Bill Carmichael: Why cutting tax makes us all better off

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Clearly the direct beneficiaries of a tax cut are better off as a result. For example shareholders of companies have benefited from recent reductions in corporation tax.

The better off – those who can afford to invest in shares – have done rather well out of that tax cut. So tax cuts are clearly good for the rich.

But what about the poor? Do they benefit from tax cuts too?

The very idea is anathema to those on the Left who argue that higher taxes are fundamentally a good thing.

Modern socialism is built on the idea that the state should take wealth from the people who created it and redistribute it more fairly to make us a happier and more equal society.

So the debate is characterised as a clash between nice, compassionate people who want taxes to rise in the interests of society as a whole, and evil, greedy individuals who want taxes to be cut for their own selfish ends.

But what if it could be shown that reducing taxes benefits the poor as well as the rich, and is therefore good for society as a whole?

Wouldn’t that turn the debate on its head and fundamentally change the way we look at taxation?

Well, thanks to two recent reports from the Treasury, this discussion is likely to get a lot more interesting.

This week George Osborne’s department published the results of a study into freezing fuel duty that suggest that the loss of income to the Government is largely offset by a huge boost to economic growth.

The analysis found that retailers and transport firms used their fuel duty savings to expand their businesses and create jobs, while householders increased spending on other services.

The increase in spending and investment has generated enough VAT and income tax receipts to offset about half the original loss of revenue as a result of the tax cut.

The result is a long-term benefit to the economy worth about £7.5bn over the next 20 years.

A similar study in December found that reductions in corporation tax were also largely paid for by increased economic activity.

The idea is simple – when people have more money in their pockets they tend to spend and invest it more wisely than politicians and bureaucrats ever could.

And the resulting increase in tax receipts to the Government offsets the cost of initial tax cuts and provides the money necessary to help the poor and provide the public services we all value.

In contrast, high taxes disincentivise work and destroy economic growth, making everyone poorer. The only beneficiaries are the tax avoidance experts who are paid vast sums to find loopholes for the super rich.

So the solution is simple – if we want a more prosperous, compassionate society that benefits rich and poor alike, we need a programme of radical tax cuts.

Paxo on the attack

Interesting stuff this week from Newsnight presenter Jeremy Paxman who lambasted the BBC as “smug” and criticised senior staff being paid huge sums for “merely walking out of the door”. Leeds-born Paxman was talking in the wake of controversies over the payments of £470,000 to former director-general George Entwistle after only 54 days in the job, £680,000 to former chief operating officer Caroline Thomson and £949,000 for former deputy director-general Mark Byford.

He said: “The great smell that comes off those pay-off scandals – and I think they are scandals – is of an organisation which became complacent, preoccupied with the conditions of its senior staff, at the expense of a strategic vision.”

Ouch! That must hurt from one of their own. Paxman has become increasingly outspoken and I wonder if the rumours that he is being pushed towards the Newsnight exit door are true?

If so, it would be a terrible mistake. Paxo is brilliant at holding politicians to account and is the only reason to watch Newsnight.