Mark Wadsworth

This is a spare 'blog in case my main 'blog at markwadsworth.blogspot.com isn't working

Monthly Archives: June 2011

The Ultimate Elvis Presley Tribute Act

From the NME:

A man has been found dead in a portable toilet in the VIP backstage area of Glastonbury festival this morning (June 26)…

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Eye Way Way

Ai Weiwei

Superbowl

This owl is superb:

“We will rock you”

I took Her Indoors to see this musical for an early birthday present, and although I despise musicals in general and don’t particularly like the music of Queen in particular, I must admit it was quite a pleasant experience.

Two points to note:

1. For some reason, they have done their best to airbrush Queen’s bass player John Deacon out of history.

2. Unlike ‘British’ films or ‘British’ theatre productions (the quality of which is inversely proportional to the amount of subsidies they get), musicals do not get a penny in subsidies, but somehow, these theatres are more or less sold out, week after week and year after year, despite their high ticket prices (£60 for the front rows appears to be normal). If popularity or profitability is a measure of quality, then they beat ‘Briitsh’ films and ‘British’ theatre hands down. People flock from all over the world to see them, which in turn is good for our balance of trade and hotels in London etc.

Short Lists

Picking up where I left off two months ago, the three cheap consumables with Land Value Tax connexions are:

1. The Henry George 5 cent cigar (had his face on the packet) ;
2. “Big President” Sun Yat Sen cigarettes sold in packs of 16 in China now;
3. Tsingtao lager from former German land tax enclave on Chinese coast.
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This week’s short list: Three famous admirals whose name ended with “- itz”.

A solution looking for a problem…

Here’s the solution: This would solve the following problems:
1. The sun shining in the players’ eyes.
2. Play having to be stopped every time it rains at Wimbledon.*
3. Those rather unsporting double-handed shots.
4. There’s not enough space for advertising logos on a tennis racquet.
5. The players will have something to hide behind if they are sulking after losing a game, or if they wish to mouth swear words at their opponent.

Any more ideas?

* Apparently they’ve gone for the rather more expensive option on Centre Court.

The Poor Widow Bogey played out of turn

Spotted by SW in The Daily Mail:

“A ‘supertax’ on thousands of homes is being demanded by the Liberal Democrats as the price of agreeing to scrap the 50p top rate of income tax… The Lib Dems are thought to be proposing that capital gains tax – which is currently paid only on profits from the sale of second homes – should be levied on profits from first homes that are worth more than £1million.

The Lib Dems are thought to be proposing that capital gains tax – which is currently paid only on profits from the sale of second homes – should be levied on profits from first homes that are worth more than £1million… Around 250,000 homes would be above the £1million threshold, though some are occupied by families without a high income, including pensioners.

On an international note, they have such a tax in the USA: capital gains on your main residence in excess of $500,000 are taxable. And on a reformist note, they are shelving an idea for A Good Tax (annual tax of 0.5% or 1% tax on the value of very expensive houses above a certain threshold) with A Bad Tax (capital gains tax, which discourages efficient allocation of housing, however expensive), but at least they want to get rid of A Really Bad Tax (the 50p income tax rate), so fair play.

Assuming that the article explains the tax correctly (and The Daily Mail are usually pretty reliable on actual facts, it’s the spin which is wrong), then the design of the tax seems a bit haphazard; if you bought for £100,000 a couple of decades ago and sell for £1 million you pay nothing, but if you buy for £1m last year and sell for £1.1 million today, you pay £18,000 or £28,000, which seems illogical to say the least.

The point is that the Home-Owner-Ists are so conditioned to slap down what they believe to be their trump card, The Poor Widow Bogey, the minute that anybody suggests increasing the tax on residential land and buildings a bit, that they’ll play it even in the middle of a game of Monopoly.

Whatever the merits or demerits of such a tax, it is not due until and unless a home is actually sold, so by definition, the vendor will always have more than £1 million proceeds sloshing around, even after paying the tax, why on earth do the Home-Owner-Ists think they can start bleating about ability to pay? The tax is not going to be collected out of people’s old age pensions or anything, is it?

Negative interest rates = privately collected wealth tax

From yesterday’s City AM:

IF you owe a lot of money to your bank, it’s time to rejoice. There is now almost no chance of interest rates going up this year. The Bank of England’s monetary policy committee voted 7-2 to keep rates on hold; and given the arguments and worries about growth expressed by the majority of the members it would be foolish to bet on a rate rise any time soon…

It is fair to assume that prices will rise by 5-6 per cent this year: for someone with a £200,000 mortgage, that is equivalent to a gift of £10,000-£12,000… People with big mortgages and low interest rates are gaining immensely, at least if they are prepared to weather the downturn in house prices; people facing ever-higher rents are being hammered.

Savers are even bigger losers and are directly paying for the gains being made by those with large debts. Interest rates on savings products are miserably small and capital is being depleted. As ever, inflation is transferring wealth from those with savings to those with debt. The poor and those on fixed incomes are being hit the hardest and retail sales are under intense pressure.

