Tax Freedom Day
Michael Howard's first new policy, to make Tax Freedom Day a bank holiday, has one plus and lots of minuses.A quick rundown for those unfamiliar with the concept. Basic Tax Freedom Day is a measure of the thinktank, Adam Smith Institute. What it measures is the day of the year by which an amount of national income has been produced which is equal to what the government takes in taxes, e.g if the government planned to tax 50% of gdp (the ASI actually uses Net National Income) in 2003, then TFD would fall halfway, which is July 1st (or thereabouts).
The plus is that we get an extra bank holiday.
The technical minuses off the top of my head are
1. It's a bank holiday which no-one knows the date of until the year is over (and then some). So it will be based on government forecasts (one presumes) which are open to rather obvious electoral manipulation.
2. It does not take into account government spending. If the government spends 45% of GDP, and taxes 45% of GDP in year 1, but reduces taxes to 40% of GDP in year two, then that is 'better', and TFD is earlier. But is that really 'better' from the country's economic performance?
3. Taxes always fall in a recession and rise in a boom. TFD therefore will be sooner in a recession and later in a boom. Is this what the government wants to show?
Politically I also think it is damaging for the reputation of the government. It presents taxation as all pain and no gain, and makes no reference to the benefits of governent spending.
Update: The more I think about it the worse it seems. Even if the Tories win I doubt it will ever happen. Essentially it is saying 'taxation is bad' and 'it should always be lower'. But if you think that then in government the voters can quite easily ask, 'well why don't you lower taxes then'. At which point you say, 'well we want to spend this much money on thee things' at which point the whole idea of tax freedom day is rather defeated.
posted by Matthew @ 11/28/2003 02:28:00 PM
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