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June 02, 2006

Polly Again

I’m not sure about this you know, several people seem to think that I should stop writing about Polly Toynbee. Mother and Father, for example. No doubt there are others ("Please, puhleeeeze, Tim, don’t write anything more about Polla!" perhaps?) so perhaps I should start reading The Independent instead?

Yet something forces me back, like today’s offering:

It's not in the least surprising. He is the man who flirts with flat tax, the simplest tax of all - but also the most regressive, taking the least from the wealthiest.


Oh dear. A flat tax could indeed be less progressive than the current system. It could be more progressive too. Polly seems to be getting confused between the headline rate of tax (10%, 22%, 40% aren’t they still?) and the total amount of one’s income that is paid in tax. This latter is the one that counts and is of course hugely distorted by allowances, perks, loopholes and so on.

Of the various flat tax proposals out there many (most certainly the one put forward by the Adam Smith Institute) is more progressive than the current system. How progressive such a system is depends upon where the tax free allowance is set (the higher the more progressive) and where the flat tax is set (the higher the more progressive) and  how many allowances there are (the fewer the more progressive...assuming that the richer you are the more likely you are to take advantage of various investment dodges and so on).

His speech began with that rousing old battle cry: "This Saturday - June 3 - we celebrate Tax Freedom Day. That is the point in the year when people stop working for the chancellor and start earning for themselves." This tellingly spurious factoid hints at his numerical fragility. 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.


Not sure about this claim. Anyone else got any ideas?

It can't be calculated exactly, since you can't apportion to individuals such things as corporation tax, nor individual VAT spending habits.

Well, yes you can. Page 5 of this report (.pdf) by Patrick Minford.

But to get some idea why this "tax freedom day" only applies to the rich, consider first that a third of adults pay no income tax anyway.

Hmmm. Interesting number that. Adult population of the UK is some 48 million. According to Nationmaster, labour force is a tadge under 30 million. So, err, if I’ve got my numbers right, 66.6% pay income tax but only 62.5% actually work. Pretty good income tax system there, it appears to tax all those who work and a few who don’t.

Only 11% pay tax at the higher rate, and less than 1% earn £100,000 or more.

Does make me wonder why so much time is spent on all the lovely things that could be bought if only this tiny fraction paid more in tax.

In fact, only 10% of families, those earning over £58,000, are not eligible for any credits.

Well, yes, that’s one of the complaints actually. That the current system encourages all to be suppplicants to an embracing State. But that’s opinion rather than fact checking so perhaps I should leave it there.

June 2, 2006 in Economics | Permalink

Comments

According to Social Trends 26, p. 74, there are 30.5 million tax-payers in the UK. Polly's figures surprisingly inaccurate.

There are clearly some people outside the workforce who are have income (investment, typically).

Better that, though, than the other way round. I have worked in developing countries where there were fewer taxpayers than people on the government payroll earning more than the income tax threshold.

Posted by: FactcheckingPollyanna | Jun 2, 2006 8:59:51 AM

My wife and I consider ourselves to ba a family, earn below £58k and receive no credit. Even when the nipper was younger, we got no credit because the relevant arm of the state denied her existence. That Toynbee woman is such a fool.

Posted by: The Pendant's Apprentice | Jun 2, 2006 9:59:41 AM

The reason people wish that you stopped going on about Polly so much is that your desire to needle her affects your posts.

It's possible that flat taxes are the most progressive system, as of course you could have a flat rate of 100%. It's also possible that communism could deliver a higher standard of living than capitalism. But it ain't going to happen, particularly from the Tory party and George 'heir to fortune' Osborne.

When you say in response to the claim that only 1% earn more than 100k, "Does make me wonder why so much time is spent on all the lovely things that could be bought if only this tiny fraction paid more in tax.", you are misunderstanding the statistic. That's 1% of people, not 1% of income. In fact it's a much larger % of income or something like that.

Wrt to income tax payers, the 'third' figure is broadly correct, I have no idea why you or the 'factchecking pollyanna' say otherwise.

Finally, and more generally, the concept of Tax Freedom Day is silly. You can't, as Polly says, aggregate over individuals (though individually it may not show what she wants). It varies according to factors that might show the opposite of what you want - ie in a recession it is early, when borrowing rises it is early. I have no idea why Osborne is resurrecting it, Michael Howard's first speech as Tory leader was to say it would be a public holiday - another one in May/June! - which was dropped by the time the election arrived 18 month later.


