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I have returned to this theme time and time again about the need for government to take a back-seat and to stop excessive spending and taxing.
Government in this way cause more problems than they solve. Financial crisis such as the one we have now are entirely government made. The economy works in a natural cycle and it is government policies that have turned that cycle into such an appalling mess causing the misery of lost jobs and blighted futures.
Ironically it is the urge to better the lot of people that is the cause of all this misery. Governments do not set out to cause a crisis but that is always the effect of trying to solve the problems of society through taxing and spending lots of our money.
The way out of this mess is to reverse what got us into it. in other words to cut back on government. Lower taxes, less spending and allow us to make up our minds about our priorities for spending our own money. In other words to leave us alone. Less government is good government and the way to greater prosperity for all of us.
This message is sinking home.
More and more people are speaking out and identifying the real problem. One day the message will get home to politicians and maybe we will one day end up with a more sustainable and competitive economy that will benefit everyone through generating greater wealth.
Due to my job I read a lot of economic and taxation papers and articles. These are not written by politicians and people with a political axe to grind and, as such, are very revealing.
Here is one written by a respected and prominent asset manager. This is an article written for IFAs and is not one for a political purpose and is therefore carrying much more authority. He is saying much of what I have been saying for years. These views are catching on behind the scenes as we see the current crisis develop.
I thought I would share the article with those who might be interested. Sadly I cannot just post a link as it is behind a wall that only registered financial advisers can peek behind so I have copied and pasted it.
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By Stewart Cowley.
head of fixed income at Old Mutual Asset Managers.
If taxidermy is the art of taking previously living things, stuffing them and mounting them in unnatural poses for the amusement of the general public, then the arguments being put forward for increased taxation are going some way to achieving the financial equivalent.
Having failed to grasp the nettle on expenditure it was inevitable that politicians in the US and UK would go for the other side of the equation; increasing revenue to fill the deficit gap. And they sort of need to. The gap between tax receipts and outlays is going nowhere.
Societies have become hooked on once temporary taxes. The truth is that our societies are as hopelessly addicted to taxes as they are to expenditure and we have become habituated to the idea it is normal to pay away 40%, 50% or 60% of our income to central government.
But income tax is a relatively recent invention. In the UK it was invoked as a temporary measure to raise money for the Napoleonic wars in the 1800's. It actually disappeared for a while but came back again. Previously there had been a range of mysterious and quixotic levies based on luxury; taxes on wallpaper, glass and windows were all serially invoked in a cascade of increasing ingenuity.
But as the state increasingly penetrated the economy it set in place the transfer of wealth from one set of individuals to other less wealthy (but voting) individuals. Recipients never complain about the transfer of wealth and the victims are legally powerless to stop it.
Inevitably the desire to raise money to maintain public expenditure opens the highly emotive debate about who is better at distributing services and capital within an economy; is it the state or private enterprise? Nobody seems to be able to decide the truth but there are some powerful ideological arguments either side of the divide.
Politicians hungry for easy job creation will argue that the state is best. In more affluent times, government allows the private sector fuller rein. Given our parlous economic state it's interesting to see that politicians are currently voicing a hybrid position; private enterprise should replace the state whilst they simultaneously argue for wealth transfer in the name of fairness and maintaining state-sponsored employment.
US President Barack Obama's latest policies to trim the US deficit include $1.5 trillion of tax increases in the next decade to cope with the twin needs to maintain employment and redress the deficit.
Our own deputy prime minister, Nick Clegg of the Liberal Democrats, has stated he wants to oppose reducing the 50p tax rate on incomes over £150,000 because 'It would be utterly incomprehensible for millions of people who work hard, do their best for the families, and play by the rules, if suddenly the priority is to give 300,000 people at the very, very top a tax break.' The implication is that anyone earning over £150,000 year doesn't work hard, doesn't do the best for their families or play by the rules, or indeed already contribute disproportionately to the total tax take. Coalition Trade Secretary Vince Cable has gone further in supporting a so-called 'Mansion Tax' on homes valued over £2 million.
Taxation 'a blunt instrument'
Taxation has been shown time and time again to be an impossibly blunt object with which to dissect a social malaise. For instance the wonderfully named Sir William George Granville Venables Vernon Harcourt, the inventor of death duties, was warned that if inheritors died in rapid succession then the state would take an unfair chunk of an estate. Harcourt, as Chancellor of the Exchequer, waved the objections aside. It must have been of some amusement to his objectors that just six months after accidentally and unexpectedly inheriting Nuneham Park in Oxfordshire in the spring of 1904 he himself died. Death duties were 'only' 8% at the time but, in less than a year, 16% of the estate was transferred to the UK government for no particular moral or ethical reason other than that the Exchequer needed the money. The lesson is that taxation simply can't accommodate the permutations of life and the moment you start applying a moral or ethical dimension to it you will be trapped almost immediately by the contradictions.
Taxes can be 'wrong-headed'...but change can be too hard to tackle
Of course, this won't stop politicians from pursuing increased taxes with the religious zeal of the self-righteous. In economic terms it is utterly wrong-headed to be reducing consumer's spending power at a time when it is most acutely needed. It would, for instance, potentially be better to increase the minimum wage to target lower earners and reduce corporation tax to compensate companies if you really wanted to put money in the pockets of large numbers of the working population. Corporation tax ranks fourth among the total revenue take which puts it in the 'Too Difficult To Tackle' tray. The ensuing low growth (along with other effects coming from the US, Europe and globally) will help send government bond yields down to Japanese style levels in the very near term.
Looking forward, you have to suspect that, as a method of tackling the deficit, increasingly ingenious taxation will fail as an economic policy. Without real deficit reduction (as opposed to reducing the rate of debt accumulation, which is what is happening at the present time) the US and UK will go the way of other high deficit nations. The fear must be that, one day, some political group or other will abandon even these meagre attempts at debt control because the political heat will be just too much. As with other nations, the US and UK will not be immune to the judgment of the markets (in terms of their bonds and currencies). For the time being they are benefiting from the distracting idea that they are not in the eurozone - but after that you won't need a taxidermist to tell you that we are stuffed.
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