It's time to simplify the tax code & reduce governmental spending

With over 30,000 pages in the UK tax statutes it is time for parliament to tackle the ever burgeoning and convoluted mechanism for growing the governmental Leviathan and redistributing wealth. What modern social states like Britain and France and even the United States fail to grasp is that one must create wealth before you can re-distribute it.

Some argue that since paying taxes, by sheer definition, is inherently unfair, then the net should be cast wide to speed the pain equally. In other words, taxing or creating fees, surcharges, tariffs or levies for everything from income to interest earned from a bank account or building society; from tobacco and alcohol to bread and cheese; and from corporation tax to inheritance (death) tax.

The UK saw its highest tax rate in 1966, when the Labour government of Harold Wilson ushered in a 134.25% tax rate. This outraged George Harrison of The Beatles, who was affected the 95% super-income tax bracket, that he composed the music and lyrics for the ‘Taxman’, as a form of revolt. The Beatles band recorded the song in April and it was released in the album, ‘Revolver’ in August 1966.

 Tolly's UK Yellow Tax Handbook 2010 being burnt in protest

Many criticise the Thatcher-Major era as being ‘soft’ on taxing the rich and giving away government assets to private industry. The critics fail to acknowledge the quantitative data. The highest income tax bracket was 98%. Stated differently, for every £1 a person earned, 98p was going to the government. Today, the highest income tax bracket is 50%, which took effect in assessment year 2010 and catches individuals earning over £150,000 per annum. Under the New Labour government of Tony Blair, much of the neoliberalist economic policies of the Thatcher-Major governments were continued. This led Labour MP, Peter Mandelson to coin the term “Neo-Thatcherism” to describe the economic policies of New Labour.

Neoliberalism is a school of modern political theory which stresses market-driven approaches to economic and social policy, based on neoclassical theories of economics, which advocates efficiency of private enterprise, liberalization of free trade and open markets, and encouraging consumer free choice, individual thinking, and private enterprise. The tenets have frequently been a topic of conversation at Bohemian Grove. The ‘Washington Consensus’ is considered the theory’s definitive statement. International organizations such as the International Monetary Fund (IMF), World Bank, and World Trade Organization, along with regional trade associations such as the North American Free Trade Agreement (NAFTA), Association of Southeast Asian Nations (ASEAN), the Southern Common Market (MERCOSUR), and the European Union (EU) have endorsed the general principles of the theory.

National tax policy should encourage innovation and efficiency. Jobs must be created, at the core is build and maintain a strong and vibrant middle class, which broadens the tax base and brings stability to volatile global markets. The UK tax statutes are so complicated that while everyone in society gets caught by the tax ‘net’ burden, the lofty weight of a growing public sector places high demands to grow the public coffers. Government must learn to do more with less. A focus should be on prioritization of national policy objectives and efficiency placed at the heart of society’s vision and mission. An athlete performs best when he/she is in lean and well trained. Likewise, a government who learns to operate on less is able to understand the benefit of competition and getting quality.

One of the most efficient governmental organizations is the EU, which operates on a relatively small budget and meagre staff, yet the data they produce is unprecedented when comparing to national governments. An example is a student who is living on a shoe string budget is able to do far more than a professional paid a monthly salary. Why? The student understands the value of every pound-sterling and looks for the cheapest option (eg- riding the bus as opposed to the train, sleeping in a hostel compared to a 5-star hotel, et cetera et cetera). If governments operated in the same manner, more money would be in the hands of the private sector to grow the economy and allow citizens more options with how to live their lives.

In protest of the UK’s and US's confusing and convoluted tax policy, I took part in a tax act protest, where students burned their tax statutes in protest. Please join me in supporting a simplification of the tax statutes - the first step towards creating a more just British or American society.

