In this Institute of Economic Affairs podcast, Communications Director Callum is joined by Executive Director Tom Clougherty and Editorial Director Kristian Niemietz to examine the OBR's damning 2025 fiscal sustainability report.
Great topic! Tom and Kristian head to head outlining pros and cons of a wealth tax from the left and cuts from the right. The assumption that a wealth tax won’t work snd only raise 1% of GDP. I was interested to hear of the old theory of one flat rate of tax across the board that someone at IEA was voicing 20 years ago. …. I’d like to comment if possible? … you all were very precise on the actuality of the position gif and against. And it’s all very interesting at the macro or micro level. But, …. Can I ask you to both STOP! …. It’s like trying to follow a fast moving starling in a mammoth flock! It’s great but when you step back you can see the flock as one single unit!…. When you dive too deep into the abyss you can easily miss the bigger picture when darkness consumes your vision. … why use one analogy when you can use two!…. Anyway, your clarity and conviction are epic but you are both missing some basic facts that will lead you to a different plane of thinking…, I hope!…. Take a few steps back if you will. Firstly, you are assuming in your conversations that tax is one ‘thing’ based on different tax streams. And secondly that workers are the taxpayers and the assumption I am further applying is that the private sector pays for the public sector and furthermore all money is ‘in’ the economy that you are looking at? Forgive me if it’s a bit basic but you may be making false assumptions before you get beyond this stage!…let me try and give a better ‘grounding’ for want of a better word to take you back to base camp before you tackle Everest as you both may see a better and easier route. Firstly tax is not one ‘thing’ based on different tax streams it’s one tax triggered by one trigger! This is important to grasp as if you can’t grasp the facts it’s impossible to see the changes required. Those on the left and right as well as all pundits (economists) refer to micro changes to different tax streams in the hope to make a revenue stream better without making it worse. Whilst they make spending cuts as well as trying to limit borrowing to balance their books! They talk about supply side as if it’s in play all the time and wait for the bean counters to tell them again there is still a defect! But, let’s start talking in certainties. Let’s start with the an easy misconception. The private sector doesn’t pay for the public sector! Without the public sector the private sector would have their monthly money! And the public sector is just as reliant on the private sector to have them to spend all their money each month! The truth is, whether you are private or public if you are paid with money you are in work! And your efforts contribute to each other. The only difference is amount and time! The public sector generally gets paid monthly and spends monthly and generally spends all or most of their income. Whereas the private sector generally gets paid periodically and in amounts that mean they don’t spend all their money each month. They are more likely to be higher earners and spend less of their income each month. As the earning scales rise, less money is spent in a month. Snd the rich don’t have to spend any money especially if they have increased investments. (Something you both touched on). So one camp uses one another and fits together but they have differences but essentially the private rely on the public sector to spend with them just as much as other private sector members. So that assumption is incorrect. Then let’s look at the workers as being the real taxpayer?… that’s simply not true! The workers both public and private, pay the same taxes. But they also pay the same taxes as the NON WORKERS! Both public and private sector workers pay the same tax as pensioners, unemployed the unemployable the disabled and the infirm. There is no difference! Despite your assumption that ‘the taxpayers are the workers, in fact the same taxes are paid by both workers and non workers. Vat, and Duty as well as Council tax, capital gains, stamp duty etc.. I know what your about to say?… income tax and NIC. Well they are NOT paid by the workers, they are paid by the employers! It is a tax calculated on income but paid by the employer before the worker gets it or spends it! It’s smoke and mirrors. Even a self employed person pays income tax based on earnings made by profits and do charged for in their sales invoice. So paid by the supplier which is not paid by the worker himself. I know it’s a stretch but, when you then understand how tax is triggered you will see the distinction! Tax is triggered ONLY by SPENDING!!!! When a person employed a builder he spends! And pays a builder who has to pay income tax and NIC on that SPENDING.As well as VAT and Duty! When an employer SPENDS on the wages of an employee the employer has to pay income tax and NIC. And when we SPEND and buy goods and services VAT and NIC is triggered. So the common denominator here is SPENDING. It’s spending that triggers taxes. Conversely it’s NOT spending that incurs no tax! None!! Nada!!! So when you or anyone else including Switzerland, a wealth tax is not about spending! So to recap, it’s all people who pay the same taxes. It’s not workers who pay snd non workers who don’t! We all pay tax and it’s the same taxes. It’s based on spending snd money moving or having to move. And it’s not about the workers pay for the non workers. They both contribute 100% of income to the economy in an exchange of SPENDING! It’s not about workers paying for non workers, most workers jobs rely on the spending