The UK government is doing its best to fulfil its core rôle, which is to keep house prices as high as possible, which they achieve in collusion with the banks by having interest rates lower than the rate of inflation, so borrowers (primarily home-owners or landlords) are getting richer at the expense of savers (as well as at the expense of first time buyers and tenants).

The government could make this transfer explicit by allowing interest rates to rise, levying a five per cent annual tax on deposits and then paying the money over to homeowners or landlords (or cutting out the middleman and using the wealth tax to finance scrapping Council Tax and Stamp Duty Land Tax), but they don’t want to do this as it would tend to give the game away – so they do it by the back door.

But the economic effect is exactly the same – negative interest rates (i.e. when inflation is 5% but a saver only earns 1% interest) are a wealth tax on deposits and a cash subsidy to home owners and landlords.

One-sided economics (post script)

Further to my earlier post

Of course, while corporation tax is the most reviled tax among authoritarian right-wingers, authoritarians on left, right or middle go along with the myths that VAT is a ‘tax on consumption’ or that Employer’s NIC is a ‘contribution towards employees’ welfare’.

If you sit down with a pencil and paper you will realise that VAT or Employer’s NIC are far, far, worse than corporation tax in terms of discouraging re-investment, employment or economic growth:

Company A has found a nice niche market and coasts along with turnover of £1.2 million and a wage bill of £600,000. It has to hand over £200,000 in VAT (being the sum total of its own VAT bill which it pays to HMRC and the additional input VAT it pays to suppliers, which they in turn hand over to HMRC) and £82,800 Employer’s NIC (13.8% x £600,000, ignoring the amounts which fall below primary threshold). That leaves it will profits chargeable to corporation tax of £317,200, liable at 21% plus a bit, call it £67,000 corporation tax, total tax bill £350,000, post-tax profits £250,000.

Company B is very similar, but management decide to re-invest £280,000 of its profits in the business by taking on a load of new employees to do market research, product development, marketing etc.

Its VAT bill of £200,000 remains unchanged.

its Employer’s NIC payments go up to £121,440.

Its corporation tax bill goes down to +/- nothing (taxable profits are £317,200 minus £280,000 extra wages, minus £39,000 extra Employer’s NIC = +/- nothing, 21% x +/- nothing = +/- nothing).

And the company/its shareholder have spent £250,000 but their employees are only £190,000 better off (because while corporation tax is only 21% for most companies, the marginal rate of basic rate income tax + Employees’ NIC is 32%). So that’s another £60,000 down the tax toilet as a result of the decision to take on more employees and try to expand the business.
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So tell me, of the three taxes, VAT, Employer’s NIC and corporation tax, which discourage re-investment the most?

in absolute terms, it’s VAT, in relative terms its Employer’s NIC and in behavioural terms, corporation tax actually encourages re-investment. And the fact that corporation tax is at a lower rate than basic rate income tax + Employees’ NIC doesn’t exactly help matters – far better to have a flat rate on tax on everything.

One-sided Economics by people who don’t know as much as they pretend they do

From a reader’s letter in yesterday’s Times (it’s a very old fashioned organisation so they don’t put their stuff online):

Mr Cameron… should look at taxing profits which stay in companies and are re-invested in markets and products differently from those that are paid in dividends and buy backs…”

Bob Bishoff, Managing Partner, SCCO International

OK, here’s a crash course in calculating corporation tax for people who have better things to do than making their “clients more valuable by providing solutions to the key management issues of Strategy and Structure.”

1. You calculate the company’s profits under normal accounting rules.

2. In arriving at the company’s profits under normal accounting rules you DEDUCT amounts that are spent on market research, R&D, product development, staff training, machinery, advertising etc (unless you are an idiot and don’t deduct them).

3. Therefore, by definition, that part of a company’s income which is re-invested in the business is excluded from accounting profits because it’s not profit – it’s an expense.

4. There’s then a bit of tomfoolery with add-backs and deductions, timing differences etc blah blah, which even out in the grander scheme of things to arrive at taxable profits (overall, taxable profits are much the same as accounting profits, sometimes higher, sometimes lower).

5. You multiply taxable profits by the corporation tax rate and that’s your corporation tax bill.

6. Therefore, only a complete moron would accuse the government of taxing re-invested profits at too high a rate, because the government does not tax re-invested profits at all because amounts re-invested in the business do not count as profits in the first place!!

Twat points to the first person to leave a comment saying that “But a company doesn’t get tax relief for money it spends on land and buildings”. Firstly, if you are a tenant you get a full deduction for the rents you pay; secondly, if you buy land and buildings, you still get a tax deduction for the interest you pay on the loan; and finally although you can’t claim much in the way of capital allowances any more, IBAs having been phased out, there is very little tax on the increase in value of the land and buildings, so fair’s fair.