negative income tax

As I have made clear on this blog, I am not in favor of redistribution of wealth, however, I am a supporter of Milton Friedman’s’ ideas. He developed the idea of the negative income tax, such a tax works by first imposing a flat tax, which I believe would be a much better option than our current progressive tax. This flat tax however does not give a personal allowance; a person’s entire income is taxed. Instead of a personal allowance, a certain amount is given to each person regardless of his or her income. If we imagine that this amount is £4000 (less than the current personal allowance), and a person is earning £5,000 then they are taxed on the £5,000 that they earn, lets say at 25%, so that’s £1250, then they receive the £4000 personal allowance, so their total income is £7750, in comparison, on the current system, they would have been given a personal allowance of £4895, and they would have been taxed on the remaining £105 at the starting rate of 10%, and then £28.6 on national insurance so that they would receive £4960.9 for the year. With the negative income tax there is also an easily calculable break-even wage, where tax liability equals the amount given out, this should equal the average wage in order to be fair, under the above amount, this would be £16,000. This system is not a guaranteed minimum wage, as the amount would change as the amount collected in tax would change, however, if wealth distribution is going to be accepted as a necessary evil, then this system seems the best option for a couple of reasons.

Firstly, the system is relatively fair, the flat tax allows easy calculation of tax and a proper incentive to earn more and to reinvest profits, while the amount given to each person is done so equally and does not contain any bias.

Secondly, the system does not need a huge bureaucracy in order to work. The system is self regulating, as a persons income falls, they automatically receive more benefit, as it rises they receive less, people falling on hard times automatically gain this income without having to fill in forms, and having to waste money on employing an official to sign them.

railtrack

Did the government steal the shares from railtrack owners by forcing the company out of business? I personally don’t think that they did. Certainly their dealings may not have been in the best interests of the shareholders (but when are they) and their actions may well have caused the collapse of railtrack, but in order for them to be at fault, then they would have to have done something to intentionally hurt the share holders. Railtrack was being kept afloat by government subsidies; this was because as a private enterprise it could not create enough business to survive. The shareholders of rail track were fully aware of the subsidies and had access to the audited accounts of the company; this was not an Enron situation where the true situation was covered up. When the government withdrew subsidies, the problems facing the company became all too real and they went into administration, this was of course unfortunate for the shareholders. The complaint that they are now bringing to court however asserts that the government withdrew subsidies in order to force the company out of business, it may well have done so, but do the shareholders have a right to compensation? I do not believe so. Had the government passed laws to restrict the business of railtrack, or through some other method actively harmed the business then this claim would be valid, however, the government did no such thing, the shareholders either bought shares in a company which survived on subsidies alone, or were holding them from a time when the company may well have been healthy, either way they had an investment that to any rational individual it would seem clear that the success of which hinged on railtrack making significant changes to the business to allow it to perform adequately to make a profit, it was a speculative investment in a company some people may have believed had turnaround potential, they were wrong, it didn’t make the necessary changes and the government (for whatever reason) removed the subsidies and the company collapsed. The only way to have kept the company afloat would be to have continued to subsidize the business; this would simply be propping up support for the shareholders indefinitely to make up for their mistake at the cost of the rest of the country, that would be unreasonable. Shareholders assume risk to gain exposure to potential reward, this time the risk was realized, for that they have nobody to blame other than themselves.

[As It says in my profile, I trade the capital markets, I assume these risks every day, occasionally they are realized and the trade loses money, that is part of the business and must be accepted, the trick is to employ careful money management, nobody can be right all the time. So when I say the shareholders can only blame themselves, I do not imply that they are stupid, certainly not, but merely that nobody else is at fault for a choice that they made. If the shares were bought for them as part of a fund, then the fund manager is responsible, again, not the government.]

tax breaks for the rich

“Tax breaks for the rich” the new cry from the socialist journalists against the new proposed tax breaks for buy to let properties. Never mind the fact that the people who benefit from buy to let are those people who can’t afford to buy their own home, I should know, I’m one of them. Being a student, it is all to clear how much richer my landlord is than I am, but does his wealth hurt me? Certainly not, in fact it benefits me enormously. I get to live in a house that I could not hope to afford outright, and what’s more I am not liable for any normal repair costs to the property and I can leave the house easily without having to find a buyer first (within the terms of the contract of course). So am I hurt if it is more attractive for investors to buy properties for the express purpose of letting them out? No, and neither is anyone else, on the contrary, we are benefited by the increased competition by having more choice and lower cost.

