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Merge income tax and NI, says Amol Rajan in the Standard. Why not scrap income taxes altogether?

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In an article subheaded, “Complexity in taxation puts employers off employing and conceals the truth about tax from those who pay it”, Amol Rajan makes the argument for simplifying the tax code. We’re going out on a liberal economics limb here; just remove taxes on work and enterprise. Our supposedly free market government resists a genuine shift to a sustainable and entrepreneurial economy.

We favour targeted taxes, simpler taxes, fewer taxes and lower taxes, once the national debt has been paid down. It is irresponsible and unethical to pass on such a vast mountain of debt to future generations.

Every tax on income, whether personal or corporate, reduces the incentive to work, employ people or invest. We side firmly with Adam Smith here, in that taxes should be imposed upon wealth and luxuries. Later we’ll side with that other free market thinker, Friedrich von Hayek, who argued that the market cannot deal with some eventualities.

Smith has four straightforward maxims which a good tax should conform to:

1. “The subject of every State ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the State.”

From each according to his abilities to each according to their needs, anyone?

2. “The tax each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, and the quantity to be paid, ought all to be clear and plain to the contributor, and to ever other person.”

Arbitrary decisions by rulers has been a principle from Magna Carta ad nauseam, but ignored by governments who fiddle endlessly with the tax code, subsidies and benefits, while individuals, start-ups and small business drown under red tape and tax burden.

3. “Every tax ought to be levied at the time, or in the manner in which it is most likely to be convenient for the contributor to pay it.”

Convenient tax and greater flexibility for genuine wealth creators who are investing or when you die, for example, when you have no need for mortal assets.

4. “Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible, over and above what it brings into the public treasury of the State.”

Complex, multiple taxes simply do not do this and are a form of extortion racket by the state.

A true meritocracy depends on redistributive efforts to ensure that the most able rise according to their abilities, rather than those with the wealthiest parents. It is a mathematic certainty that wealth concentrates, due to the basic principles of compound interest, portfolio diversification and the cross-border mobility of cash.

But a tax on income, in all its forms, is nothing but a disincentive to work, employ more people or invest in growth. Imagine a life where every penny you earned was your own.

A tax on unearned income or wealth, e.g. property taxes (primarily land values and ground rent), capital gains and inheritance and so on, would turn empty properties into homes for the homeless, encourage those sitting in houses too large to take in lodgers or downsize, and prevent land banking without compulsory seizures. A home building boom would ensue, increasing supply to match demand and stabilise house prices.

Companies, as well as legal persons, are also wealthy. As legal persons, they should be treated as wealthy individuals. On tax, large companies that own vast property assets would be forced to compete with local retailers who don’t. An ‘equivalent land space’ value tax would also ensure online retailers don’t secure an unfair competitive advantage that destroys our high streets and local communities.

The other advantage of a land tax, is that it is unavoidable. You cannot move physical square feet offshore.

The other tax that Smith advocates is a tax on luxuries. While he recognised that a luxury’s definition what vary from time and place, ‘luxuries’ should be all those things that you don’t actually need to live. We need food, clothing and shelter. You should not be taxed for the minimum standards of living: eating, clothing or renting/buying a home (shelter). Capital gains and VAT on most things therefore remain, but the market-distorting stamp duty goes.

The one tax Smith has no time for at all is income taxes: “In all cases, a direct tax upon the wages of labour must, in the long run, occasion both a greater reduction in the rent of land, and a greater rise in the price of manufactured goods, than would have followed from a proper assessment of a sum equal to the produce of the tax, [levied] partly upon the rent of land, and partly upon consumable commodities.”

But tax should not be arbitrary, regressive or retrospective. People who have built up wealth under a previous system should not be hammered by this step-change of taxation. High net-worth and ultra-high net-worth individuals should be encouraged or incentivised to become more philanthropic, rather than simply passing on wealth to future generations or channelling it offshore.

To mitigate the impact on those individuals and companies who have saved long and hard to build up diversified property assets, we would recommend creating a new tax in the form of pollution or harm added tax.

The corporate polluter pays for a painful transition

Here we side with the other free market thinker, Friedrich von Hayek. He argued that the free market cannot effectively deal with externalities such as consumer and worker harm, pollution and deforestation (but let’s add the more modern polar melting to that). Prohibition, regulation or tax are the only ways to deal with market failure. We favour taxation over prohibition and the often ineffective regulation.

The minority personal choice to smoke and drink are part of mature free society but come with a heavy public health cost which the majority should not be forced to suffer or pay for. We advocate that the producer rather than addicted consumers should pay the full cost of the industry as this would encourage them to divest and seek less harmful, more productive activities for their capital. They’d certainly think twice before trying to recruit young people to consume their products to replace those who die prematurely.

We see no difference in products that harm individuals to those that harm society or the environment. Producing toxic chemicals in the form of greenhouse gases and other chemicals that are harmful to the environment and society but more specifically the elderly, the ill, children, wildlife, water tables and so on should all be taxed heavily.

Thus, without any grant, subsidy or tax relief companies would actively seek to develop less harmful, more environmentally-friendly activities.

