Cooking the Books: A Reply to the New Economics Foundation

Reply sent to a letter from the Green-leaning think-tank asking for a financial donation.

Thank you for your letter of 18 July addressing me ‘as an owner of the Royal Bank of Scotland …’  I am afraid there has been a misunderstanding. I don’t own any shares in RBS.

I expect you have addressed me in this way because at the moment RBS is majority-owned by the government and because you have been taken in by media propaganda that, as the government is financed by taxes and as we are all ‘taxpayers’ even if only nominally, what is owned by the government belongs to us all. It does not take much thought to see through this fallacy. Or will your begging letter next year begin ‘As an owner of the British war fleet …’?

The basis of the fallacy that what belongs to the government belongs to everybody is the illusion that the government represents all the people, when this is clearly not the case. Governments represent the interest of some ‘taxpayers,’ only, of those on whom the burden of taxation ultimately falls – the owners of property and the employers of labour. The taxes nominally paid by most ‘taxpayers’ are passed on to their employers in the form of higher than otherwise wages and salaries. So most of us are not really ‘the taxpayers’ in any meaningful sense.

This is recognised by an article on, of all places, the UKIP website (www.ukip.org/issues/policy-pages/tax). Discussing ‘income tax (and NI) extracted from wages through the PAYE system’, the anonymous author says:

‘Like VAT there is a general failure to distinguish the mechanics of the tax’s calculation from its incidence (who actually bears it).  Tax under PAYE is calculated by reference to a purely notional figure called ‘gross pay’, which no employed person in history has ever seen, let alone touched or spent.  The employee’s real income is of course the net pay; and that amount of tax which has been ‘deducted’ is always the employer’s liability, to be remitted by the employer to HMRC in full, every month.  As with VAT, the employers are the de facto tax-collectors.  In this case they are also the tax-payers!’

And it explains how this comes about:

‘This phenomenon was clearly set out 220 years ago in Adam Smith’s illustration of an employee earning £100.  If the state imposes a tax of 20% his pay must rise by 25% in order to re-instate the employee’s former purchasing power (£100).  He must now be paid £125 so that the 20% tax leaves him with disposable earnings of £100.  In practice there may be a time-lag over which purchasing power (or the basic standard of living) is restored …’

He ends up proposing that, instead, corporations should be directly taxed on a part of their profits on the grounds that ‘taxable capacity is a corporate, not an individual, concept.  The employed individual has no taxable capacity.’

It seems that not all UKIP members are the know-nothings they present themselves as. At least one has a better understanding of taxation than those you call your ‘brilliant banking team.’

I am not advocating that the tax system should be reformed so that only corporations pay taxes (how the rich and powerful distribute the burden of taxation amongst themselves is a problem for them to settle). But at least this would make the situation clearer and in future you ought to address your ‘as an owner of the RBS’ letters to capitalist corporations. Because it is they who are the ultimate ‘taxpayers’ and the collective owners of what the government owns, not people like me.