Posted by: Matthew | Jun 2, 2006 10:00:12 AM

[Polly seems to be getting confused between the headline rate of tax (10%, 22%, 40% aren’t they still?) and the total amount of one’s income that is paid in tax]

possibly, or perhaps she's *not* getting confused between theoretical constructed examples and any flat tax which anyone actually anticipates getting passed.

[Not sure about this claim. Anyone else got any ideas?]

Makes intuitive sense; if you can calculate tax freedom day for individuals, then my tax freedom date would be later in the year than my milkmans but earlier than Chris Moyles' and so on, with the latest dates corresponding to the richest individuals. If you can't calculate tax freedom day for a single individual then this rather reinforces the argument, contra Minford, that it is a bit artificial to calculate it for an aggregate of individuals.

Posted by: dsquared | Jun 2, 2006 10:00:22 AM

Polly says "He reminds Tories greedy for cuts...". Greedy for wanting to keep your own money, it seems.

Does Polly ever say "Labourites greedy for taxpayers money"?

As for Polly and the Pollyites here pretending that Tax Freedom Day doesn't make any sense ("my brain hurts, there are all these differences")... it's a freakin' average.

Posted by: Scott Campbell at Blithering Bunny | Jun 2, 2006 10:13:34 AM

I am not so p*ssed off about tax, but how it is spent, or mispent by the government.

Glad to see a bit of WWW.NATIONMASTER.COM in there! its a fantastic website.

The workforce question is an easy one to answer - its conventionally calculated as to total of all working age adults (males aged 16-64 and females aged 16-59). There are a number of people over retirement age who still work and pay taxes related to employment.

Posted by: angry_economist | Jun 2, 2006 10:19:11 AM

"Of the various flat tax proposals out there many (most certainly the one put forward by the Adam Smith Institute) is more progressive than the current system."

And would involve a hole in tax revenues of, what, £70bn or something like that? Of course, that's entirely the point as far as the ASI is concerned ...

Posted by: Jim | Jun 2, 2006 10:32:50 AM

Have your TFD. Can we also have a National Infrastructure, Defence, Police, Health, Education, Justice and Democracy Freedom Day to mark the point in the year at which we cease to require any of the above?

Posted by: Alex | Jun 2, 2006 10:51:40 AM

Alex: I ceased to require the form of education that's funded by the taxpayer the day I left school some 30-odd years ago; I have made use of taxpayer-funded heathcare exactly three times in the past 20 years; but these 'necessities' still claim a significant share of my earnings. A further (large) share disappears into the pockets of un-numbered parasites, many of them employed by the same state that appropriates it, many more not employed at all and thus unlikely to oppose that state's increasingly greedy tendencies. If I were allowed to keep more of what I earn, I would be happy to make my own provisions for healthcare, the education of my (non-existent) children, my own care in my dotage and any other requirement I might consider necessary. As things stand, I am obliged to fund whatever Mr Gordo feels like spending my money on, with no regard to whether I will benefit from it. Tax Freedom Day represents the date at which, cumulatively, we no longer work for the state; of course the parasites referred to earlier reach this date on January 1st.

Toynbat's claim that 'only 10% of families, those earning over £58,000, are not eligible for any credits' is a blatant lie.

Posted by: The Weasel Bearder | Jun 2, 2006 11:38:52 AM

Mr Weasel - you've made use of education and healthcare a little more often. Every time you don't come down with an epidemic illness you're benefitting from universal health coverage, surely? And every time you use your computer to construct such thought-through arguments you're availing yourself of the benefits of others' education. Surely?

Posted by: David Jones | Jun 2, 2006 12:00:51 PM

Freed From the Burden of Parasites.

Tax Freedom Day

Posted by: EU Serf | Jun 2, 2006 12:20:30 PM

David, I use that exact some line as regards computers and socialists. Using a product of capitalism to post a blog about socialism for example. Delicious!

Posted by: Andrew Paterson | Jun 2, 2006 1:12:12 PM

David Jones: "Every time you don't come down with an epidemic illness you're benefitting from universal health coverage, surely?"

Is your argument that, were it not for the NHS inoculating a measles-sufferer, I would also catch measles? I would benefit to exactly the same extent if that measles-sufferer used his own money to fund his inoculation. To reverse the position, you would benefit from my self-funded inoculation for measles to at least the same extent as my publically-funded inoculation.

"And every time you use your computer to construct such thought-through arguments you're availing yourself of the benefits of others' education. Surely?"

Because if the inventor of the computer had not been educated (at public expense), I would be unable to use a computer? That's a bit of a thin excuse for state-controlled education, isn't it? The fact that I was educated at no expense to myself does not justify the continuation of publically-funded education. After all, those who were first to pay for such had certainly not been on the receiving end. In any event, it could as easily be argued that every time anyone does anything, he's availing himself of the benefits of others' education.

