Watching the sharp, amiable Douglas McLellan and Better Nation’s very own wonderkid James Mackenzie have a fine elongated debate over the progressiveness (or otherwise) of LVT got me thinking about that word that sprang out of nowhere last year and has been used recklessly with error-strewn abandon by members of all parties. Yes, word of the year 2010 – “progressiveâ€.
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Douglas states categorically that LVT is regressive while James argues the opposite. Sidestepping the specifics of that particular policy (if possible), can something, in isolation, even be progressive or regressive?
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As part of an MSc in Statistics, what feels like a lifetime ago, it was made abundantly clear from various dry professors that regression analysis could only be conducted once you have 2 points on a chart. With 2 x-axis numbers and 2 y-axis numbers you can go as daft as you like calculating all sorts of statistical formulae to ascertain whether there is a trend going up the way, down the way or no trend at all. If you have one point on that chart, you can’t even begin to put pencil to paper, finger to keyboard or, my personal favourite, thumb to statistical tables.
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My point is, one cannot look at Local Income Tax, Land Value Tax or even Council Tax in isolation and judge that it is either progressive or regressive. It is only in comparing two of the policies and judging which direction one is in relation to the other can a conclusion on progressiveness be reached.
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Say the Government was to charge lower rate taxpayers 10p every time they bought a carton of milk. That sounds rather regressive to me. However, what if higher rate taxpayers were charged £1 and the financial benefit was used to subsidise dairy farmers in the country meaning that milk cost, in total, 11p for lower rate taxpayers and £1.01 for higher rate taxpayers. It suddenly sounds a bit more progressive.
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That other buzzword, fairness, is a tricky one too. Can a policy in isolation truly be deemed fair?
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In terms of closing the equality gap between rich and poor, which is really all that ‘fairness’ and ‘progressiveness’ relate to, we are where we are; we have a point on that x-axis and a point on that y-axis based on our income taxes, our NI, our VAT rates, our Council Tax and many other factors that make up the status quo.
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How progressive policies are in the upcoming election should be compared against this benchmark and compared against each other.
Douglas and James have started a debate based on facts and figures that hopefully Patrick, Tavish and Alex et al will finish.
Regressive progression
Feb 1
#1 by Douglas McLellan on February 1, 2011 - 2:44 pm
I like Sharp and Amiable. I think I shall get a business card with that quote. Even if you did spell my surname wrong.
In answer to your post – you are of course correct in that no individual tax policy can be taken in isolation. It is also true that economic/tax debate up till now has done exactly that and some taxes are seen as progressive (income tax) and others that are seen as regressive (petrol duty). The word was used a lot last year after the election as the Coalition tried, to varying degrees, to have a budget and make changes to the tax and benefits system that did not fall as heavily on lower income earners compared to higher income earners.
Labour tried to to use the word in setting the terms of its coalition talks forming a ‘Progressive Coalition’ as if all that Labour had done was progressive.
The problem I think is that to create a truly progressive tax system is too complicated so we all pick and choose what we think is progressive. Some environmentalists feel that to be progressive there needs to be a reduction in car use so see fuel duty as a progressive tax regardless of the need of a car and the distances that are needed to be travelled. Both of which mean I think it is a regressive tax.
And please note, not one reference to LVT!
#2 by steve on February 1, 2011 - 2:49 pm
Link to “elongated debate” doesn’t work for me so at the risk of repeating some of what others have already said, for me progressive is a strict term used about taxation. A tax is progressive if people pay proportionately more of it the higher their income. Income tax in the UK is progressive then because the more you earn, the more you pay proportionately. If a tax isn’t progressive, it is regressive.
For me the SVR since it applies to basic rate tax can best be described as progressive for those on incomes up to the higher rate threshold (call it £43K, not sure of the exact figure), and regressive beyond that point.
LVT is regressive, since there is no obvious relation between the level of tax and income levels of the household, and since it therefore is not progressive.
You could muddy the waters by saying that LVT, since it is a wealth tax is progressive with respect to wealth (as opposed to the strict definition which talks about income), but even then, property/land is only part of a person’s wealth (and quite often a relatively small part for the super wealthy) and so this doesn’t dbear particularly close examination.
On the overall picture, we know that by income decile, when the whole basket of taxes we pay (VAT Council Tax, income tax etc) are combined the poorest pay the most proportionately. So the overall tax burden is regressive.
Given this last fact, in my opinion any change to local taxation should be considered in that context, and so when thinking about a replacement for the council tax, one shouldn’t just try to replace it with something a bit more progressive, but shold also look at how the overall tax burden on different income decile groups is affected, and aim to make some inroads into the regressive nature of the overall system.
This is why a local income tax is the only progressive alternative to the council tax.
#3 by Indy on February 1, 2011 - 5:07 pm
The word hasn’t really sprung out of nowhere – and the problem with your post is that it has a multiplicity of meanings, not a narrow meaning.
I think the Tories mainly used it to show that they were not the nasty party of old. So it was being used primarily in the American sense -. i.e. they don’t hate gay people or black people, they don’t want to bring back hanging, they believe there is such a thing as society, they are post-Norman Tebbit. More Obama than Palin.
Obviously they had to do that to get rid of the legacy of Thatherism once and for all so that mainstream voters would feel comfortable supporting them. It had nothing to do with their policy on tax.
#4 by steve on February 1, 2011 - 6:00 pm
Indy, I take your point, but in my opinion in the context of tax the word “progressive” has real meaning, it can be defined.