Inevitably, as we move towards a more sustainable economy, pollution and harm taxes would fall, requiring a rise in property and luxury taxes. As this would be a gradual process, the disruption and movement of assets would be fair, gradual and manageable.

In a functioning democracy, the license to be rich requires legitimacy and responsibility

With wealth comes a responsibility to the society that has facilitated an accrual of wealth. It is fashionable to think that wealth creation is all down to an individual’s innate talents, but it is the vast majority of society adhering to a strong work ethic while earning enough to buy and consume, while at the same time paying for national security, domestic law and order, universal health, education, infrastructure and abiding by the rule or law, that has made anyone rich.

If a person puts that wealth to good use to create jobs, a more sustainable future, new disruptive industries or through philanthropy, then they should be praised and relatively free of tax. If they horde their wealth in unproductive, uneconomic assets, and pass it on to similarly hoarding heirs and heiresses, their wealth should be taxed to benefit the society that has facilitated such individual prosperity.

And here’s one other tax on market failure. A lot of wealth is now created though high speed casino speculation on financial markets, with no tangible benefit to society. A tiny Tobin-like tax on every transaction might put enough grit in the system to slow that speculation down and, if not, yield a huge bounty for the treasury, mitigating other taxes.

We remain confident that these ideas will never be adopted as those who are most forceful in advocating a free market system are least willing to implement the balancing elements of their ideology, namely wealth taxes, taxes on luxuries and taxes that deal with market failures.

Some free market ideologues want all the gains of Smith and Hayek’s economic thinking with none of the balancing pain – creating systemic volatility, uncertainty, complexity and ambiguity. Neither Smith nor Hayek argued for unfettered markets. It is a tragedy that those who freely use their names have neither bothered to read their great works nor even remotely understood them.

Further reading:

Why abolishing corporation tax might make sense

Responsible investment can help crack down on tax avoidance

Google, Amazon, etc: blame tax laws, not the taxman or taxpayer

Corporations and tax avoidance: the time is right for investors to push for change

The joy of tax

Simon Leadbetter is the founder and publisher of Blue & Green Tomorrow. He has held senior roles at Northcliffe, The Daily Telegraph, Santander, Barclaycard, AXA, Prudential and Fidelity. In 2004, he founded a marketing agency that worked amongst others with The Guardian, Vodafone, E.On and Liverpool Victoria. He sold this agency in 2006 and as Chief Marketing Officer for two VC-backed start-ups launched the online platform Cleantech Intelligence (which underpinned the The Guardian’s Cleantech 100) and StrategyEye Cleantech. Most recently, he was Marketing Director of Emap, the UK’s largest B2B publisher, and the founder of Blue & Green Communications Limited.

Economy

Will Self-Driving Cars Be Better for the Environment?

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self-driving cars for green environment
Shutterstock Licensed Photo - By Zapp2Photo | https://www.shutterstock.com/g/zapp2photo

Technologists, engineers, lawmakers, and the general public have been excitedly debating about the merits of self-driving cars for the past several years, as companies like Waymo and Uber race to get the first fully autonomous vehicles on the market. Largely, the concerns have been about safety and ethics; is a self-driving car really capable of eliminating the human errors responsible for the majority of vehicular accidents? And if so, who’s responsible for programming life-or-death decisions, and who’s held liable in the event of an accident?

But while these questions continue being debated, protecting people on an individual level, it’s worth posing a different question: how will self-driving cars impact the environment?

The Big Picture

The Department of Energy attempted to answer this question in clear terms, using scientific research and existing data sets to project the short-term and long-term environmental impact that self-driving vehicles could have. Its findings? The emergence of self-driving vehicles could essentially go either way; it could reduce energy consumption in transportation by as much as 90 percent, or increase it by more than 200 percent.

That’s a margin of error so wide it might as well be a total guess, but there are too many unknown variables to form a solid conclusion. There are many ways autonomous vehicles could influence our energy consumption and environmental impact, and they could go well or poorly, depending on how they’re adopted.

Driver Reduction?

One of the big selling points of autonomous vehicles is their capacity to reduce the total number of vehicles—and human drivers—on the road. If you’re able to carpool to work in a self-driving vehicle, or rely on autonomous public transportation, you’ll spend far less time, money, and energy on your own car. The convenience and efficiency of autonomous vehicles would therefore reduce the total miles driven, and significantly reduce carbon emissions.

There’s a flip side to this argument, however. If autonomous vehicles are far more convenient and less expensive than previous means of travel, it could be an incentive for people to travel more frequently, or drive to more destinations they’d otherwise avoid. In this case, the total miles driven could actually increase with the rise of self-driving cars.

As an added consideration, the increase or decrease in drivers on the road could result in more or fewer vehicle collisions, respectively—especially in the early days of autonomous vehicle adoption, when so many human drivers are still on the road. Car accident injury cases, therefore, would become far more complicated, and the roads could be temporarily less safe.

Deadheading

Deadheading is a term used in trucking and ridesharing to refer to miles driven with an empty load. Assume for a moment that there’s a fleet of self-driving vehicles available to pick people up and carry them to their destinations. It’s a convenient service, but by necessity, these vehicles will spend at least some of their time driving without passengers, whether it’s spent waiting to pick someone up or en route to their location. The increase in miles from deadheading could nullify the potential benefits of people driving fewer total miles, or add to the damage done by their increased mileage.

