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Inequality in Britain


Ladymuck

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Huguenot Wrote:

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> I don't think financial inequality can be

> manageable. You can't realistically expect to

> reduce inequality by taking from the rich - this

> isn't Sherwood Forest.


It's a shame that you believe that financial inequality cannot be manageable...(a view shared by many Britons it seems, according to the latest British Social Attitudes' Survey).


I think the real difference between our politicians and Obama's Administration, is that Obama appears to have the genuine political will to reduce economic inequality whether this be through his healthcare reforms or via the proposed measures outlined in his Administration's Budget, whereas our politicians don't. For example, he acknowledges (and wishes to do something about the fact) that tax cuts and other policies from previous Administrations have favoured the rich in that the incomes of the affluent have consistently risen for the last 30 or so years while their tax rates have simultaneously fallen more than the rates for the middle class. It will be interesting to see what effect his policies have, given that the economic inequality gap there is greater than in the UK. Hats off to the man though for speaking up and acting on his words despite almost overwhelming opposition.


Although Alistair Darling now accepts that income inequality needs addressing (in itself a step in the right direction, in my view) I feel strongly that his Budget could have done more to shift the burden of tax from poor and middle income families to the rich.


As for saying that ?you can't realistically expect to reduce inequality by taking from the rich", well why ever not? Does that mean that you think that our Chancellor's (or Obama's ? for that matter) latest proposals are nothing more than well-intentioned pie in the sky?


Click here to view summary of AD's Budget

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I think you're right about Obama in general Ladymuck, but I'm not so sure about your perspective.


For example, healthcare plans haven't been imposed to take cash from rich people, it's been about delivering healthcare to those without. In fact Obama's been at pains to point out that the proposal is budget neutral.


Progessive taxation also isn't about taking money from the rich to make them poorer - it's about carrying the burden of social responsibility according to your means.


I may have been wrong, but your arguments about financial equality seemed to focus on the gap between rich and poor, and you seemed to see government activity as a way to make this smaller by taking the money away from rich people.


In response to your final question about why you can't just take from the rich, it's because in general they have generated their wealth by providing good and services for other people. If you refuse to let them reap the rewards of this then they just won't provide the good and services. We all lose.


The only plausible outcome for that is agrarian subsistence farming.

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Oh dear...clarification required, I think.


Huguenot Wrote:

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> For example, healthcare plans haven't been imposed

> to take cash from rich people, it's been about

> delivering healthcare to those without.


Absolutely! (Did I say otherwise?). I mentioned President Obama's healthcare proposals because, although their objective is about reducing health inequalities in the US, if successful, one would hope that they might also result in a reduction of the economic equality gap. Studies have found that there is a direct association between a nation's health and income in/equality. Basically, the healthiest and happiest people are those that live in more equal societies. They enjoy a greater life expectancy too. Consequently, they are better equipped when it comes to securing and retaining employment.


> Progessive taxation also isn't about taking money

> from the rich to make them poorer - it's about

> carrying the burden of social responsibility

> according to your means.


Agreed Huguenot, though it does carry an element of "taking from the rich..." in the sense that it is a form of wealth redistribution in that it shifts the tax burden from those that make the least money to those that earn the most. Incidentally, when I referred to "taking from the rich...", I was merely quoting a previous statement of yours...I wouldn't have used that expression myself (given the image of Robin Hood which it conjures)!


> I may have been wrong, but your arguments about

> financial equality seemed to focus on the gap

> between rich and poor, and you seemed to see

> government activity as a way to make this smaller

> by taking the money away from rich people.


There you go again...conjuring up images of Robin Hood and his Merry Men. But seriously, other than by government intervention whether it be revamping our education system, increasing the minimum wage, introducing tax measures to favour the least well off etc. etc., how else would you go about reducing financial inequality? Perhaps you don't see it as a priority and therefore wouldn't bother?


> In response to your final question about why you

> can't just take from the rich, it's because in

> general they have generated their wealth by

> providing good and services for other people. If

> you refuse to let them reap the rewards of this

> then they just won't provide the good and

> services. We all lose.


Again, my question was in response to your comment "You can't realistically expect to reduce inequality by taking from the rich - this isn't Sherwood Forest".