Of course some could come out with the argument that the buy to let industry has pushed first time buyers out of the market, and now less people can afford homes for that reason, but the housing bubble is coming to an end, it was not only buy to let properties that pushed prices up, to claim so would show a complete lack of understanding of the situation.

The other implication is that it is only rich people who can afford buy to let properties, I agree that the average person who would choose to do so would be a high earner, but taxing a high earner simply because the choice is easier for them to make is unreasonable, there is no law stopping a low earner from saving money up in order to get a buy to let mortgage. One comment from Mr. Crooks, an independent financial advisor also surprises me,

"This is a tax break for the rich funded by all taxpayers. The money would be better spent encouraging people on average incomes to save more for their retirement,"

The tax break is simply a reduction on the rate of tax paid on this particular investment when it is used specifically for pensions, when you take someone’s money from them, and then later give some back, the only person who you are hurting is the person you took the money off in the first place. Mr. Crooks comment emanates from the socialist/communist fallacy that tax money belongs to everyone, it doesn’t, it belongs to those people from whom it was taken, those people who earned it, Mr Crooks’ comment is simply a request to redistribute wealth.

Global warming 2

As an update to yesturdays article, I'll bring you attention to this article. It contains some interesting figures, however, only some of these are referenced and I have not had time to check out those references. the article is obviously biased as it comes from an organisation who wish to "dispel the myths of global warming".

I also stumbled accross this article (PDF). It's from the EPA (environmental protection agency) and so has the opposite bias to the other article. Since it's very long, I don't expect anyone to read it in its entirety, but it's there none the less. I have taken two interesting quotes though. The first explaining the problems with predictions, the second making just that, a prediction.

“I urge caution in interpreting the results of these studies. Since we cannot predict regional climate change or extreme events such as hurricanes or droughts, we cannot predict impacts.” P22.

“In 1979, the National Academy of Sciences estimated the most probable global warming from a doubling of carbon dioxide concentrations over preindustrial levels to be between 1.5 and 4.5°C. In 1985, the World Meteorological Organization (WMO), the United Nations Environment Programme (UNEP), and the International Council of Scientific Unions (ICSU) reaffirmed these estimates.” P26.

Global warming

During the renaissance in Europe, the religion of Christianity was abused by the political powers to coerce their people, to control their lives. One could not do anything that was not allowed by God, such as own an illegal book, and if one did then there was a very real risk of being tortured to death or burned at the stake. The religion was the ethical basis for all of the atrocities committed at this time. Fortunately, this time is long past, and while religion is still abused in the same way, it is not as all pervasive as it was then. However, there is a new form religion, environmentalism.

Environmentalism sounds good, helping the planet, protecting our natural resources for generations to come. All of this is noble, as are the basic lessons of Christianity and other religions. The only problem is that is has the same flaw as religion does when it is used in politics, and that is that it is highly faith based. If anyone can actually direct me towards some scientific evidence of global warming then I will welcome it, but I will be surprised. Carbon dioxide is one of the least effective greenhouse gasses; water vapor alone is 100 times more effective. The predictions of higher temperatures are guesses at best, how can anyone truly believe a 100 year weather report when it is impossible to predict the weather more than 7 days ahead with any reasonable accuracy. Why did Chris Landsea leave the UN-sponsored climate assessment team saying:

“I personally cannot in good faith contribute to a process that I view as both being motivated by pre-conceived agendas and being scientifically unsound.”