Make and Model of Car

Much will also depend on the types of cars equipped to be self-driving. For example, Waymo recently launched a wave of self-driving hybrid minivans, capable of getting far better mileage than a gas-only vehicle. If the majority of self-driving cars are electric or hybrids, the environmental impact will be much lower than if they’re converted from existing vehicles. Good emissions ratings are also important here.

On the other hand, the increased demand for autonomous vehicles could put more pressure on factory production, and make older cars obsolete. In that case, the gas mileage savings could be counteracted by the increased environmental impact of factory production.

The Bottom Line

Right now, there are too many unanswered questions to make a confident determination whether self-driving vehicles will help or harm the environment. Will we start driving more, or less? How will they handle dead time? What kind of models are going to be on the road?

Engineers and the general public are in complete control of how this develops in the near future. Hopefully, we’ll be able to see all the safety benefits of having autonomous vehicles on the road, but without any of the extra environmental impact to deal with.

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Economy

New Zealand to Switch to Fully Renewable Energy by 2035

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renewable energy policy
Shutterstock Licensed Photo - By Eviart / https://www.shutterstock.com/g/adrian825

New Zealand’s prime minister-elect Jacinda Ardern is already taking steps towards reducing the country’s carbon footprint. She signed a coalition deal with NZ First in October, aiming to generate 100% of the country’s energy from renewable sources by 2035.

New Zealand is already one of the greenest countries in the world, sourcing over 80% of its energy for its 4.7 million people from renewable resources like hydroelectric, geothermal and wind. The majority of its electricity comes from hydro-power, which generated 60% of the country’s energy in 2016. Last winter, renewable generation peaked at 93%.

Now, Ardern is taking on the challenge of eliminating New Zealand’s remaining use of fossil fuels. One of the biggest obstacles will be filling in the gap left by hydropower sources during dry conditions. When lake levels drop, the country relies on gas and coal to provide energy. Eliminating fossil fuels will require finding an alternative source to avoid spikes in energy costs during droughts.

Business NZ’s executive director John Carnegie told Bloomberg he believes Ardern needs to balance her goals with affordability, stating, “It’s completely appropriate to have a focus on reducing carbon emissions, but there needs to be an open and transparent public conversation about the policies and how they are delivered.”

The coalition deal outlined a few steps towards achieving this, including investing more in solar, which currently only provides 0.1% of the country’s energy. Ardern’s plans also include switching the electricity grid to renewable energy, investing more funds into rail transport, and switching all government vehicles to green fuel within a decade.

Zero net emissions by 2050

Beyond powering the country’s electricity grid with 100% green energy, Ardern also wants to reach zero net emissions by 2050. This ambitious goal is very much in line with her focus on climate change throughout the course of her campaign. Environmental issues were one of her top priorities from the start, which increased her appeal with young voters and helped her become one of the youngest world leaders at only 37.

Reaching zero net emissions would require overcoming challenging issues like eliminating fossil fuels in vehicles. Ardern hasn’t outlined a plan for reaching this goal, but has suggested creating an independent commission to aid in the transition to a lower carbon economy.

She also set a goal of doubling the number of trees the country plants per year to 100 million, a goal she says is “absolutely achievable” using land that is marginal for farming animals.

Greenpeace New Zealand climate and energy campaigner Amanda Larsson believes that phasing out fossil fuels should be a priority for the new prime minister. She says that in order to reach zero net emissions, Ardern “must prioritize closing down coal, putting a moratorium on new fossil fuel plants, building more wind infrastructure, and opening the playing field for household and community solar.”

A worldwide shift to renewable energy

Addressing climate change is becoming more of a priority around the world and many governments are assessing how they can reduce their reliance on fossil fuels and switch to environmentally-friendly energy sources. Sustainable energy is becoming an increasingly profitable industry, giving companies more of an incentive to invest.

Ardern isn’t alone in her climate concerns, as other prominent world leaders like Justin Trudeau and Emmanuel Macron have made renewable energy a focus of their campaigns. She isn’t the first to set ambitious goals, either. Sweden and Norway share New Zealand’s goal of net zero emissions by 2045 and 2030, respectively.

Scotland already sources more than half of its electricity from renewable sources and aims to fully transition by 2020, while France announced plans in September to stop fossil fuel production by 2040. This would make it the first country to do so, and the first to end the sale of gasoline and diesel vehicles.

Many parts of the world still rely heavily on coal, but if these countries are successful in phasing out fossil fuels and transitioning to renewable resources, it could serve as a turning point. As other world leaders see that switching to sustainable energy is possible – and profitable – it could be the start of a worldwide shift towards environmentally-friendly energy.

Sources: https://www.bloomberg.com/news/articles/2017-11-06/green-dream-risks-energy-security-as-kiwis-aim-for-zero-carbon

https://www.reuters.com/article/us-france-hydrocarbons/france-plans-to-end-oil-and-gas-production-by-2040-idUSKCN1BH1AQ

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