A nasty Brown mess Apr 30th 2009From The Economist print edition
The politics behind Britain’s tax changes are ugly. The economics are worse
JEAN-BAPTISTE COLBERT, Louis XIV’s finance minister, famously said that the art of taxation was like plucking a goose; the aim was to get the most feathers with the least hissing. But tax policy should aim to do more than smother protest: it should also seek to raise the most money with the least distortion to economic activity. By this measure, Britain’s attempts to fill the fiscal gulf created by recession are a dismal failure and a lesson to cash-strapped governments everywhere. Take marginal income tax rates, announced in the British budget of April 22nd. Once national insurance is added in, effective marginal rates will climb from 31.5% to 41.5% through to 61.5% on those earning just over £100,000 ($147,000), thanks to the withdrawal of the personal tax allowance. After that, the rate will fall back to 41.5%, before rising again to 51.5% on incomes over £150,000.
The bizarre incentives of income tax are only the start. High earners also face the withdrawal of tax relief on their own pension contributions and a tax charge on the “benefit-in-kind” provided by employers’ payments into their schemes. Depending on how much the employer contributes, this will push marginal rates well above 50%. It will also discriminate against employees in defined-contribution, or money-purchase, schemes where employers match what workers put in. But the effect is not uniform; the convoluted rules will mean some high earners will get more tax relief on their contributions than they did before. What a mess. As recently as 2006, the government drove through a reform of the pensions rules that simplified a notoriously complex system. Employees could, in effect, make pensions contributions when they felt flush and still get tax relief. Those reforms were a much-needed incentive for employees to build up their pensions at a time when many employers were abdicating responsibility for providing a decent income in retirement. The new rules return pensions to the complexity of string theory. The best tax systems combine low rates with minimal exemptions. Businesses and citizens should be making decisions based on their economic opportunities, not the advice of their accountants. But Gordon Brown is too clever by half. He introduced a sliding scale that made capital-gains tax highly complex, and then reversed himself, introducing a single rate of 18%. The effect was both to raise the tax rates for sellers of small businesses and to introduce a vast discrepancy between the tax rates on capital and income. An attempt to introduce a levy on foreign workers (known as non-doms) was botched, and may yet drive many high-earners out of the country. These wheezes were designed chiefly with politics in mind: all those nasty plutocrats deserved a hammering. By putting economics second, Mr Brown has made it harder to balance the books. Waste and lower growth because of poor tax policy will only make the fiscal hole harder to fill. The new tax will do little to reduce Britain’s budget deficit. On the government’s own forecasts, which assume the wealthy will not change their behaviour, the assault on the rich will raise just £7 billion. With avoidance, the tax will raise still less.
Brown’s goose cooked Although higher taxes would be a mistake in a recession, they are inevitable when growth returns. The rich should pay their share, but governments cannot repair their finances merely by plugging holes or using stealth taxes. The sums are too great. They will have to raise money from the majority of citizens and they should do so in a clear and open fashion. The aim should be to reform and broaden the tax base. During the boom, the British government became too dependent on financial services, raking in money from income taxes on bonuses, capital-gains taxes on rising share prices or corporation taxes on bank profits. One reason its deficit has risen so quickly is that those revenues have evaporated. They may not return again for some time. Governments will need new sources of revenue, just as value-added tax, introduced in Britain in the 1970s, became a counterpart to income tax. Carbon taxes are one possibility. The lingering tax privileges of residential property could also go. The need is for decisive action, rather than fiddling. Meanwhile, the Treasury says that it is still “consulting” on the new pension rules. It should consult the book of common sense.
This is about the issue of drugs in USA. Drugs is considered a demerit good as the US govt deems it socially undesirable (ILLEGAL) as it imposes much EMC EMC EMC.
In the vid, it tells us that by locking up drug addicts, there is SMC = PMC + EMC as "you never know if the future scientist/artist/etc might be one of those addicts."
-Amanda
♥ 12:32 PM
Friday, May 1, 2009
S'pore has reason to be quietly confident despite downturn, says PM LeeBy Hoe Yeen Nie, Channel NewsAsia Posted: 30 April 2009 1839 hrs
SINGAPORE: Even as the world financial crisis deepens, Prime Minister Lee Hsien Loong said Singapore has reason to be quietly confident. In his May Day message on Thursday, Mr Lee said the country must use this crisis to prepare for a different and more competitive world.
Over the years, Singapore has prospered by servicing Asia and the world, and in this time of global uncertainty, the country must stay open to the world by embracing competition, instead of shying away from it. The prime minister said the downturn is an opportunity for Singapore to attract the best talents from around the world and to upgrade knowledge and skills of its workforce. Mr Lee also sounded a note of optimism about Singapore's economic strengths. He said its banking system is sound, wages are flexible and many jobs are still available. Besides employment opportunities in upcoming projects within the tourism industry, Singapore's economic agencies are also continuing to bring in foreign businesses, while helping Singapore companies to sniff out new opportunities overseas. "In Singapore, our response to the crisis has been rational and constructive. Unions, employers and government are working together to find practical solutions to explain to Singaporeans what is happening and what we must do to see through the downturn," said Mr Lee. He called on employers to cut costs to save jobs and to see retrenchment only as a last resort. At the same time, Mr Lee added that workers, too, can play their part by managing expectations. They should upgrade their skills to help ensure a more productive and competitive labour force to better deal with economic recovery when it comes. - CNA/so
