The public’s tax priority: stability

nick cowen, 28 May 2008

After Brown’s £2.7 billion bailout over the 10p tax debacle, the multiple taxes on motorists are now coming under greater scrutiny. In the early years, the majority of attacks directed against the Labour Government were the introduction of stealth taxes. That criticism no longer applies. A doubling in vehicle excise duty on ordinary family cars fails to achieve what any ‘decent’ stealth tax would do: creep into the family budget, bite a little chunk out of it and sneak it back to the Treasury, preferably without the public noticing. The ruse will probably be discovered months later but by then is relegated to a mere bullet point in a Tax Payers Alliance briefing. They are not meant to generate newspaper campaigns against them. So the Government’s tax strategy appears to have de-cloaked and, although it has taken on a green mantle, it does not appear any less ugly for it.

Leaving aside the fact that Government policy appears to be significantly out of step with the public’s present attitude to tax under current strained economic conditions, some tax policy trends in the US might give us some clue as to why these budgetary decisions have proved to be especially unpopular.
Many US states have provisions for initiatives: a mechanism of direct democracy that allows citizens to petition for a particular measure to be put on a state electoral ballot. In some cases, this can be done against the wishes of the state legislature, allowing citizens to bypass state politicians when their views are at odds with the electorate. This is essentially a parallel mechanism for introducing policies with grassroots political support when the present establishment within the state legislature is either unwilling or unable to offer them.
Tax reform has been one of the most significant aspects of the modern use of citizen initiatives in the US. It is not all that surprising; if it is one thing that politicians (out of class interest) can be generally relied on to support, it is taxation whatever the circumstances. The public, the people who actually feel the pinch especially during economic hardship, are a little more ambivalent. But tax policy in the US isn’t a simple matter of politicians seeking to increase tax and citizen initiatives trying to rein them in. Analysis of the tax initiatives that have reached electoral ballots indicate a manifold of different measures are petitioned for, including tax cuts and tax increases. Which one’s can be most relied on to succeed? Neither. The most consistently successful tax reforms seek out stability in levying taxation rather than a particular level in the short term. Examples of these include limitations on annual tax increases due to property re-evaluations (sound familiar?), preventing income tax from rising disproportionately due to inflation (another tax grab strategy used in the UK), and requiring supermajorities in the state legislatures to enact new tax increases.
Bill Piper who looked at tax initiatives from the late 1970s to 2000 drew this conclusion, and these tax stability policies continue to emerge. In 2007, Texas approved a measure limiting taxes based on the appraised value of homes, and Washington approved an initiative requiring a two-third vote of the legislature for all tax increases. So it seems that it is not the levying of tax that incenses voters (even in more fiscally conservative America); it is the politician’s knack for fidgeting with the levers of budgets, the sort of fiddling that, often without much scrutiny, dramatically alters what individuals are paying from year to year. It is exactly these sort of disruptive interventions that has got Brown in trouble – not just the sheer amount of taxation but the way it has been levied.