Thoughts on Economics: Coke Index & the free market

Perhaps living in the city of Adam Smith, who wrote the Wealth of Nations in 1776, the year my forefathers signed their names to a declaration to King George III declaring their intentions to sever ties with the colonizing power, has sparked an interest in economics and the interaction with law. Prior to Christmas 2010 I was in Marrakesh, Morocco and met four students from Malaysia, who, were finishing their degrees in London, respectfully in medicine, economics and international trade. Our conversation on a train ride to Rabat sparked my interest in the Coke Index, which was promulgated in the affirmative by two of the four. First, I will explain the index and then contemplate UK tax law with a comparison to the health care. This latter point was prompted by recent discussions with fellow course mates about the Republicans in the US House of Representatives voting last week to repeal “Obamacare” (US National Health Care Act (H.R. 676)), which is the American version of socialized medicine, signed into law by President Obama in 2010 and set to take effect in 2014.

The Coke Index is a variation of PPP (purchasing power parity), an economic theory of long term equilibrium exchange rates is based on the relative price levels in two different countries. The theory has an absolute and a relative model. In the former, the purchasing power of different currencies is equalized for a given good. Whereas the latter is the difference between the prices, in say a can of Coke, between country A and B. The difference in the inflation rates will be more or less equal to the percentage of appreciation or depreciation in the exchange rate. The Coke Index can therefore give you an on-the-ground indication of the “real exchange rate”, because you know that a can of Coke costs $0.50 in Denver and 5dirhams in Marrakesh. According to XE.com the exchange rate is $1.00 = 0.12149 Moroccan dirham, so the “real exchange rate” is actually a little worse than quoted, as the can of Coke actually cost $0.61. Where the Coke Index breaks-down and becomes subject to volatility is in the arena of non-traded goods and services, in other words, I could have purchased a haircut for the same value as a can of Coke or hired a driver for a similar price. The Economist popularized the “Big Mac Index”, which I personally reject as the magazine is a bit too pretentious and arrogant for my tastes, though it is the exact same principle. Both the Coke and Big Mac Index are criticised in developing countries because those two goods are seen as luxury items. Coke is less so, as it is found even in the most rural of regions – according to Jessica Stern’s book, Terror in the Name of God, members of al-Qaida and the Taliban always served Coke as an aperitif. All this said, a 1,5 litre bottle of water in Marrakesh cost me the equivalent of £0.04 – a bit shocking since a similar bottle would cost between £0.34 and £0.65 in Edinburgh! I still drank a lot of Coke, because a medical doctor (single & female) I befriended said Coke kills any bugs which might have been on the Moroccan food – good advice – I didn’t get sick!

In regards to tax law in the UK, I have been reaking Tolley's Yellow Tax Handbook 2010-11 and Revenue Law: Principles and Practice. These books, along with lectures indicate the UK-US comparison is actually not that much differnt as far as revenue collected per capita, The US still has over-all lower taxes, but not by as great a differnce as existed in the 1980s. The textbook authors seem to insinuate Americans perceive themselves as paying fewer taxes and receiving fewer benefits, though the lecturer of the course commented that Americans contribute slightly less (when considering federal and state income tax, plus sales tax and property taxes), but receive tremendously fewer benefits. I almost stood up and said, “I’d gladly pay minimal taxes and receive limited equivalents.” Though I can tell my Republican ideology doesn’t exactly flow with the average Brit. The largest tax increase in American history was signed into law by President Obama in 2010 - the National Health Care Act - which binds all citizens into a single federal scheme (in my opinion usurping the concept of dual-federalism and the autonomy of the states) Europeans love the concept of 'free health care' (though if they thought about it, they are paying for it and even if it is less than most American insurance plans, the quality of service, expertise and facilities are considerably behind the US). Take all the factor which create value and Americans have BMW plans compared (using the auto analogy) Vespas in the UK. Cost wise, there should be a more affordable plan, but it should also carry a linear equivalence as far as value. I wouldn’t expect to buy a real BMW at a Vespa price, nor would I suspect the showrooms look similar. Yet both should take me from point A to B. I also dared to say that the free market should guide these prices and services, not the government – I was called a few cute and short names for what seem to be rather reasonable ideas. Much of my reasoning comes from observing how my fellow law students act at an “open-bar”, as opposed to a “cash-bar”. They’re sloshed in the former instance and reasonable in the latter (mind you, they’re British, students and in the faculty of law – all of which have high drinking propensities).