The Consumption Tax – A Non-Starter


The Consumption Tax – A Non-Starter

By Duncan Whitmore

In a recent essay published on this blog1, the present author proposed a short series of aims that would reduce the burden of taxation on economic prosperity, in comparison to a programme proposed by the Adam Smith Institute (ASI).2 Part of the ASI’s programme consists of “replacing [the] income tax with a progressive consumption tax, so savings are not taxed”.3 In relation to this, we explained, briefly, that all taxes are paid for out of one of two sources of production – either income or wealth – and that

The individual names of all of the different taxes refer not to fundamentally different types of tax; rather, they denote either the specific kind of good to be burdened (i.e. property, alcoholic beverages, etc.) or the particular event that triggers the tax liability. For example, within the category of taxes on income, an income/payroll tax taxes the income at the point it is earned; a VAT or sales tax, on the other hand, taxes the income at the point it is spent.

Consequently, we concluded that a proposal for a consumption tax amounted to little more than simply moving a tax burden around and calling it a different name rather than eliminating its depressing effects upon economic prosperity:

Changing the precise moment when a tax is levied ultimately does nothing to ameliorate the effects of the tax – it simply means that you might be able to hang on to your money for a little bit longer before having to give it up. Neither also does changing the triggering event have any effect upon who, ultimately, pays for the tax. All taxes must be paid for out of production and so the burden of any tax always falls upon producers.

This essay will elaborate on why, for a programme that wishes to give a serious boost to economic prosperity by reforming taxes, the proposal to switch to a consumption tax from an income tax is a relatively pointless endeavour which should not be considered as a priority. We will also explain why the claim that “savings are not taxed” is utterly fallacious before exploring some particular difficulties that are inherent to introducing and operating a consumption tax. Although this essay concerns, mainly, the effects of a consumption tax upon economic prosperity, we will then move on to highlighting some further problems this method of taxation presents from a purely libertarian perspective. Finally, we will conclude by pointing out that any benefits a consumption tax could bring are unlikely to be realised in the absence of fostering a general government commitment to lower tax rates. Continue reading

Tackling Taxes for Economic Prosperity


In a recent essay published on this blog1, the present author highlighted the need for a libertarian strategy to be firmly and uncompromisingly radical, rooted in challenging the inherent injustice of the state as the ultimate destroyer of liberty. This is in contrast to gradualist or, we might say, deliberately half-hearted approaches, which are forced to accept the state’s basic injustices (such as its taxes, regulations, and monopoly over law, order and defence) and replace any radical principle with some kind of utilitarianism.

While it is wonderful that liberty brings with it heightened economic progress in the form of material increases in the standard of living, libertarians recognise that these ends do not justify the means. For example, if it could be demonstrated that murdering red heads would add a few percentage points to GDP we would still regard such acts as evil; the ability of everyone else to buy a few more pairs of shoes would do nothing to change this fact. Therefore, while leaps and bounds in the standard of living certainly add moral weight to the case for a free society they fail to add moral decisiveness.

Interestingly, however, it seems as though wedding oneself to a fundamental principle allows one to examine the economic effects of liberalisation more pertinently and that even on their own terms, gradualists, neo-liberals and utilitarians fail to make proposals which would bring the highest economic benefits. In other words, libertarians such as ourselves, who are derided for being too “utopian”, “principled” and “unrealistic”, seem to have a better grasp of the primary utilitarian case for liberty than do their more pragmatic brethren. We will elaborate on this observation here by examining the problem of taxation. Continue reading

The UK Libertarian Party: First press release regarding major policy topic: personal income tax: abolition thereof


David Davis

http://www.lpuk.org 

UK Libertarian Party calls for the abolition of personal income tax 

The UK Libertarian Party has started the new year with a call to scrap personal income tax.

Party Leader, Patrick Vessey, said, “Income Tax raised £153 billion in 2006/07, about one quarter of the £587 billion spent by goverment last year.

“But savings on unnecessary spending could easily be found: for example, current annual spending on Britain’s hundreds of unaccountable QUANGOs — including such luminaries as the British Potato Council, the Milk Development Council and the Wine Standards Board — is running at around £175 billion.

“The Libertarian Party believes that the tax burden should be substantially reduced, and that those taxes that remain should be levied on spending, not on income. This policy will reward those – especially the poorest — who spend within their means and who save for their future.”

The Party’s Director of Communications, Chris Mounsey, added, “In 2002/03, the government spent £420 billion. Were we to return to those spending levels, we could abolish personal income tax and still have £13 billion left over.

“The people of Britain are beginning to understand that simply throwing money at public services doesn’t work. The Libertarian Party is dedicated to allowing every person in this country to choose how their hard-earned money is spent and the best way in which to do that is not to steal it from them in the first place.”

The Libertarian Party’s pledge to scrap personal income tax is the first policy to emerge from the new party’s discussions, and will form part of a radical manifesto to be released later in the year.

  Notes for editors 

1)      The Libertarian Party was founded on 21 November 2007 and officially launched on 1 January 2008. The party has concentrated solely on the UK political blogosphere and its own discussion forums thus far: this is the party’s first foray into the wider world. The website is at: http://www.lpuk.org

2)      Libertarianism is a political philosophy based on support for individual liberty.

Wikipedia: http://en.wikipedia.org/wiki/Libertarianism

3)      Libertarianism is a broad church, but the UK Libertarian Party is broadly minarchist in outlook. http://en.wikipedia.org/wiki/Minarchist

4)      Government spending figures can be found here: http://www.hm-treasury.gov.uk/economic_data_and_tools/finance_spending_statistics/pes_publications/pespub_pesa07.cfm

5)      Income Tax was first introduced in 1798, by William Pitt the Younger, in order to buy weapons and materiel to fight the Napoleonic Wars, and ranged from less than 1% to a maximum of 10% over the set thresholds. The tax was abolished in 1802 by Henry Addington, then reintroduced in 1803; it was again abolished in 1816, then reintroduced by Sir Robert Peel in 1841. Wikipedia: http://en.wikipedia.org/wiki/Taxation_in_the_United_Kingdom#History

6)      The QUANGO database: http://quangos.ercouncil.org

7)      The Essential Guide to British QUANGOs 2005: http://www.policyhub.gov.uk/news_item/quangos_cps.asp

 ++ ENDS ++ 

Issued by Chris Mounsey, Director of Communications, on behalf of the UK Libertarian Party. Enquiries to Chris Mounsey:        media@lpuk.org