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Adam Smith Institute Blog:

Taxing times

By Dr Madsen Pirie in: Tax & Economy •

I had a piece in the Telegraph business section on Wednesday, comparing Gordon Brown's tax policy with the maxims set down by his illustrious fellow-countryman, Adam Smith. Smith had said that people should pay taxes in proportion to income, that they should be certain rather than arbitrary, that they should fall due when they could conveniently be paid, and that they shouldn't cost too much to administer. I suggested that few would give the Chancellor four marks out of four, given his stealth taxes and his steady tax increases.

Much of my article was of steps which could be taken to simplify taxes in Britain, starting with the harmonization of income tax and national insurance. I also suggested that capital taxes could be harmonized, and put in line with income tax as well as with each other, absorbing the much-disliked death tax. The complex system of tax credits put in place by the Chancellor could and perhaps should be replaced by a simpler negative income tax. Out could go all the tax exemptions, allowances and tax credits accumulated over the years like junk in a store-room.

Yes, Smith himself had harsh words for taxes on labour (income taxes et al):

"In all cases, a direct tax upon the wages of labour must, in the long run, occasion both a greater reduction in the rent of land, and a greater rise in the price of manufactured goods, than would have followed from a proper assessment of a sum equal to the produce of the tax, [levied] partly upon the rent of land, and partly upon consumable comodities."

And similarly on capital taxes and profits. Yet he did favour one form of taxation more highly than any other:

"Both ground- rents and the ordinary rent of land are a species of revenue which the owner, in many cases, enjoys without any care or attention of his own. The annual produce of the land and labour of the society, the real wealth and revenue of the great body of the people, might be the same after such a tax as before. Ground-rents, and the ordinary rent of land are, therefore, perhaps the species of revenue which can best bear to have a peculiar tax imposed upon them."

So why does the Adam Smith Institute continue to suggest tinkering with income and capital taxes to make them a little more fair, a little easier to collect, a little simpler to understand? Why not embrace Smith's idea, as developed by Henry George, in the "single tax". Get rid of most of these other taxes apart from perhaps behavioural taxes where there is a popular mandate to tinker with certain aspects of peoples' behaviour and instead insist that the only revenue a government can call on is the value of land within its borders.

It is simple, difficult to avoid - it doesn't matter whether you are domiciled here or not - if you own land you'll pay your tax or lose the land eventually - economically non-distorting, penalises a monopoly (anathema to the free markets AS and ASI espouse) and can set an absolute and market driven limit to the size of the state. A body like the Adam Smith Institute (seen as it is in many circles as a rabid right wing think tank) is in the ideal position to push the "Overton Window" on tax policy. So why is it so pedestrian and unimaginative on this, where their eponymous hero appeared much more certain? At least their counterpart in Australia is bolder (be prepared to turn your computer's sound down - the background music grates!)

Technorati Tags: Henry George, Adam Smith Institute, land value tax