1. Growth of government taxation
You know the old stories. Napoleon levied an income tax to support his wars 200 years ago. This was supposed at the time to be temporary. But it stuck.
When the patriots decided to fight the British, it was over tax on goods at just 2%! 125 years later income tax in the USA was 7% rising to 39% for people earning today’s equivalent of $11 million. That 39% was their “supertax”. It was unthinkable to charge normal people more than 7% tax. Today, that same supertax kicks in in the UK at just £30,000 or so, and millions pay it.
Corporation tax was brought in much later, again during a war, and again, it was meant to be temporary. Message: new interventions are not temporary, and they tend to start on the fringes and by stealth they hit more and more people.
2. Growth of government spending
It is clear that government spending is on a very long run upward trend. Let us restrict ourselves to the last 100 years or so to the beginning of the first world war, when spending was less than 15% of GDP. Public pensions were tiny, in their infancy. There was no national health project. People knew their doctors. Doctors were pillars of society who made their wealthier clients pay at the full rate, and helped, sometimes with the assistance of those wealthier clients, the poorer ones. Generally people were concerned with the balance of trade. They believed in cutting the cloth, living within your means and so on.
But more than that: poorer people did not expect to be helped by the richer. There was dignity: they wanted to be self-reliant. They did not feel that they had a claim on the money of the richer people. Many of them would feel uncomfortable in accepting any offered help. Giving was a choice for the richer. And in turn, it was harder to give to people to help them in need. There was dignity among both “categories” wealthy and needy. Perhaps there was less envy. There was certainly less coercion and control from governments, while people and communities supported each other and adapted according to their situations. That is the rose-tinted picture of the UK before the first world war. How untrue is it?
3. Growth of the number of government areas of intervention
We have also invented a maze of other taxes, special reliefs and the effect has been to swell the bureaucracy and support an entire industry of accountants in the public and private sector. This is reflected in many tens and hundreds of thousands of pages of “tax code and law”.
To my mind, if we all had the physicist’s mindset, one of approximation and simplification, we would never have gone in the direction we have. Instead, the bean-counter mindset has prevailed, and complications have mushroomed.
Just as an exercise, I call for a competition to write down, from scratch, a “One Page Tax Code”, let’s call it the One Page Tax Code Project, in which there is a prize for the best and simplest such document, which could plausibly give a greatly simplified alternative to the hopeless and unintuitive spaghetti of taxation that we currently entertain, to our great cost and lack of competitiveness. Ideally, such a one-pager should enable, for example, individuals to calculate their income tax (if any is included) in their heads, and likewise (if any included) corporation tax. The one-pager should indicate what level of funding might be expected or is supposed to be obtained from the new system (and again for some, the exact amount might be tweaked by changing just one, or two, variables in the very simple system).
I believe one could slash the code right down, without upsetting many people. We’d be unimaginably more efficient and effective. We’d be releasing so many bureaucrats to pull with not against us economically. We’d also be making life easier and less tedious for so many people in businesses and jobs around the country.
4. Growth of government
This follows directly from the above trends. It’s been growing for centuries in the UK. Is this inexorable? When does it become “too much”? Did we reach that many years ago, and should we now push back?
In the 20th century, apart from falls from extremely high levels of GDP spend just after both world wars, only Margaret Thatcher succeeded in reducing government and spending as a fraction of total GDP. She, seemingly very modestly, reduced it by about 5 percentage points from 43.5% to 39% between the 11 years of 1979 and 1990, i.e. an average rate of decrease of less than half a point a year. But within 6 months of her overthrow and other conservatives taking on power, it had all been erased and we back at the highest level again! That modest reduction over such a long period of time caused such ructions (or were those ructions just inherent to that era, that situation?) It is hard to see how any current politicians would be able to achieve such a thing. Most of them don’t want to. Incredibly, they want to continue to intervene more, not less! Extraordinary!
The alternative is further growth over time of government…brings me back to the title of this blog. That is what we face.
Like the frogs, we don’t jump out soon enough. We simply get cooked.