And is it a surprise that the lack of science behind global warming is ignored by politicians when Timothy Wirth later to become Bill Clinton’s Under Secretary of State for Global Affairs said:

“We’ve got to ride the global warming issue. Even if the theory of global warming is wrong we will be doing the right thing…”

We cannot base decisions that will seriously and detrimentally affect the standard of living of people the world over on faith. The debate on global warming is not over there is no consensus.

Canada and health

Milton Friedman, in his book “capitalism and freedom” highlights the problems of government monopoly. All monopolies are bad, he says, but in certain situations, and for a certain instance in time it is sometimes the only option, what we must do is choose between evils, they are, private monopoly, publicly regulated private monopoly and public monopoly. While he does not believe that a private monopoly would inherently perform and better than a public monopoly, the private one has a distinct advantage to the consumer, in that it isn’t set in stone.

Private monopolies have been built up and have then crumbled before, however, a public monopoly, once set up is likely to remain well past the time at which it would be feasible to create a competitive market. This is shown perfectly in Canada’s public healthcare system that has now outlawed private healthcare in some areas.

A public monopoly on healthcare is often justified by saying that a competitive market can’t offer a satisfactory service to everyone who needs it, that the poor would be too poor to get help. This has never been shown in practice, even at the turn of the 20^th century when capitalism was at its height in America, there were more charitable acts to create and maintain healthcare for the poor than has ever been seen since. Before the creation of the NHS in the UK there were charitable hospitals that attracted the best doctors in the country due to the social prowess earned from helping the poor. Now however, we have bloated healthcare systems that can no longer perform to a satisfactory level, people die in hospital beds because they have to wait too long for an operation, people live in agony for months, even years because there isn’t enough capacity in the system.

These problems could be solved by raising capacity, to do that we need more doctors, nurses and surgeons. How do we do that? We make the profession more attractive, by rewarding people who do well in their jobs, public systems are too inefficient to do that, this is why nurses are leaving their jobs in record numbers. What we need is a private system that can compete with the public system, this would increase the rewards available to the best doctors, therefore increasing the incentive to spend years of ones life in training to join the profession, at last, supply could meet demand. But Canada has realized the consequence of this, once people see the benefit of private healthcare, they won’t want a public system any more, the government monopoly dies, and they won’t let that happen, instead, they have decided to fine doctors up to $20,000 for accepting a fee for treatment. This is the unfortunate reality of government, people dieing on hospital beds is acceptable, a person willing to pay to save their own life is not.

Orwell would be proud

I was watching Big brother last night before I went to bed, and apart from all the usual mindless stuff that goes on in the house; there was an interesting incident with the shopping. Maxwell removed a chicken from the list and added several cans of cider. When the shopping was delivered, Maxwell and Anthony took the cider and hid it; of course this made the other housemates angry. Whilst I don’t think that this in itself is interesting news, the point it makes is.

The house runs very much like a commune, everyone must pull their weight with the chores and act in a subservient way to the group as a whole, for instance, during tasks, should a particular housemate not want to take part, then they will hurt the entire group by not doing so, as they would fail and their food money will be cut. A more equal system would of course to have individual passes and fails for the members of the group and to allot shopping money to individuals according to their performance.

The current setup however means that some people begin to feel as if their own needs are being ignored, which creates an incentive to use the rules to benefit at the cost of others. Maxwell felt that his need for cider was being ignored, so he took the chicken from the other housemates to increase his stock of cider. This was the only way that Maxwell could get his cider, to take it in preference of something else that the group needed, this would have been the same as if he had managed to convince the group to place it on the shopping list. Had the money for shopping been divided between the housemates for them all individually to make choices on how to spend their own money, then these arguments would not occur, this cannot happen in the big brother house because of the way that it is set up, but it does show that collective organization doesn’t work, not because the people who run it aren’t good enough, but instead that it ignores the individual. Of course when the individual is ignored on a grander scale, bigger things than cider and chickens become the problem.

cheap DVD players!