power of the non workers to make a living! So we all need each other to SPEND which is the economy. Money that is not spent is not in the economy! It’s just a burden if it’s not returned each month. If you can’t see it then you won’t see that it’s the money unspent and unused and idle, not being spent each month that makes no tax revenue and contributes nothing to the economy! Because it’s not in it!!!! Our tax earning pot is the small proportion of all money that is in the pot! It matters not if you are a worker or non workers, if you Spend your money your earning tax. If you are not spending you are not earning any tax! Worker or disabled! The group of people not spending are the richer group or ones that chose not to spend all their money. And it’s that group that needs to spend more! You can’t expect the poor to pay more! It had to come from the group that holds money away from the pot of SPENDING! So now can you both see, it’s not about micro choices of different taxes. Or a wealth tax! Just having wealth is arguable and it’s like pinning down earnings! It’s bloody difficult to be sure and checks are costly. No, we need more spending, by those who don’t do enough of it now, so the actual economy that provides taxes to the exchequer can be no longer devoid of it so more tax revenue is triggered, collected and paid in sufficient weight and in a fast time to recycle through the economy the next month! Stop looking down the wrong rabbit hole! Look at how tax is triggered do you can then micro manage that to increase tax take. Two dimensional household budgeting is not the way! We have to see that money has to come in… from where? Snd it has to go out but, crucially had to go through the economy via SPENDING to come back around again! And in a time that meets the needs of all but crucially again the exchequer. That’s fourth dimensional economics! Not a bloody household budget! I blame Thatcher, through Osborne to Reeves for continuing that red herring! Not all our money is in our monthly spending pot going around our economy. Vast sums are not in it and not triggering tax! So there is the problem! There is a lack of SPENDING as a result. It’s so devoid of spending we can’t make the tax take enough each month. So you are blind to that fact. As a result you are missing the cure. We need more spending by those who hold on to it! Mainly the rich! Without that mass of money we will never balance the books. The problem is two sided bookkeeping. The answer lay in three and four dimensional thinking. We need a spending policy. Tom touched on it. A flat rate tax. I suspect we only need VAT. If we ensure more or all money is spent. That tsunami will mean such a large tax take we won’t need any other tax! Look at spending. Not cutting. Not borrowing. And not making our economy a raging river instead of a dried up trickle it is now. It lives or dies on money. And tax is triggered by Spending! So let’s get spending if tax take needs to increase. Is that not clear?
Great topic! Tom and Kristian head to head outlining pros and cons of a wealth tax from the left and cuts from the right. The assumption that a wealth tax won’t work snd only raise 1% of GDP. I was interested to hear of the old theory of one flat rate of tax across the board that someone at IEA was voicing 20 years ago. …. I’d like to comment if possible? … you all were very precise on the actuality of the position gif and against. And it’s all very interesting at the macro or micro level. But, …. Can I ask you to both STOP! …. It’s like trying to follow a fast moving starling in a mammoth flock! It’s great but when you step back you can see the flock as one single unit!…. When you dive too deep into the abyss you can easily miss the bigger picture when darkness consumes your vision. … why use one analogy when you can use two!…. Anyway, your clarity and conviction are epic but you are both missing some basic facts that will lead you to a different plane of thinking…, I hope!…. Take a few steps back if you will. Firstly, you are assuming in your conversations that tax is one ‘thing’ based on different tax streams. And secondly that workers are the taxpayers and the assumption I am further applying is that the private sector pays for the public sector and furthermore all money is ‘in’ the economy that you are looking at? Forgive me if it’s a bit basic but you may be making false assumptions before you get beyond this stage!…let me try and give a better ‘grounding’ for want of a better word to take you back to base camp before you tackle Everest as you both may see a better and easier route. Firstly tax is not one ‘thing’ based on different tax streams it’s one tax triggered by one trigger! This is important to grasp as if you can’t grasp the facts it’s impossible to see the changes required. Those on the left and right as well as all pundits (economists) refer to micro changes to different tax streams in the hope to make a revenue stream better without making it worse. Whilst they make spending cuts as well as trying to limit borrowing to balance their books! They talk about supply side as if it’s in play all the time and wait for the bean counters to tell them again there is still a defect! But, let’s start talking in certainties. Let’s start with the an easy misconception. The private sector doesn’t pay for the public sector! Without the public sector the private sector would have their monthly money! And the public sector is just as reliant on the private sector to have them to spend all their money each month! The truth is, whether you are private or public if you are paid with money you are in work! And your efforts contribute to each other. The only difference is amount and time! The public sector generally gets paid monthly and spends monthly and generally spends all or most of their income. Whereas the private sector generally gets paid periodically and in amounts that mean they don’t spend all their money each month. They are more likely to be higher earners and spend less of their income each month. As the earning scales rise, less money is spent in a month. Snd the rich don’t have to spend any money especially if they have increased investments. (Something you both touched on). So one camp uses one another and fits together but they have differences but essentially the private rely on the public sector to spend with them just as much as other private sector members. So that assumption is incorrect. Then let’s look at the workers as being the real taxpayer?