To be in favour of measures such as wealth redistribution, progressive taxation and the like does not necessarily imply undermining the economic (and other) benefits which the wealthy bring to both themselves and to society as a whole. Ditto refusing to them let them reap [their] rewards. It is not about penalising the rich (indeed, I may well be rich myself one day!!) but more about attaining a fairer and more equal society rather than the unequal and corrosive one which we have at present.


>The only plausible outcome for that is agrarian

> subsistence farming.


Now you are just being facetious...or is that flippant...or maybe both?!


*wipes brow*

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LM, my point about NMW was that it did not, over time, have the effect of reducing the gap in incomes between the richest and poorest in the UK. If, like me, you are broadly uncomcerned about that gap, then you can simply appreciate that it has, as you say, raised the living standards of the lowest paid, and be happy with it. If you are looking to reduce that gap, you won't achieve it through NMW, at least not at anything like it's present level.


"To be in favour of measures such as wealth redistribution, progressive taxation and the like does not necessarily imply undermining the economic (and other) benefits which the wealthy bring to both themselves and to society as a whole. Ditto refusing to them let them reap [their] rewards. It is not about penalising the rich (indeed, I may well be rich myself one day!!) but more about attaining a fairer and more equal society rather than the unequal and corrosive one which we have at present."


How do you propose to close the gap without penalising the rich (intentionally or otherwise)? And what makes you so sure that our society is corrosive because it's unequal, rather than for other more obvious reasons?

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DaveR Wrote:

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> If, like me, you are broadly uncomcerned about

> that gap,


So either broadly unaware of/unaffected by the scale of human suffering and indignity going on around you or broadly unconcerned about it?



But for fucks sake don?t try to pass it off as some sort of valid political stance.

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Curse all you like Brendan, but the issue is a straightforward one, and has nothing much to do with suffering, indignity etc. Over time, in the UK, the gap between the richest and the poorest has got bigger, not because the poor have got poorer, but because the rich have got richer, quicker. Some people think that this is an inherently bad thing, and are wont to blame all sorts of other obviously bad things (crime, moral degeneracy, failing schools) on income inequality. I'm not convinced, and in particular I'm not convinced that trying to close the gap through, for example, more overtly redistributive tax policies, will either succeed in substantially reducing the gap or make the slightest bit of difference to crime levels, for example. So yes, I do consider it a valid political stance. A f&ck sight more valid than your sort of mumbo jumbo third way crap that just encourages people to believe that there are easy answers to difficult questions.
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DaveR Wrote:

-------------------------------------------------------


> How do you propose to close the gap without

> penalising the rich (intentionally or otherwise)?

> And what makes you so sure that our society is

> corrosive because it's unequal, rather than for

> other more obvious reasons?



Would you mind clarifying what you mean by "rather than for

other more obvious reasons?". (Please).


Thanks.

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How about too many rubbish inner city schools, drug and alcohol abuse/addiction, the almost complete failure of the care system for children, entrenched, long term unemployment, and a skewed benefit system that provides a whole load of perverse incentives?
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Surely the very existence of the benefit system shows that society needs to be more equal?


I will assume that we would both agree that any benefit system should only be there to protect the vulnerable. So what we have in the uk are entire swathes of the population reliant on the benefit system to provide them with housing and income to feed and clothe their families. If society was more equal a working family (let?s use our bin man as an example again) shouldn?t have to rely on the state for support because housing and food and stuff etc would be attainable on his income.

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DaveR Wrote:

-------------------------------------------------------

>LM, my point about NMW was that it did not, over time,

>have the effect of reducing the gap in incomes

>between the richest and poorest in the UK...

>...If you are looking to reduce that

>gap, you won't achieve it through NMW, at least not

>at anything like it's present level.



I understood your point. I have expressed a similar opinion on many an occasion. E.g:


- There's no denying that the NMW has had little effect on overall income inequality: the latest reports undertaken by both the Institute for Fiscal Studies and the The National Equality Panel confirm this.


- Yes, the fact that it's impact on overall income equality has been negligible is a matter for regret.


- Notwithstanding this, ?5.73 per hour for an adult is (in my view) insufficient and further measures are required - one reason why I would push for a decent living wage (amongst other measures - as this by itself would not solve economic inequality and the subsequent social immobility attached to it).