I was watching an episode of an American sitcom last night, I can’t remember what it was called, but that’s not the point, the father in law had won some money at bingo and the couple were trying to scam money from him by breaking things around the house and taking more money than they needed to replace the object. Towards the end of the show the guy decides to break the DVD player, his reason was “It’s a machine that plays movies with lasers and a shiny disk, we could tell him it costs one million dollars!” of course that sounds stupid to us, after all, you can pick up a DVD player for less than an average days wage now, but what we often forget is that even 15 years ago one million dollars would not have been able to buy you a DVD player. In the past 10 years the price of this technology that not even the richest person alive could have bought 15 years ago can now be bought by college students with a part time job.

It's not my fault

Another fantastic article from Walter Williams has appeared on capitalism magazine. He talks about the new seatbelt laws, but he refers to the wider issue very well,

“Each year, obesity claims the lives of 300,000 Americans and adds over $100 billion to health care costs. Should government enforce a 2,000-calorie intake limit per day? There's absolutely no dietary reason to add salt to our meals. Salt can lead to hypertension-induced heart attacks that kill thousands. Should government outlaw salt consumption? Sedentary lifestyles have been shown to lead to shorter and less healthy lives. Should there be government-mandated exercise programs?”

Even though this article is directed at America, it is just as relevant in the UK. We no longer seem to want to take responsibility for ourselves. I am not the most slender person in the world, but whose fault is that? My own! I sometimes spend a bit too much money on a night out or buying DVD’s, who’s fault is that, is it play.com for making it so easy to buy online*, is it my local bar’s fault for serving well made cocktails? No, it’s my fault for making the choices that I do. This is true in just the same way as it is not the fault of Microsoft if Apple is unable to produce a sufficiently competitive product, nor is it a house builder’s fault if someone wants to buy a house but is unable to because of current housing prices, even though fault may lie with government planning restrictions (zoning laws in the states?). Please, can we all take a little more responsibility for ourselves and stop burdening other people with our own poor choices.

* I have no affiliation with play.com, other than being a loyal customer.

pay as you drive

One of the problems with privatizing the road system is the collection of payment for usage, without a system of paying specifically for each use; there is a significant neighborhood effect from one person’s economic choice benefiting or damaging another person. Up until recently the only way to collect funds for road usage was a system of tollbooths, this would clearly extend journey times, create traffic and just simply become impractical. However, the new proposal by the government to roll out a “pay as you go” system for our roads solves that problem instantly, but only if the roads are sold off to private concerns, if a system of proper competition could be set up, then it would be feasible to charger per mile, however, the same problems begin to appear as they would for the government, such as, how is it possible for the driver to calculate the cost of a journey with different price tariffs for different roads? How do we ensure proper competition in rural areas where only a single route to a destination exists? And these only scrape the barrel.

There are significant problems, but none of these are solved by a government monopoly, at least a private system with competition would keep prices generally low, there is nothing to stop the government from hiking prices. The other problem with the scheme is the idea of placing a black box into people’s cars. While this would be good in theory due to the ease of use, in practice it also has several problems, such as will the government begin to use the system to catch speeders? And how will they stop people tampering with the device to make it give false readings? All these problems and more will need to be seriously thought through before anything can be done.

government waste

While reports of government waste are of no surprise to anyone, there are people who still believe that the government is more efficient and fair than private business. They believe the reports of waste to be hype; this is probably because they do not know why waste is a particular problem for government.

Firstly, lets start with waste in private business, when a company spends more on materials than necessary, or pursues needless projects simply for the sake of it, then all of these costs add up, because of competition in the marketplace the selling price of products or services cannot be raised to cover these costs. This means that waste cuts directly into the profits of the business, this of course means that there is a direct incentive for the business owners to remove waste as much as possible. This is of course not an immediate process, and good times in the economy will inevitable allow more waste than when times are hard, but overall, cutting waste is a high priority of business owners.