Posted by: The Weasel Bearder | Jun 2, 2006 1:14:38 PM

"Have your TFD. Can we also have a National Infrastructure, Defence, Police, Health, Education, Justice and Democracy Freedom Day to mark the point in the year at which we cease to require any of the above?"

"Every time you don't come down with an epidemic illness you're benefitting from universal health coverage, surely? And every time you use your computer to construct such thought-through arguments you're availing yourself of the benefits of others' education. Surely?"

We could all argue till the cows come home about whether or not the average taxpayer gets good value for money, but you are both overlooking the fundamental point: coercion is something that a civilised society should seek to minimise. It follows from that principle that wherever a solution based on voluntary contributions is available, it should be taken, *regardless* of whether it is more efficient than a tax-funded scheme. Presumably no-one believes that private provision of healthcare and education is impossible, which leaves us with the police, the courts and national defence. As a mini-stater with strong anarchist leanings, I have more confidence than most that the first two could be handled privately, but hey - I'd be deliriously happy if we could only whittle it down that far.

Posted by: Jon | Jun 2, 2006 1:37:57 PM

Mr Weasel, I was pointing out that you have benefitted from education and healthcare beyond your direct experience, whether or not both could be provided without the state's intervention or not. It seems to me to be a fact.

I'm no economist but when it comes to healthcare I'm given to understand that the expense and only partial coverage in the US is a shocking indictment of their system; Canada's not bad; and Singapore's quite interesting.

It's something to do with imperfect information, market failure and public goods. I believe Mr Worstall would be happy to clue you in on the exact economic facts.

Posted by: David Jones | Jun 2, 2006 8:28:36 PM

Oh David, please don't tell me you just credited the Candadian healthcare system over the American.. Ask any Canadian, especially one who lives near the American border, which is the most effective and desirable please.

Posted by: Andrew Paterson | Jun 3, 2006 12:53:10 AM

David, I suggest you study the comments here by kentuckyliz to gain a beter understanding of how the US healthcare system operates and what it costs.

Posted by: The Weasel Bearder | Jun 3, 2006 10:37:34 AM

Andrew- should I ask any Canadian and then any US citizen? And if I ask any US citizen may I choose one without adequate healthcare coverage?

Mr Weasel - whilst kentuckyliz's anecdote may be provocatively diverting it's hardly a replacement for theoretical models and solid empirical research. If you don't wish to struggle through the more technical and difficult work I suggest Chap.5 of 'The Undercover Economist' where you'll read how theory and research agree and both damn the US system as expensive, beauracratic and patchy (15% uncovered). Have a glance then by all means resume your spirited, if naive, defence of the idefensible.

Tim adds: Tim Harford? Worth pointing out that hedoesn’t call for radical change either. Incremental, at the margins.

Posted by: David Jones | Jun 3, 2006 12:58:34 PM

Tim, I think Harford quite likes the Singaporean model, doesn't he? Everyone pays for their own healthcare. Compulsory insurance to cover large unpredictable bills, dedicated saving accounts to cover ordianry medical expenses with government contributions to cover the old and poor.

Very different from the US. It reconnects individuals with their spending and lifestyle choices without wallowing in US-style inefficiences.

Tim adds: Ah, yes. My copy of the book is out on loan so I was half remembering. Also avoids the inefficiencies of 1.3 million (UK) or 13.5 million (US) people being run as a centralized bureaucracy.

Posted by: David Jones | Jun 3, 2006 1:51:00 PM

I must be one of those fools who would prefer a partially superb healthcare system over a universally appalling one.

Posted by: Andrew Paterson | Jun 3, 2006 10:58:24 PM

Andrew, the US health system is the most expensive in the world but at any time about 15% of the population aren't covered although health outcomes in other Western countries are eaasily comparable to the US. 0.2% of the pop. of Germany aren't covered and the UK and Canada have 100% coverage, by way of comparison.

Problems with imperfect information in the private insurance market in the US make the system costly, patchy and inefficient. And, by the way, Harford points out that linking health insurance to employment distorts the labour market in the US, too.

That isn't to say the UK's system should be a model to the US. Just that there are very serious problems with the US.

I don't think it's a laudable consequence of social policy that one of the wealthiest countries in the world has such demonstrably poor and inequitable healthcare. You clearly think otherwise; I think that's a consequence of dogma and prejudice rather than rational thought and serious consideration.

Posted by: David Jones | Jun 3, 2006 11:50:56 PM