I'm sure there are loads of non-tax related examples of matching pairs of reasonably popular government policies which cancel each other out. If I was aware of all of them I would probably go mad. What is worse is when both policies or policy aims are fundamentally wrong, IMHO it would be better to do neither.
Here are two real life examples:
1. The lefties, many centrists and some more moderate Conservatives think that taxing wealth rather than income is a good idea because it does not damage work incentives and leads to less inequality. The proposal is often used as a smoke-screen argument against LVT as people can't distinguish between privately created wealth and land values arising from the actions of the whole of the country and it's a bad idea anyway, but hey.
On the other hand, people like the idea of being 'encouraged' to save for their pensions with tax breaks. As higher earners have more spare income and get relief at higher rates, inevitably they get a disproportionate share of the tax reliefs and wealth inequality increases. It's a stupid idea because it discourages people from paying off debts they have now, which is always the first thing you should do if you have spare cash and the value of the tax break is largely siphoned off by the pension providers and what's left just goes into inflating share prices. So that's a bad idea as well.
But do the two ideas not cancel out? Before we even think about 'wealth taxes' (apart from proper LVT) why not make a start by phasing out pensions tax reliefs and giving everybody a modest tax (or giving low earners progressive tax cuts/increasing in work welfare, if reducing inequality is your thing)
2. Inheritance Tax also has a lot of support from lefties because they think it reduces inequality, does it heck as like. Total revenues are about £4 billion a year, barely more than the TV license fee. To raise significant amounts, a lot more people would have to pay a lot more Inheritance Tax and then it really would be unpopular. It's a bad idea all round. As it happens, the bulk of assets on which Inheritance tax is paid is land and buildings, so clearly, raising the same amount in annual LVT would be a much better way of doing things.
On the other hand, owners of farm land have been collecting farm land subsidies (negative LVT) for so long that we think it's normal somehow, and the nonsense propaganda that it keeps food prices down is trotted out again and again. That can't possibly be true because it is possible to separate the land from the subsidy entitlement and sell them separately; if the propaganda were true, a farmer who buys the land without subsidy entitlement would not be able to sell his produce as it would be above market price.
The government pays out about £4 billion a year to owners of farm land. Farm land is also exempt from Inheritance Tax, that makes it a handy place to park your cash.
Don't these two cancel out? I know taxes aren't hypothecated, but the government is taking £4 billion a year from the top million or so families who own valuable urban land (and buildings) and giving it to the top few thousand really wealthy landowners. If we're going to have redistribution, let it be universal or downwards but not upwards, for Heaven's sake.
3. Even when it comes to a tax which doesn't exist (yet), Land Value Tax, I've heard people argue in favour of:
a) a 'Sentinel Tax' which means that no tax is payable on the value of any plot of land when the tax is introduced, the tax is only payable if the value increases. This is the concession to the school of thought which says "I've paid for my land out of taxed income". It's administrative and economic nonsense, but has political appeal.
b) Something like California's Proposition 13, whereby LVT on a plot it assessed at the time it is acquired and any increase after that is ignored. Your bill will never increase. Administratively this is nice and simple and clearly, it has political appeal, even though it is economic nonsense (even worse than the Sentinel Tax idea) and pretty much defeats the object of LVT (although propbably not as bad as VAT or NIC).
But don't these two ideas cancel out? LVT can be split into a tax on the original value (taxed under Prop 13, exempt under Sentinel Tax) and tax on any increase since then (exempt under Prop 13, taxed under Sentinel Tax). If one is a better kind of LVT, then the other must be worse. They can't both be better than proper LVT.
Just sayin'.
Debate Magazine
