Adam Smith is turning in his grave

BREXIT, according to the Adam Smith Institute, is the chance for Britain to zero-rate the corporation tax.

Retiring the tax would “reboot Britain”, according to Madsen Pirie, the president of the London-based think-tank that claims to honour the Scottish moral philosopher. In fact, the Adam Smith Institute brings disrepute on the name of the author of The Wealth of Nations (1776).

Smith’s canons on taxation lead inexorably to the proposal that, if economic growth is the issue, government should fund public services out of the flow of rents. By all means scrap a tax on profits – or wages – Smith would say; but do so by substituting a charge on rent.

But Mr Pirie is blind to that major fiscal insight offered by his hero. The consequences for post-Brexit Britain, if the government listened to the Adam Smith Institute, would be yet further disaster. For Pirie not only wants to abolish the corporation tax; he also wants to get rid of the capital gains tax. And the income tax should be flattened by reducing the top rate.

This is supposed to “make the UK a very attractive location for world businesses, and drive a real boost to economic growth”.

Some would profit from such a strategy, such as the owners of high-end properties who would sell their homes to foreign oligarchs who want to invest their money in “safe havens”. But for most people in the UK, the reduction of taxes would be matched by a boom in the price of land. House prices would surge through the roof – accelerating the trend towards the top of the current property cycle and a date with mass unemployment, home repossessions, the break-up of families, psychological stress and the other manifestations of poverty.

Why would this happen? The reduction in taxes does not mean more money in people’s pockets. Because of the special characteristics of land, owners can jack up their asking prices. Nice, for existing home-owners. A tragedy for those who, even today, cannot afford to buy or even rent the shelter they need.

Adam Smith would turn in his grave, if he knew what was being said in his name.

4 Responses to Adam Smith is turning in his grave

  1. Jake 20 July 2016 at 10:07 pm #

    Ideally we’d

    -Untax Profits And Wages.

    -Eliminate N I contributions (pay for those services out of the general public)

    -Eliminate Vat

    Put a 100% tax on land rents.

  2. Jake 20 July 2016 at 10:08 pm #

    General budget*

  3. Dave Wetzel 21 July 2016 at 3:24 am #

    National Insurance (NICS) should be abolished first as it only applies to wage earners (12% on earnings from £155 to £827 per week and then only 2% above that!) NICS is not paid on unearned income!
    Together with reducing/abolishing vat, income tax and other taxes on production will lead to increases in land rents and hence higher receipts from an annual levy on land values.

  4. Hotairmail 21 July 2016 at 7:11 am #

    I too would remove corporation tax. And capital gains tax, inheritance tax, national insurance.

    It would allow us to get rid of inheritance tax planning (aka “avoidance”). Pensions and ISA’s too as these tax wrappers would no longer be needed.

    I would replace them with an annual Land/Wealth Tax and a “market access tax”….say 1% on revenues. I’m not sure about the levels of income taxes.

    I think this radical but simple re-drawing of the tax base would drive some very desirable outcomes – not least ensuring people ended up having to pay their tax and not avoiding it. And anyone who wanted to locate here and sell abroad would find it very attractive.

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