The election campaign should be bringing on another Great Depression in the minds of all taxpayers. This morning Gordon Brown continued his daily rant at the Tories for promising to reverse his increase in the National Insurance tax because “this is no time to be taking money out of the economy.”
Surely anybody with a modicum of common sense would realise that no money would be taken “out of the economy”. Rather (to use Brown’s ridiculous terminology) it would be taken back from the government’s “economy” and put back into the private sector “economy” from whence it came.
In fact it is far worse than this. Brown has it precisely backwards; all taxes “take money out of the economy” because they weaken the division of labour and therefore reduce output and living standards. My estimate is that Brown’s £6 billion hike in National Insurance knocks £4 billion of productivity into a black hole. Just as tariffs (i.e. taxes) on international trade reduce international trade (that’s the idea!) so do internal taxes reduce internal trade and therefore reduce living standards. This is true of any kind of taxes, since all are effectively based on trade and exchange.