Friday, November 21, 2008

When Tax Cuts Are Actually Tax Rises

David Cameron got it bang on when he said a "tax cut is for life, not just for Christmas". The simple fact is that a tax cut based on borrowed money which finances it is not a tax cut at all. In fact, it is a deferred tax rise. Because you don't just have to pay back the borrowed money, you have to pay interest on it too. The challenge for the Conservatives is to be able to explain this in two jargon-free sentences. And they have three days to think what those sentences might be.

As David Cameron quoted from one of my blog commenters (Martin Day) last week in a response to Gordon Brown (although there was a shocking failure to hat-tip :), any suggestions left here may well find their way into common parlance. You have been warned!


Anonymous said...


This is no time for a failed proven and serial failure"

Anonymous said...

The hat tip> Wasn't that Philip Dunne MP quoting Gordon Brown??

Anonymous said...

McWaste and the whole Nu Liebour project has been an economic disaster for the UK.

You are spot on Iain. A tax cut paid for by borrowing is just deferred taxation.

McWaste lives in a fantasy land of make believe economics where the candy jar never empties.

Lower taxes allied to controlled spending equals more tax for the treasury, a growing economy and a strong currency.

McWaste's approach of tax, spend, borrow, tax and waste some more is so illiterate it is hardly worthy of comment.

However, he holds the levers of power and may well just get the chance to enact his economics of the
magic candy jar.

Team Cameron has to hammer home the message that McWaste's policies are a busted flush.

The "boom" was a mirage, the "bust" is for real.

Anonymous said...

I should have written

This is no time for a proven serial failure


Newmania said...

I was chatting merrily with young Hopi about this very subject and this was the way our musing on tax cuts went

Moi -"...Tell you what Hop , our little company is up against it , why don’t we take “radical action” borrow a load of money pay ourselves more and hope that things turn around before we go to prison.?'

'What tax rates do you and your company pay, Newmana. Would you like them to stay the same over the next year, or go down?'

Not relevant

why not?

Because I do not do pyramid schemes , I do not take out store cards , I do not hide debts , lie , ignore bills or do the lottery. I do not take out foolish loans and I have less than no interest in taking one out to finance Brown`s election give away designed to trick precisly the many many people who do.

Thats why !

Anonymous said...

Hang on a second Iain, I thought that these things weren't a zero-sum gain, and that a tax cut would help stimulate the economy and bring in more revenues?

Richard Holloway said...

How's this:
"This Government are proposing a credit card Christmas, and you'll be paying the bill, plus interest."

Anonymous said...

Brown taxed us all to pay for the Brown Boom. Now he is taxing our children to pay for the Brown Bust.

Anonymous said...

How about: "We Conservatives no longer believe in the Laffer curve. Please forget everything we've ever said about lower taxes stimulating the economy and leading to government revenue equal to or greater than that brought by higher taxes."

Mark Senior said...

Conservatives to explain in 2 jargon-free sentences ?
How about Conservatives the austerity party we will repeat the mistakes of the 80's and 90's . Your unemployment is a price worth paying to reduce government debt .

Anonymous said...

Todays tax burden is yesterdays debt increase. More debt now will make it much worse tomorrow.

Anonymous said...

I thought you Tory boys knew the answer to this: "you can't spend more than you've got"

If you spend more than you budget for, you will have to borrow. If you borrow you go further into debt. If you are already seriously in debt, that is something you simply cannot afford to do.

Anonymous said...

Winston Churchill
We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.

Roger Thornhill said...

"any suggestions left here may well find their way into common parlance."

How about "Resign now you sad Marxist traitor"?

Newmania said...

Your unemployment is a price worth paying to reduce government debt .

You mean ,your unemployment is caused by government debt being too high as we enter a recession.

Man in a Shed said...

Brown is drunk on debt and reaching for the hair of the dog to cure his hangover.

Nah doesn't really work...

But on an aside Burning our money points out that this will be a tax fiddle where one group will benefit and another will pay (assuming Von Brun's usual complicated approach to these things ).

Its really redistribution from the middle classes.

Lola said...

Mark Senoir. You're a bit bonkers aren't you?

It's gummint debt wot corses job loss. Gummint debt is taxes. Taxes is paid by people that would otherwise spend the money themselves on goods and services. Those goods and services are delivered by people, in jobs. Gummint jobs are wildly inefficient and expensive (no, I do not mean highly paid).

The unemployment legacy that the Tories (or whoever) will have to face is the legacy of Brown's wealth destruction policy. No wealth = No jobs.

Anonymous said...

Dave's claim to voters that, if you get tax cuts now, you will have to repay the money through future tax rises overlooks one important point, which he would do well to take on board; that those receiving the benefit of the cuts are unlikely to be tho ones who refund them.

Partly for good economic reasons, and partly for party political reasons, Brown will target the poor, as they are a) most likely to spend the money rather than save it, and b) most likely to be thereby encouraged to vote Labour.

But as such people have by definition no money to pay taxes, it will be the Tory-voting bourgeois who pay them, whether by higher rate income tax levies, Inheritance tax etc.

The situation for many will not be as Dave suggests, "you'll get it, but you'll have to pay it back" but more likely "you won't get it but you'll have to pay it back anyway".

Brownian re-distribution par excellence

Anonymous said...

"buy now pay later may work for a sofa store but is no way to run the British economy"

that's my attempt

Anonymous said...

"Tax cuts are for Life not just for Elections".

Anonymous said...

"What use is a tax cut if you're going to print the difference and spend it?"

I think Peter Schiff said that. Check out Schiff on YouTube - he's been calling this since 2002.

DiscoveredJoys said...

"First law on holes - when you're in one, stop digging!"

If the advice was good enough for Denis Healey, it should be good enough for the High Chancellor and Alistair Darling.

Simon Lamb said...

When Brown was at the depths of his unpopularity, a blogger on the Telegraph website commented he had the face and demeanour of an under-employed undertaker.

He now looks like one kept busy by an epidemic. He's happy, just the rest of us are scared and fearful for the future.