Less Equals More

Last month I wrote about how it would do the public sector no favours heavily taxing the banks.  Today Daniel Hannan in the Telegraph has written an article on a similar theme, arguing that we should not be taxing the wealthy too much as this actually raises less tax revenue.

Hannan rightly says that the wealthy will simply take steps to avoid paying this high tax.  Either by devoting time to clever tax avoidance, which means less time for wealth creation which creates jobs, or even worse by moving abroad and taking their wealth creation with them, or by not bringing their wealth here in the first place.  Either way Hannan says, according to the Adam Smith Institute, “the Treasury will be worse off by between £350 billion and £640 billion over the next decade. To get a sense of what that figure means, bear in mind that the “cuts” so far amount to around £12 billion – a sum which has been more than offset by increases elsewhere.”

What the financial crisis has shown is that the ‘trickle down effect’ does exist.  However, unlike previous examples of the trickle down effect, this has been proved in reverse.  In other words, the financial crisis hit the banks and firms hard, this in turn has trickled down and affected everyone, in very much the same way wealth trickles down when they are doing well.

Taxing the wealthy heavily means there is less money to trickle down and less tax revenue, a double loss situation.  As Hannan says, “the rich won’t sit around waiting to be taxed. They take steps to minimize their exposure.”  As well reducing tax revenue by forcing the wealthy abroad or to avoid tax, it will seriously decrease the money they have to invest in creating wealth.  Their wealth creation creates jobs, and ultimately increases the amount of taxable people and therefore tax revenue.  On top of this, the less money the wealthy are taxed, means the more money they have to spend, which again creates jobs and thus more taxable people.

With UK growth in the second quarter of 2011 at 0.2%, it is becoming increasingly clear that the UK cannot simply cut its way out of this recession.  George Osbourne must create a solid framework for wealth creation to flourish, along with measures such as cutting red tape and improving training, the 50p top rate of tax must be abolished as it is inhibiting the trickle down effect which we so badly need.

Daniel Hannan’s Telegraph article can be found here:  http://blogs.telegraph.co.uk/news/danielhannan/100099370/top-rate-tax/

My previous blog on why we should not heavily tax the bankers can be found here:  https://rightblueview.wordpress.com/2011/07/01/unions-and-strikes-should-not-bite-the-hand-that-feeds/

India Must Take Responsibility For Its Poor.

In a recent interview for The Spectator Blog, ‘Coffee House’, Andrew Mitchell claimed the reason the United Kingdom is giving aid to India, even though it is fast becoming a serious international player, is because, “there are still areas of grinding poverty, with more people living in extreme poverty than in the whole of sub-Saharan Africa.”

This is very noble of the United Kingdom, giving aid to the poor in other countries so as they may better themselves, is, as I am sure all would agree, a good thing.  (Although, on a side note, we must try and move towards aid in terms of providing expertise in wealth creation, as opposed to straight money hand outs.)

The interesting thing with India is it is more and more becoming a global economic power, it is by all intents and purpose a relatively wealthy country.  It has however an extremely unequal distribution of this wealth, and this creates the extreme poverty which Andrew Mitchell rightly speaks of.

But, what message are we sending out to India, if while it continues to grow increasingly economically powerful, it is aid from other countries which look after its poor?

India’s extreme poor deserve a government which takes responsibility for it’s situation, which invests its growth in the whole of society, not just in the top of the ladder, or the ‘untouchables’ as they are often called.

The problem with giving aid to countries such as India, is while it may seem noble, we are effectively allowing government policy which promotes growth without taking into account those at the bottom.  Only by removing, or at least reducing or reassessing the aid we give, can we through the hard realities and international pressure force India to take responsibility itself and tailor its growth better.  India must be made to invest in its unequal structure itself, before it invests in ‘show items’ like its Space Program if it is to a respectable international player.  It must not rely on the good will of aid to look after its poor so as it can concentrate on economic growth whatever the social cost.

The interview with Andrew Mitchell can be found here: http://www.spectator.co.uk/coffeehouse/7068243/coffee-house-interview-andrew-mitchell.thtml

Unions and strikers should not bite the hands that feed.

One of the many arguments made by the unions and those striking yesterday was that they did not cause the financial crisis, and thus the money should be taken from the banks.

There is an element of truth in this, the crisis did originate from the banking sector.  However, while one may make the moral argument that they should be punished, in reality this would do the public sector no good at all.

In very simplified terms, the private sector is the money making sector of our society, it creates wealth and this wealth pays for the public sector.  To take money from the banks may bring some money back into the public purse, but only in the short-term.  Effectively it will choke the banking sectors ability to invest in wealth creation, in other words it’s ability to use money to make more money.  This flow of money into the public purse from banks creating more profit to tax from, and more people being employed meaning more tax, would decrease.  Overall this would mean less tax revenue, and therefore less money to spend on the public sector.  Not to mention the effect it will have on pushing banks abroad meaning job losses, and a loss of wealth creation.

On the same theme, unions and strikes would be wise not to disrupt the private sector too much, as after all they are creating the wealth that pays their wage and pensions.