1

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