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DaveR Wrote:

-------------------------------------------------------

> How about too many rubbish inner city schools,

> drug and alcohol abuse/addiction, the almost

> complete failure of the care system for children,

> entrenched, long term unemployment, and a skewed

> benefit system that provides a whole load of

> perverse incentives?


Don't you think that some of these (if not all) might well be symptoms/evidence of an unequal society?

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The original post was specifically about a report citing stats on income and wealth inequality, and I thought that's what we were talking about. An 'unequal society' can mean whatever you want it to mean, so not much point in arguing about it.


However, to answer some specific questions:


the benefit system is skewed in a number of unhelpful ways. The present system of incapacity benefit makes it more attractive to be declared unfit for work than to go look for a job. The tax credit system subsidises low wages and creates artificial employment. Housing benefit incentivises dodgy landlords to charge the maximum available for substandard accomodation. I could go on.


I also don't believe that the specific problems are evidence/symptoms of an unequal society in any helpful way, because there is good evidence that these are problems capable of being addressed through specific, focussed action e.g. 'sink' schools can be turned around through really good leadership, drug addiction can be treated much more effectively than under the current 'harm reduction' model, and proper training for real jobs works wonders at getting peiople back to work.


Inequality is a totem that people attach themselves to because it offends their sense of fairness, but focussing your energies on narrowing the income/wealth gap rather than taking practical steps to address real problems seems to me at best misguided.

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DaveR Wrote:

--------------------------------------------------------------

> How do you propose to close the gap without

> penalising the rich (intentionally or otherwise)?


The primary purpose of implementing measures such as progressive taxation etc., is not about penalising the rich, it is about working towards a common good ? in this case a fairer and more equal society. Or as Huguenot put it: ?...[it] isn't about taking money from the rich to make them poorer - it's about carrying the burden of social responsibility according to your means.? Of course the outcome will be that the wealthiest will be the ones to bear the bulk of any financial burden ? but, hopefully, they will be rewarded in other ways; the knowledge that they may be contributing towards a better society for themselves for example.


Whilst individual ambition is to be commended, we also need to have ambitions as citizens to do the best that we possibly can for the society we live in. Furthermore, our social policies should provide for the 99% of us who are not uber-rich and those who have benefited most from society should give more back (no - have a social obligation - to give more back).

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What difference does the purpose make if the outcome is the same e.g. some people pay a lot more? The pretty much universal experience of modern economies is that cutting marginal tax rates increases the overall tax take, because it reduces the incentive for avoidance and because lower taxes = higher employment.


I would also suggest that the wealthy are more likely to feel that they are contributing towards a better society if they are able to exercise some control over what they give and to whom (over and above basic taxation). Do you feel that the money you give to a charity of your choice is more likely to increase the sum of human happiness than your income tax deductions?


There are, again, lots of practical things that can be done to encourage the wealthy to give something back to society, and it should be seen as the norm.

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DaveR Wrote:

--------------------------------------------------

> the benefit system is skewed in a number of

> unhelpful ways. The present system of incapacity

> benefit makes it more attractive to be declared

> unfit for work than to go look for a job. The tax

> credit system subsidises low wages and creates

> artificial employment. Housing benefit

> incentivises dodgy landlords to charge the maximum

> available for substandard accomodation. I could

> go on.


It is true that the benefit system in its current form is far from perfect. In particular it is overly complicated leaving it open to error by staff and to abuse by fraudsters only too keen to exploit the fact that many of the benefit staff haven't a clue. However, I do not believe that it is correct to say things like ?the present system of incapacity benefit makes it more attractive to be declared unfit for work than to go look for a job?. Of course there will always be people who do not wish to work etc. or who believe that the world owes them a living (as per the recently reported case of Essma Marjan), just as there will always be muggers, burglars, shoplifters and the like. However, as with muggers etc., they are in the minority and the overwhelming majority of claimants are in fact entitled to claim as of right. If anything, there are many people who, for various reasons, do not claim. Worse, a report recently commissioned by the Citizens Advice Bureau found that people with serious illnesses and disabilities are being caused unnecessary hardship because they are being denied benefits on the ground that they are ?fit for work? when in reality they are not.