… that’s simply not true! The workers both public and private, pay the same taxes. But they also pay the same taxes as the NON WORKERS! Both public and private sector workers pay the same tax as pensioners, unemployed the unemployable the disabled and the infirm. There is no difference! Despite your assumption that ‘the taxpayers are the workers, in fact the same taxes are paid by both workers and non workers. Vat, and Duty as well as Council tax, capital gains, stamp duty etc.. I know what your about to say?… income tax and NIC. Well they are NOT paid by the workers, they are paid by the employers! It is a tax calculated on income but paid by the employer before the worker gets it or spends it! It’s smoke and mirrors. Even a self employed person pays income tax based on earnings made by profits and do charged for in their sales invoice. So paid by the supplier which is not paid by the worker himself. I know it’s a stretch but, when you then understand how tax is triggered you will see the distinction! Tax is triggered ONLY by SPENDING!!!! When a person employed a builder he spends! And pays a builder who has to pay income tax and NIC on that SPENDING.As well as VAT and Duty! When an employer SPENDS on the wages of an employee the employer has to pay income tax and NIC. And when we SPEND and buy goods and services VAT and NIC is triggered. So the common denominator here is SPENDING. It’s spending that triggers taxes. Conversely it’s NOT spending that incurs no tax! None!! Nada!!! So when you or anyone else including Switzerland, a wealth tax is not about spending! So to recap, it’s all people who pay the same taxes. It’s not workers who pay snd non workers who don’t! We all pay tax and it’s the same taxes. It’s based on spending snd money moving or having to move. And it’s not about the workers pay for the non workers. They both contribute 100% of income to the economy in an exchange of SPENDING! It’s not about workers paying for non workers, most workers jobs rely on the spending power of the non workers to make a living! So we all need each other to SPEND which is the economy. Money that is not spent is not in the economy! It’s just a burden if it’s not returned each month. If you can’t see it then you won’t see that it’s the money unspent and unused and idle, not being spent each month that makes no tax revenue and contributes nothing to the economy! Because it’s not in it!!!! Our tax earning pot is the small proportion of all money that is in the pot! It matters not if you are a worker or non workers, if you Spend your money your earning tax. If you are not spending you are not earning any tax! Worker or disabled! The group of people not spending are the richer group or ones that chose not to spend all their money. And it’s that group that needs to spend more! You can’t expect the poor to pay more! It had to come from the group that holds money away from the pot of SPENDING! So now can you both see, it’s not about micro choices of different taxes. Or a wealth tax! Just having wealth is arguable and it’s like pinning down earnings! It’s bloody difficult to be sure and checks are costly. No, we need more spending, by those who don’t do enough of it now, so the actual economy that provides taxes to the exchequer can be no longer devoid of it so more tax revenue is triggered, collected and paid in sufficient weight and in a fast time to recycle through the economy the next month! Stop looking down the wrong rabbit hole! Look at how tax is triggered do you can then micro manage that to increase tax take. Two dimensional household budgeting is not the way! We have to see that money has to come in… from where? Snd it has to go out but, crucially had to go through the economy via SPENDING to come back around again! And in a time that meets the needs of all but crucially again the exchequer. That’s fourth dimensional economics! Not a bloody household budget! I blame Thatcher, through Osborne to Reeves for continuing that red herring! Not all our money is in our monthly spending pot going around our economy. Vast sums are not in it and not triggering tax! So there is the problem! There is a lack of SPENDING as a result. It’s so devoid of spending we can’t make the tax take enough each month. So you are blind to that fact. As a result you are missing the cure. We need more spending by those who hold on to it! Mainly the rich! Without that mass of money we will never balance the books. The problem is two sided bookkeeping. The answer lay in three and four dimensional thinking. We need a spending policy. Tom touched on it. A flat rate tax. I suspect we only need VAT. If we ensure more or all money is spent. That tsunami will mean such a large tax take we won’t need any other tax! Look at spending. Not cutting. Not borrowing. And not making our economy a raging river instead of a dried up trickle it is now. It lives or dies on money. And tax is triggered by Spending! So let’s get spending if tax take needs to increase. Is that not clear?