Government on the other hand operates with certain slight differences; one of those is the source of income, the government sets taxes that it then uses to pursue its aims. This means that when there is waste in the government the cost does not hit anyone directly. Although it is a great cost to the country, there is no business owner who is losing money directly because of the waste, therefore the cost is accepted, when the government runs out of money all it needs to do is tell the country that it needs to spend more to achieve its “socially responsible” aims, and taxes are raised. It is the lack of incentive to produce efficiency that makes the government a poor solution when compared to private business.

immoral?

As promised, this is my reply to Jason’s comment. Firstly, there seems to be contention over the use of the word immoral, I use that word, as do many libertarians in reference to taxation for two reasons, the first is to make my standpoint on the issue clear, the second, because I believe that by definition it is immoral. Immoral simply means “contrary to moral principles”, most if not all of my moral principles stem from individual rights. One of these individual rights is the right to property, this is not a guarantee that a man will earn any property, but rather that he will have sole ownership to anything that he does earn. Property rights are inalienable in the eyes of the libertarian, if a person has anything but sole control over his own property, then they lack the freedom to pursue their own goals without restriction. If a man earns $100 then it goes against his property rights to use the threat of force (imprisonment for tax evasion) to take any amount of that away from him whatever the noble cause.

Your next point is absolutely true; you say “if taxation was immoral, because it violates individual property rights, then all taxation would not be allowed, not just a progressive system.” I couldn’t agree more, any system of taxation is indeed immoral, however, it would be unreasonable to expect a country to suddenly drop its established ways of working with no intermediate period of transition. So while taxation as a principle is immoral, in practice it is not a single entity, there are many ways of taxing a population, some of those are less oppressive than others. The current system of progressive taxation, I believe is one of the most oppressive systems available. My reasons for this are that it punishes performance. As I said in the article, it is unfair to use a majority to rule over a minority that is different, the idea behind majority rule within a democracy is that the population makes a decision that concerns the whole of the population, you can only include people in the vote who are directly affected by that vote, which is why my next door neighbor does not get to vote on what I eat for dinner tonight, but does get to vote on which party gets elected into power. When the majority earns a certain wage, any tax increases above that wage do not affect the majority and so are easy to pass, but unfair. This is why majority rule does not work in this instance. If we were to change the rules to a flat tax, then the majority is subject to its own decisions, this means that they will not do to others, what they would not do to themselves. This is why I believe a flat tax is fairer.

Your last point about the marginal value of the dollar cannot be argued with, nor would I wish to. However, a flat tax does take this into account due to the very nature of percentages. If a 20% flat tax were imposed with an exemption of $10,000 (for easy calculation) then someone earning $15,000 would be taxed $1000, but someone earning $100,000 would be taxed $18,000. The low earner is taxed 6.67% of their total income, while the high earned is taxed 18% of their total income. A flat tax is not more oppressive to the low earner; it simply brings fairness to the system.

As for a reason beyond fairness, there are plenty. In an earlier post I covered the Laffer curve which gives a reason for the increase in revenue often associated with a decrease in tax rates, so if we were able to follow the route to a flat tax then we would likely see revenue increase, such as happened in the US during the Kennedy tax cuts and the Regan tax cuts. And in the UK with the Thatcher tax cuts. Also, economic growth would likely increase, this is also not just a theoretical prediction, Hong Kong has had a flat tax for years and has seen continued high rates of economic growth, numerous eastern European countries have also seen a turnaround in their economies since they imposed a flat tax. But beyond that, one of the main defenses for a progressive system is that the rich should pay more, however, under progressive systems, there is a significant incentive to reduce the tax liability through both legal and illegal means, with a flat tax, this incentive lessens, and the loopholes are easily closed meaning that the rich do pay their share, unlike the present system.

To conclude, while I would class tax as immoral, I do recognize that this word may be too strong. I do also recognize that tax is not unconstitutional, nor is it imposed for evil means, the people who impose tax are doing so for the best of intentions, but that does not excuse the choice of an inherently unfair system, nor one which does not produce the highest revenue for the smallest restrictions to freedom, such as a flat or negative income tax. Also, while I disagree with tax, I haven’t yet been able to come up with an idea that could reliably replace it, so until then I regard it as a necessary evil. We could remove income tax, however, and use other means such as a consumption tax, but that’s another story for another day.