Add to the mix that more than ?16 billion in benefits go unclaimed every year, whereas benefit fraud amounts to just over ?1 billion. Oh, and just to put things into perspective, tax evasion costs the public purse a whopping ?15 billion+ per year.


I think it is important to remember the reason for the introduction of benefits; namely the provision of a safety net to avoid the needy and vulnerable from slipping below a certain poverty level.



> I also don't believe that the specific problems

> are evidence/symptoms of an unequal society in any

> helpful way, because there is good evidence that

> these are problems capable of being addressed

> through specific, focussed action e.g. 'sink'

> schools can be turned around through really good

> leadership, drug addiction can be treated much

> more effectively than under the current 'harm

> reduction' model, and proper training for real

> jobs works wonders at getting peiople back to

> work.


?Good evidence?? Such as? In any event, this wouldn't address the underlying problem ? the inequality (assuming you accepted ? for one second ? that this was in fact a problem or that it even existed).


> Inequality is a totem that people attach

> themselves to because it offends their sense of

> fairness, but focussing your energies on narrowing

> the income/wealth gap rather than taking practical

> steps to address real problems seems to me at best

> misguided.


Well, maybe. However, all 3 main political parties (and the Greens) now acknowledge that it is a matter requiring urgent attention, the Government saw fit to commission the report on equality by the National Equality Panel (all 476 pages of it) and the Equality Bill has been passed and sent for Royal Assent on 7 April 2010.


Edited to say: Equality Bill has been passed in its entirety (yesterday being the 7th).


*detaches herself from totem as she prepares for bed*

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DaveR Wrote:

-------------------------------------------------------

> What difference does the purpose make if the

> outcome is the same e.g. some people pay a lot

> more? The pretty much universal experience of

> modern economies is that cutting marginal tax

> rates increases the overall tax take, because it

> reduces the incentive for avoidance and because

> lower taxes = higher employment.


Are you certain about this? I'm pretty sure our Government (love them or hate them) would have thought of this.

>

> I would also suggest that the wealthy are more

> likely to feel that they are contributing towards

> a better society if they are able to exercise some

> control over what they give and to whom (over and

> above basic taxation). Do you feel that the money

> you give to a charity of your choice is more

> likely to increase the sum of human happiness than

> your income tax deductions?


So you believe that, if a system of compulsory wealth distribution were not in place, that the nation's generosity would provide and eradicate poverty, inequality and the current economic crisis in general? I think this is most unlikely and certainly at odds with your earlier comment which appeared to imply that people are more interested in exploiting the benefit system. How do you reconcile both statements?

>

> There are, again, lots of practical things that

> can be done to encourage the wealthy to give

> something back to society, and it should be seen

> as the norm.


I'm sure there are, but it is precisely because people cannot be relied upon to (shall we say) donate to society that we have a system of compulsory taxation. And I thought I was naive!

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Huguenot Wrote:

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> Last time I was in the UK I was earning...maybe

> 60k in tax...If you think I would have paid that in charity,

> you one crazy feller! I'd have bought a speedboat

> or something.


I think you've summed up the situation very nicely!


*bursts out laughing at Huguenot's honesty*

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LM, I suspect we're going to have to agree to disagree about this one, particularly when you say that whatever practical steps are taken to address poor education, drug addiction etc.


"In any event, this wouldn't address the underlying problem ? the inequality "


which kind of lends support to my suggestion that it is a symbolic rather than practical issue.


On some of the specific points:


Incapacity benefit (now known as ESA). Between October 08 and May 09, 352,000 claimants were medically assessed for their eligibility. 38% were found to be fit for work, and another 38% stopped claiming i.e. voluntarily gave up the benefit rather than be assessed.


The report is on the DWP website, here


Tax rates. It is pretty much accepted by economists that there is an optimum tax rate, above which increasing the rate will result in a fall in revenue, and that consequently a cut in rates (from a high starting point) will lead to an increase in revenue. Try googling "the Laffer curve". This was the actual experience of the UK and a large number of other European and other countries in the 1980s and 1990s, and more recently Ireland in relation to corporate taxes. It is also the reason why goverment projections for the amount of revenue expected to be raised from the imposition of a 50% top rate have been widely considered to be optimistic, to say the least.


