TAXATION WITHOUT REPRESENTATION (cont.)
We’ve got plenty of taxation – but not much representation
by Dominic Frisby / 29/11/2019
“In ancient Athens many taxes were voluntary. At the other extreme, in authoritarian or totalitarian societies, such as Soviet Russia or North Korea, people have virtually no ownership of their labour, their produce or their profit. Government takes it all. The developed world today sits somewhere in between. Excluding inflation, itself a form of tax, roughly 45% of everything the typical Briton earns is taken in taxes. In France, the figure is an eye-watering 57% – no wonder they’re rioting. In the US it’s 38%.
These high levels of taxation are a recent development. At the turn of the 20th century, taxes played a much less prominent role in our lives and government spending was much lower. In western Europe, tax was around 10% of GDP in 1900, a figure that goes all the way back to ancient Mesopotamia and the very first tithe.
The “ratchet effect”
How did government – and taxation – grow so big? The answer is two world wars. Governments find it difficult to raise taxes in times of peace, but crises enable them to do things they would never normally attempt. Once the crisis has passed, however, taxes never seem to return to pre-crisis levels. The Institute for Fiscal Studies calls this process the “ratchet effect”. Before 1914 income taxes were only paid by the very highest earners. Even as late as 1941 ordinary Americans paid no income taxes. The 1942 Revenue Act changed that. Time magazine called it “the biggest piece of machinery ever designed to separate dollars from citizens”.
High tax rates endured after the wars partly because governments had incurred many new obligations, from debt and rebuilding to looking after the victims. But they also stayed in place because politicians the world over hoping to win popularity in the present, designed programmes that committed governments to large spending programmes in the future.
A politician who promises better roads, or schools, or welfare, is incurring obligations that cannot easily be abrogated. The more money is promised, the bigger the government grows – and thanks to the world wars, the tax structures were now in place to meet those promises. The obligations facing today’s taxpayers are the result of decisions sometimes made as much as 100 years ago. Those trying to win today’s election take note: promises made today will impose similar obligations years into the future.
Thus did government spread from traditional areas – the army, the police, infrastructure – into other areas of the economy, notably education, welfare and healthcare. Today taxation permeates everything we do. There is barely an activity that does not involve it in some way. As a result, almost wherever you are in the developed world, the most expensive purchase you ever make in your life is not your house, but your government.
For a typical British middle-class professional, the lifetime bill totals £3.6m – considerably more than the typical house. You will spend a full 20 years of your life or more in obligatory service to the state. On a time basis, the state owns as much of your labour as the feudal lord did that of the medieval serf, who gave half his working week to farm the land of his lord in exchange for his protection.
In exchange, you receive the protection of the state and its services: defence, healthcare, education and so on. You have no choice. If you want to earn a living, you must work for the state as well as yourself. We are not as free as we may think we are.
A civilised society?
What if you are opposed to the way in which the state spends your taxes – on a war in the Middle East, say, or some wasteful infrastructure project? No matter. Beyond a vote of questionable impact every four or five years, you have little say in how your money is spent. “Taxes are what we pay for a civilised society” are the words inscribed on the outside of America’s Internal Revenue Service, but is that civilised? A form of forced labour for something you are morally opposed to?
The social democrat sees taxes as a way to equalise society: to redistribute wealth, to provide equal access to education and welfare and to balance out the distortions of the market economy. The libertarian says tax is theft. Both are right. Without taxation, there can be no government: one leads to the other. Thus, though usually obscurely, tax is at the heart of just about every political argument: what should the government spend money on? How much should it spend? Who pays? And how?”
What explains Britain’s history? In a word: tax
by Dominic Frisby / 22/11/2019
“I’ve just written a book all about the past, present and future of taxation. Not the most enticing subject for a book, you might think, but I promise you it is. There is fascinating story after fascinating story. Today and over the next two weeks, I’ll be telling you some of them. The book’s called Daylight Robbery and we actually get that expression from the window tax that was levied in Britain between 1696 and 1851.
Window tax began as a replacement of hearth money, which involved collectors entering people’s homes twice a year to count their fireplaces. It was hated and the monarchs William and Mary had it abolished after the Glorious Revolution of 1688 to ingratiate themselves with the people. A replacement for the lost revenue was soon found in the form of window tax. No invasion of the Englishman’s sacred privacy was required: an assessor could just walk past and count his windows.
But the tax had many unintended consequences, the worst being that it made people ill. It was “a direct encouragement to disease”, said The Lancet. The numerous epidemics during the Industrial Revolution – typhus, smallpox and cholera – were made worse by the cramped, damp, windowless dwellings. By the 19th century, opposition to it was everywhere. “Neither air nor light have been free since the imposition of the window-tax,” fumed Charles Dickens. Pamphlets were handed out, speeches were made. Campaigning went on for decades. When a motion was finally put before Parliament, legend has it that MPs cried “Daylight robbery!”.
Protectionism financed central London
Who would have thought that simple tax would make people ill? But taxes have many strange, unintended consequences. The Corn Laws are another example. In the aftermath of the Napoleonic Wars the Tories imposed tariffs on imported grain to protect British crop producers against the falling cost of bread. But, protected from foreign competition, crop producers felt little pressure to improve productivity and the cost of grain stayed high. The high cost of food hurt the poor most, while creating some of the richest British aristocratic dynasties in history. The huge estates of Cadogan, Westminster and Bedford, which still occupy much of central London, were built on the back of these protectionist tariffs.
But the most pernicious unintended consequences were in Ireland. In the 1840s, the country was hit by the Great Famine. Blight struck the potato plant on which Ireland depended as its staple crop. It needed food from abroad and there was plenty of cheap grain waiting to be exported, especially from the US, but the Corn Laws made the cost too high. Over a million people died of starvation. A million more fled to the US to escape it.
When you consider the influence of the Irish on the destiny of the United States – over 20 presidents claim to have been of Irish descent – you can see what an effect even apparently minor taxes can have on human history. Attempts to reform the laws met with opposition. Parliament was full of landowners. Even Britain’s tax commissioners were landed gentry. In 1838, free-trade campaigner Richard Cobden set up the Anti-Corn Law League and in 1841 he was elected as an MP. He eventually won the ear of the prime minister, Sir Robert Peel.
Repealing the Corn Laws
“We must make this country a cheap country for living,” Peel had declared, and his reintroduction of income tax in 1842 – seven pence in the pound on incomes over £150 – meant he was able to remove over 600 duties and reduce rates on more than 500 further items. Thanks to his tax, trade and financial reforms, Britain actually ran a surplus. He repealed duties on sugar, livestock, cotton, meat and potatoes, as well as glass excise taxes. “We hail with joy the abolition of the duty on glass,” said The Lancet, “a tax only to be equalled in cruelty by the duties on corn.” Peel would eventually repeal the Corn Laws as well.
He had voted against repeal each year from 1837 to 1845, but with food supplies scarce on the mainland and famine in Ireland, he changed tack. British farmers did not produce enough grain to feed its growing population anyway, let alone in a famine. Peel was strongly opposed from within his own Conservative Party. But he found Whig support and the laws were finally repealed in 1846. He resigned the same day, never to hold office again. But as Cobden foresaw, Peel’s reforms ushered in an era of free trade in Britain in the second half of the 19th century that in terms of innovation, invention and rising prosperity was perhaps the greatest in British history.”
LAND VALUE TAX