In other contexts it doesn’t have any obvious meaning that we can all agree on, and so is useless, just like “fairness” or “radical”. These words are useful to politicians because they sound positive but invite the reader to put their own positive interpretation onto what’s said.
So for example when Tony Blair said he’d be tough on the causes of crime, that sounded to me like he wanted to tackle poverty and inequality. Someone else might have inferred something else, for example that he’d take a strong stance against drug and alcohol misuse, or clamp down on teenagers gathering on street corners.
In my opinion there’s no point in arguing about whether a policy is progressive or fair, why not just say whether you’re in favour of something and why.
#5 by Stuart on February 1, 2011 - 7:32 pm
The point I was trying to make in my previous comment is what is highlighted here. We will never resolve the tax debate if people continue to pick at small slithers of society where a tax regime will be regressive, when it will benefit the majority.
In my view, the income tax system we have is regressive. A 20% basic, 40% and 50% threshold means that people on vastly differing wages can be taxed at the same rate. If we had more bands it would be fairer. And the same could apply to the Council Tax.
I would disagree with Steve’s interpretation of progressive/regressive. It should not purely be down to income. Income can be hidden, avoided, “dodged” if you like, so people who can and should pay more don’t. You can’t hide land.
#6 by NoOffenceAlan on February 1, 2011 - 11:22 pm
A good illustration of this is the ‘flat tax’ ie. one rate of income tax, favoured by some on the economic right.
But suggest to these people a flat rate Local Income Tax to replace Council Tax, and they oppose it.
Why? Because a flat rate (National) Income Tax would be more regressive than the status quo, where a flat rate LIT would be more progressive than Council Tax.
#7 by Stuart Dickson on February 2, 2011 - 9:50 am
Just to keep folk up to date with the latest polling. There is far too much focus on the (almost) daily YouGov/News International polls, which are deeply flawed in terms of their weighting. Therefore it is nice when we get a poll from one of the other pollsters who present their tables of findings with a Scottish split (ie. ComRes, Populus or Angus Reid; but not ICM or Ipsos MORI).
ComRes/The Independent
Westminster voting intention – Scotland
Fieldwork: 28-30 Jan 2011
Sub-sample size: 88
(+/- change from UK GE May 2010)
Lab 50% (+8)
SNP 28% (+8)
Con 10% (-7)
LD 7% (-12)
Grn 4% (+3)
BNP 0% (n/c)
UKIP 0% (-1)
oth 1% (n/c)
This is pretty much in line with all the other pollsters except YouGov. Obviously, the Holyrood v.i. polls are slightly different, with a better SNP showing and worse Labour showing, by approx 5 points.
If maintained until May, we are almost certainly looking at FM Gray leading a Labour minority government. Or possibly a Lab/Grn minority coalition?
The Tories will likely lose (max) a handful of MSPs, or stand still at best. The Lib Dems are looking like they are heading for an utter spanking.
The only question in my mind is whether the SNP vote holds up well (30% would qualify IMHO), or whether we get spanked too. At the moment 30% looks far more likely than the pathetic 21% (list) under John Swinney at the 2003 election, but I fear that the Unionist press and the appallingly biased BBC have yet to open their nastiest box of tricks.
#8 by Erchie on February 2, 2011 - 9:59 am
Part of the problem as well is that for the last 30 years a low Income Tax rate has been seen as an electoral necessity, so money has had to be obtained from indirect taxation.
Far better to use direct taxation at a higher rate, but give reasonable allowances and drop indirect taxes
#9 by Indy on February 2, 2011 - 10:19 am
I don’t see why we can’t have an income tax system that is completely progressive i.e. you are taxed on exactly what you earn. By doing that you would remove the “poverty trap” issue and it would make it much easier to integrate the tax and benefit systems fully so you could move towards the Citizens Income approach.
Obviously you would need to work it out in a different way, you would not have tax bands as such, I imagine you would need to apply some kind of mathematical formula to find what amount of tax an individual would pay. I don’t see why that should be a problem though as payroll functions are all done by computer these days.
It could be that this is a bonkers idea of course but it would seem to be a much simpler way of doing it to me.
#10 by Jeff on February 2, 2011 - 10:39 am
I guess the answer to that Indy is similar to the reason why many in Scotland (myself included) want to see fiscal autonomy for Scotland. If a local council wants to be responsible for certain areas of delivery, then it should be responsible for raising (some of) the funds that finance that.
There is no local accountability if councils get their money carte blanche from Governments irrespective of quality of service and free from pressure to perform from a value-for-money basis. A bit like the Scottish Government that has had an inflexible Barnett formula budget and is therefore not truly accountable.
Furthermore, would LIT work if regions that are lucky enough to have high salaried residents only get better services as a direct result? East Dunbartonshire would be a spotless, recycling wonderland and somewhere less fortunate would be stuck in a poverty trap together rather than individually.
That said, I do agree that there is a potential (progressive!) solution somewhere that links what a person earns to how local Governments are financed. I just haven’t the foggiest what it is!
#11 by Indy on February 2, 2011 - 11:26 am
The SNP’s LIT proposals are only a stop-gap measure based on what is possible within the constraints that exist. If we had control of the whole system then things would be completely different.
What I was talking about was the national income tax system. I would see that as the bedrock of the tax and benefit system in an independent Scotland (or fiscally autonomous Scotland). At a local level you would have a range of options to raise additional revenue, maybe even land value tax lol.