Obviously I am not, and have not suggested that voluntary giving can replace taxation. However, I am suggesting that doing more to encourage and incentivise giving may be more effective at curing some of societies ills than using the blunt instrument of higher taxes. Despite the slightly sneery attitude towards the idea of philanthropy of you and H, encouraging the idea reflects current government policy:




and you yourself, in an earlier post, used the words 'social obligation', which is precisely the idea that I am saying ought to be promoted.


In the US, the wealthiest 10% of the population account for 50% of charitable donations. In the UK, the wealthiest 10% give 20%.

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I have never understood why they have never abolished all tax bar VAT which would be applied at say 35% on every single purchase be it a paper or a house or whatever. The collection of the tax would be done by the retailer/lawyers.


I you are very rich and buy silly priced things you pay vast sums of tax, if you are of modest means and careful you pay small amounts of tax. People ion benefits would see an uplift of 35% to cover the new costs. The gov would get virtually all the tax in and see an uplift in income.

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DaveR Wrote:

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> LM, I suspect we're going to have to agree to

> disagree about this one...


Yes let's! There's no shame in that.


> Incapacity benefit (now known as ESA). Between

> October 08 and May 09, 352,000 claimants were

> medically assessed for their eligibility. 38%

> were found to be fit for work, and another 38%

> stopped claiming i.e. voluntarily gave up the

> benefit rather than be assessed.


This is interesting, though hardly surprising given the relatively high proportion of claimants with mental health problems. In 2006, over 40% of claimants were mental health patients and, at the time, those figures were rising so I suspect they might be much higher now. In addition, a further 10% of claimants had mental illness as a secondary factor. The new rules with respect to assessment are much more stringent and more rigorous than previously which (I would imagine) could appear quite daunting (even prohibitively frightening) for somebody with mental health issues. This might explain why so many might choose not to go through the medical assessment. It might also explain why many more people (who do undergo it) now fail it (whereas they may not have done prior to the changes). People with mental health problems might not be able to communicate as well as others and lack of training/awareness by the assessor (who may not be medically qualified) could construe a claimant's behaviour as being unwilling to co-operate. When the Select Committee on Work and Pensions were discussing the ESA, Dr Jed Boardman of the Royal College of Psychiatrists outlined the difficulties when making decisions on those with mental health issues. He said: "That is a rather difficult question in the sense that anybody could be labelled as being awkward because they will not take part in something for good reasons to themselves which are related to their anxieties, their poor motivation because of their depression problems and so on. It is really almost a question of how you label that uncooperativeness. It is something I have to engage with with patients most days. Are they doing this because they do not want to, because they are being awkward, or because they simply cannot?".


> ...It is pretty much accepted by

> economists that there is an optimum tax rate,

> above which increasing the rate will result in a

> fall in revenue, and that consequently a cut in

> rates (from a high starting point) will lead to an

> increase in revenue. Try googling "the Laffer

> curve". This was the actual experience of the UK

> and a large number of other European and other

> countries in the 1980s and 1990s, and more

> recently Ireland in relation to corporate taxes.

> It is also the reason why goverment projections

> for the amount of revenue expected to be raised

> from the imposition of a 50% top rate have been

> widely considered to be optimistic, to say the

> least.


Well, until today, I had never heard of the Laffer curve! Interesting concept, and I can see the basis of your argument. However, (and there's always a ?however?!), there appear to be many exceptions and caveats to the general principle. According to the Laffer Curve theory there is a presumption that the Government will collect zero tax at a 100% tax rate as, at that point, people would choose not to work because everything they earned would go to the government. However, that presumption is rebuttable.


Jude Wanniski noted that ?all economic activity would be unlikely to cease at at 100% taxation, but would switch to barter from the exchange of money?. He also noted that there can be ?special circumstances where economic activity can continue for a period at a near 100% taxation rate (for example, in war time)". This in fact occurred in the Soviet Union where there was a 100% tax rate and yet the government was still able to fund its massive military all while creating its space programme. Others have opined that, although the Laffer curve graph places the optimal rate at 50%, that rate could in fact be anything between 0 and 100%. So whilst the Laffer curve theory is (as you suggest) generally accepted, much debate surrounds it, and it is equally accepted that the optimal percentage rate for a particular economy can only be estimated as the relationship between tax rate and tax revenue is likely to vary from one economy to another depending on factors such as the employment market, the types of income groups, the system of taxation in place, the scope for tax avoidance etc. etc. Others have argued that the peak occurs at a 65% tax rate (Pecorino), whilst others quote 70%.


