Debt in this country is insane. Just looking at these graphs highlights how much debt we’re really in already, and how bad it’s going to be. The longer we have it, the more interest we will have to pay. Is it really worth it?
There are plenty of people marching for an ‘alternative’, none of whom seem to have expressed exactly what this alternative is. Labours spending plans are largely exactly the same as the Tories. In an interview on the Today programme Milliband confessed that Labour wouldn’t have actually done anything different as yet in terms of spending. It’s all a bit of a farce. My opinion is keep taxes where they are for now, and put more spending into paying off the debt, so hopefully in future our interest repayments aren’t £25m more per day than the total cost of education.
People go on about how savage the governments cuts are, and how everything is really affected, and go on these big protests shouting things to this effect. The reality is, they haven’t made any cuts at all, the spending has only increased (perhaps not quite in real terms, I haven’t worked it out), and will continue to do so at least for the rest of this term. Some things have been shifted around the departments in government, but this is normal, and always happens.
I looked up income figures for the government because some of my unemployed friends were complaining about their tax payers money not being used, and corporations not paying their fair share. Turns out, corporation tax income is 5x greater than the income tax from the lower earning 50% of Britain. The top 1% of earners pay 25% of the tax. This led me to a parable that is definitely worth sharing. I have also read the criticisms about this parable, and I didn’t find any of them very compelling, but will discuss them briefly after the parable.
Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that’s what they decided to do.
The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20.” Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’ They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.
“I only got a dollar out of the $20,” declared the sixth man. He pointed to the tenth man,” but he got $10!”
“Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar, too. It’s unfair that he got ten times more than I!”
“That’s true!” shouted the seventh man. “Why should he get $10 back when I got only two? The wealthy get all the breaks!”
“Wait a minute,” yelled the first four men in unison. “We didn’t get anything at all. The system exploits the poor!”
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
The main argument that I could see (apart from the numbers being exactly right, but largely similar) is that the link between increasing taxes and the richest leaving isn’t fully understood, and is largely empirical. The Laffer curve suggests that the optimum tax rate is around 70% which is certainly more than the current 50%.
If I was on just a minute I certainly would have been buzzed for deviation by now, so back to my original topic.
I really hope people go to this march in London. It’s sad that only the left wing and anarchists see fit to make their views known in this day and age, and the more susceptible public might then think that the government isn’t working and is ignoring the people. It’s a worthy cause. The official site is here, and the facebook event is here.