taxing the rich *does* work according to clever economist mate

[edam]

Just speaking to a friend of mine for work purposes - clever economist professor kind of thing.

He said soaking the rich doesn't work in terms of raising much money because there are relatively few of them (so far, so ho hum) BUT that there is a theory that a pound is not worth the same to everyone. A poor person values a pound far more than an average person and they value it far more than a wealthy person. So you can tax the rich more before they start to feel it.

I like this theory - admittedly probably because I am not rich, to be fair. Just wondered what everyone else thinks - do well-off MNers think they value every pound in their purse as much as people who have to budget VERY carefully?

I'm not quite sure I understand the theory. Believe me, I like the idea of soaking the rich but why does this notion of 'value' come into it? How does that make it more effective?

Anyway, I'm just happy about the Milburn report today.

Because the rich have so many of them they don't care as much about each individual pound. Although actually I have known some extremely tight rich people, now I come to think of it.

Have never been rich, but certainly when I was relatively well-off, I was a lot more careless about money.

Suppose it's a bit like 'would you bend down to pick up 50p from the gutter?'. If you earn £100k a year, probably not. If you earn £10k, it'd be a lot more tempting.

Yes, I see that (in general) the richer you are, the less an individual pound will matter to you (although, as you say, some extremely rich people are also right misers).

But I don't see how that makes the policy, in itself, more effective. Does your mate just mean - you can raise the tax rate on the rich and, despite the threats, they won't actually pick up their ball and stomp off because they'll barely notice?

I'm amazed that anyone found anything Milburn said came as a surprise.

If you are bright and working class in this country you are far less likely to do well than you were 40 years ago.

Bring back some rigorous A levels. Introduce some seriously hard-core streaming in state schools and pay excellent teachers teachers £££ to teach the bright WC children the more rigorous curriculum. That's what's needed.
In my son's school there's a scholarship stream. They live, eat and breathe intellectual stimulus. They do well. It's not rocket science, it's just a question of accepting academic elitism. In the state system. Not neccesarily grammar schools, but proper streaming for very, very bright children. Identify them by IQ testing.

Anything else is just hand-wringing.

I think I might agree with you about academic streaming abraid - but the report is about a lot more than that; it provides some fairly shocking evidence of state school children being kept out of RG/SG universities despite getting the same grades as independent school pupils, for instance.

In a move likely to prompt accusations of "social engineering", all universities will also be urged to assess applicants' family background before awarding places

The above concerns me greatly - dh and I both have degrees, but are required by HMG to have them to do our jobs - teaching and an Engineer Officer in the RN. Why should ds be penalised because the Govt insists we have degrees?

Yes, we need streaming and setting in comps - mixed ability teaching does not help those at the bottom or the top, and it doesn't much help those in the middle either.

abraid - what makes you so sure these very clever kids are not studying rocket science?

Agree with setting but not nec. streaming and with some flexibility. So if you suddenly forged ahead at 14, you could move up a set in Maths, for example. Streaming is unfair, surely, as some kids might be wonderful at arts subjects but average in science and maths?

(I was good at English, Maths, History and Geography, crap at languages and distinctly average in science.)

I was at comp and streamed and setted in the late 70s/early 80s. I was great at hums, but no good at maths and science; but still stayed in the A stream.

Some of my contemporaries moved between streams and sets, so it can be done.

I agree about flexibility in setting, edam. Children can come on a lot between about 11 and 14. With CAT testing it can't be too hard these days to identify those who should be aiming high. If we're not doing this we're squandering talent: the future surgeons and scientists we'll need.

That's why we've not cracked the common cold, let alone swine flu - the professions are closed to some of the brightest people amongst us by virtue of their family background! (Was going to put a there but on second thoughts, I won't.)

Mind you, the damage is done long before age 11 - the brightest kids from the poorest backgrounds are overtaken by the thickest kids from the wealthiest backgrounds in their nursery days, sadly. You can plot the 'decline' in not only IQ but other measures of emotional and physical development.

I think that there should be:

intellectual selectivity
much better educational mobility (though someone needs a bright idea about how to achieve this) so that labelling DOES NOT happen
Much more social responsibility on part of exclusive professions to do outreach work raising aspirations much younger than the brightest sixth formers
more investment in early years, including supporting parents at home
a major review of primary school education
a recognition that anyone can be taught, with the right amount of support and resources

On the tax issue, if the personal allowance below which no tax is paid is raised, that gives low paid people relatively more money to spend. In theory, it is far better to give lower paid people a pound extra to spend during a recession as they are much more likely to spend it to stimulate the economy than rich people who might just save it.

That may be what your economist friend is talking about. Unfortunatly, giving poor people more money in a debt fueled recession may have no effect on the economy as they may just use the exra pound to pay down their debts. Hence they will not spend it in the shops.

This recession is like no other we have seen before - so much debt has been accumulated the normal fiscal and monetary tools may not work to stimulate the economy as Japan has found over the last 20 years.

ABetaDad - some countries (I forget which) have given everyone some extra money - basically sending out cheques for, I dunno, £1,000 each to try to encourage spending or saving. Don't suppose you can remember which or whether it seems to be working?

The USA has an economic stimulus payment for every man, woman and child.

They even paid it to their overseas taxpayers

We put ours in the bank.

edam - I think the US is part way through a plan to send cheques out to people but I saw a discussion on TV a few days ago about whether it was working and the genral consensus was only partly as many people had just used the money to pay capital and interest on consumer debts so it had only partly been spent.

Right now there is a big philosophical and practical economic debate about whether the amount of interest that finance companies can charge consumers should be capped by law. They had to do this in Japan in the end as banks were charging such horrendous rates of interest to consumers even when official rates were zero that there was almost no spending power to consumers. Fiscal stimulus cannot work by sending cheques out if the bankers just collect the whole lot in interest. The bankers make huge profits, teh Govt borrowing goes through teh roof and consumers live in penury.

The US is already capping interest rates on credit cards and it may well happen in the UK. There was a debate on Newsnight last night about usuary and whether we should cap consumer finance interest rates to 10% as the Victorians did in teh UK.

As I said on my earlier post it is not clear that the traditional ways of stimulating the economy will work this time. We are in unknown territory and policy makers seem to be reduced to pleading for bankers to be 'more confident to lend' and consumers to 'be more confident to spend'.

We really are in unknown territory.