Concerns have also been raised on the basis of equity. For example, the economist Galbraith criticised President Reagan's use of the Laffer curve to reduce taxes on the wealthy. Moreover, Arthur Laffer himself has said that the curve should not be the sole basis for raising or lowering taxes.


I realise I am wittering on here, but all I am trying to say is that, whilst the Laffer Curve is a theory (presumably based on logic and rational thought) it remains just that - a theory. So, as with many other theories there is a difference between that expounded by the Laffer Curve and what may occur in practice.


Anyway, this is all very academic because our Government hasn't proposed imposing a tax rate above 50% and (as far as I understand the situation) the 50% tax rate is to apply to income over ?150,000 (i.e. to a relatively small portion of society). So ? according to Mr. Laffer's theory (criticisms, challenges and controversies aside) ? there is scope for taxes in the UK to be raised even further!


> Obviously I am not, and have not suggested that

> voluntary giving can replace taxation...Despite the slightly

> sneery attitude towards the idea of philanthropy

> of you and H, encouraging the idea reflects

> current government policy...


I'm sorry if it appeared to you that I was sneering at your comments. I wasn't (really). I genuinely found Huguenot's post very very amusing purely because I found it to be so audacious in an incredibly honest way. But, come now...didn't you think it was just a teensy weensy bit funny? No? (I'm still giggling now just thinking about it!). Anyway, my apologies ? I didn't mean to offend you.

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vinceayre Wrote:

-------------------------------------------------------

> I have never understood why they have never

> abolished all tax bar VAT which would be applied

> at say 35% on every single purchase be it a paper

> or a house or whatever. The collection of the tax

> would be done by the retailer/lawyers.


Sounds great in theory, but what about life's necessities such as food and clothing.


Currently we pay VAT on most goods and services at the standard rate of 17.5%.


Some items attract a reduced rate of VAT at 5%, e.g. children's car seats and domestic fuel or power.


And there are some goods (some of which are necessities) on which we pay zero VAT such as food, books, newspapers and magazines, young children's clothing and footwear, and special exempt items such as equipment for disabled people.


Wouldn't your proposal cause additional hardship to those at the bottom of the socio-economic heap who currently aren't liable for income, corporation or capital gains tax?


And who would bear the cost of paying the lawyers their "collection" fee? Unlike retailers, I can't see them doing it pro bono.

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Sorry if you thought it was sneery DaveR, I wasn't trying to sneer (which is quite snotty schoolboy), I was trying to ridicule.


Your assertions were relevant, but abstruse.


This... "The pretty much universal experience of modern economies is that cutting marginal tax rates increases the overall tax take, because it reduces the incentive for avoidance and because lower taxes = higher employment. "


Is simply not right. You refer to the Laffer curve, but it absolutely doesn NOT insist that generic lower taxation increases tax take. It in fact illustrates that there is a window within which tax take is maximised.


Not only that, but it's a thought experiment, not a 'study'. It simply observes that if tax was 100% then take would be nothing because no-one would have an incentive to work, if tax was 0% then take would also be nothing for obvious reasons. So somewhere in between take must go up. The 'peak' may be at 20%, or at 80% - no-one actually has a clue. It says nothing about reducing tax.


As for lower taxes = higher employment, well, bonkers.


If you want to go back to 1820, be my guest, but please don't take the rest of us with you.


Your later points were well made, but you started off with some sweeping statements that deserved to be diminished.

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"In any event, this wouldn't address the underlying problem ? the inequality "


If factors such as poor education etc don't contribute to 'inequality' - then it is simply like saying that people are born unequal and you're at a loss from the start. You can't just make a society more equal -whatever that means. Surely you need to address all the individual factors that perpertuate the inequality. Of course there are going to be areas where cause and effect are interlinked - poverty-drugs-poverty but saying that it's pointless to try and deal with drug addiction because it's a symptom on inequality does not really make sense

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