Fairer tax

The main problem with income tax is that it is progressive. This is unfair for two reasons, firstly, that tax is immoral because it goes against the individual property rights, but secondly that it is a tax voted for by the majority but imposed on the minority. Most peoples' argument for why tax may be fair is that it is possible to vote in a democracy, and is therefore possible to vote for a reduction in taxes, however, what the clever politicians have done is to create a system where the majority will vote to keep taxes progressive and high because they are not subject to them, they can see that some people are in poverty and they believe the answer must be higher taxes, so they impose taxes on the minority of high earners. Those high earners, being a minority are always unable to vote in sufficient number against the tax increase and so taxes creep ever higher, and become ever more progressive. What would be much fairer would be to have a flat tax whereby everyone would feel any increase (or decrease) in taxation; therefore you have a majority voting to impose tax on itself, though not perfect it is much fairer.

ASBO

I've just heard about the case where a pub landlord was given an ASBO (antisocial behaviour order) for a sign which he put up in his own car park. The sign had pigs on it, and said "free porking here". He was given an ASBO and ordered to take the sign down because some people said it caused offence to them and their religion. This is awful; it shows a total lack of regard for property rights. The man used his own land to put up a sign which did not try to offend anyone. What's next banning the sale of bacon?

More Money Please

The AIDS epidemic has once again come to the forefront as Kofi Annan declares that we need to do more to stop it. He is right, something does need to be done, but it seems to me that Kofi has once again taken the usual UN stance of “more money please”.

The root cause of the AIDS epidemic must surely be the poverty and lack of education that comes with it. If it isn’t then why did AIDS not take hold in the west as it has in the third world, after all, we can’t deny that it was a problem here. If we tackle poverty in the third world, then surely the epidemic will begin to subside as the area grows more prosperous. The only reason AIDS didn’t wipe out the western world in the 80’s was the availability of education and protection. People were able to protect themselves once they learned what the dangers really were. So the question becomes, not how do we tackle AIDS (the symptom) but how do we tackle poverty (the cause).

Being a capitalist and a free market advocate, I believe that we need to lift all restrictions on trade with the third world and help the people in these areas become free. The huge economic growth that could come from trade with these countries would lift the living standards in these areas dramatically within just a few years, with this lift in living standards education will become ever more available, and so will the resources for people to protect themselves. Only then will the blight of AIDS be lifted from these nations. Throwing money at the problem will not solve it, throwing away trade barriers will.

pro-life?

I've just heard an analogy for pro lifers to ponder over. If life truely begins at conception, then imagine an IVF clinic that accidentally sets on fire, everyone manages to escape the building, but there are still several hundered fertilised eggs in storage in liquid nitrogen tanks, should firemen enter the building to attempt to rescue these several hundred lives, or not?

.xxx

I think the idea of the .xxx domain name is a fantastic idea, but I don’t like the idea of regulating it. It would be a fantastic way for adult sites to generate traffic as it would be much easier to find them, and there would be no ambiguity over the content. It would be the same as having .blog for web logs for instance.

Forcing adult sites over to the domain, however, would be wrong, I believe that if it did turn out to be a positive move for the site then they would voluntarily go, however, if they do not wish to, then they should not have their property (their current domain name) forcibly taken from them.

Slavery

Slavery is defined as:

“[an] institution based on a relationship of dominance and submission, whereby one person owns another and can exact from that person labor or other services.”

Socialism is defined as:

“Any of [the] various theories or systems of social organization in which the means of producing and distributing goods is owned collectively or by a centralized government that often plans and controls the economy.”

In other words, the government controls, by threat of physical force (i.e. imprisonment or fine) the means of production. Therefore if a person wants to work, they must work for the government, this same government then decides his reward for this labor, this person has no other options, he is submissive to the state who can extract labor from him, he is a slave.

Definitions from www.answers.com.