Trained as a physicist, I quickly learned that the world is not as it seems. Space and time not only stretch like elastic, but can also morph one into another, and matter and energy can appear out of nothing, like rabbits from a magician’s hat. But the great shock to me in recent years is not simply that the physical world is an illusion, but that so too is the human world, as portrayed by our mainstream media and politicians.
The first seismic jolt came in 2012 when the UK media failed to tell the public that the Health and Social Care Bill was overwhelmingly opposed by the medical profession and removed the government’s “duty to provide” universal healthcare, a founding principle of the NHS in 1948. I felt another shock shortly after, on discovering that economic indicators such as inflation, unemployment rate and GDP are largely fictional, repeatedly reformulated to make governments look good, and regurgitated uncritically, even by the BBC. And now Richard Murphy, a City University London academic and tax specialist, tells me that everything the politicians and media have been telling us about tax is wrong, too.
I have never met Murphy, but I’ve become aware of him through Twitter, not only because I often agree with his thought-provoking tweets but also because they have helped open my eyes to the economic reality behind the fantasy. And here he has done the impossible: writing a book on tax that is not the literary equivalent of a handful of sleeping pills.
Murphy begins with money (how could he not?). Henry Ford said: “If people knew how money was created there would be a revolution before breakfast!” Money is literally conjured out of thin air by banks by adding a few zeroes on a computer. Ultimately, however, it is government debt. If you doubt that, look at a banknote. It says “I promise to pay…” It is an IOU. Money is government debt in circulation. Remove all government debt – as advocated by George Osborne, the Mad Hatter of economics – and we have no money.
Much of the tax debate, says Murphy, has been hijacked by the wealthy through thinktanks promoting a low-tax agenda that – surprise, surprise – preferentially benefits the wealthy. Tax has been dubbed an evil. But not only is low income tax an illusion – invariably compensated for by a dizzying array of “stealth taxes” such as VAT, which account for three-quarters of all tax – but evidence also flies in the face of the low-tax ideology. Contrary to expectations, Murphy shows, the higher a country’s aggregate tax rate, the more its GDP per capita.
In today’s Britain, the poorest pay a higher percentage of their income as tax than the rich, something that not only makes no moral sense but no economic sense either, since the poor spend a greater proportion of their money – thus stimulating the economy – than do the rich, who squirrel it away in tax havens. Far from being an evil, says Murphy, the fairer application of tax can be a powerful instrument of social inclusion and economic stimulation.
If all that seems rather hand-wavingly vague, Murphy’s book is far from it. In his final chapter, he writes a fictional Budget speech for a future chancellor, spelling out in great detail the profound changes to the tax system that he believes are required to create a fairer and more effective tax regime. He covers everything from simplifying the tax system by merging it with the welfare system to tackling the UK’s £100 billion in tax avoidance. It is fundamental to tax reform, of course, that a government is not in the pocket of big business and does not merely pay lip service to the idea of “one nation”, but genuinely acts in the interests of the many instead of the few.
How likely is the UK to get a sensible tax system? Education, according to Murphy, is key: “It is absolutely essential that people understand what tax is, what it can do.” Here we face a problem: the control of information and, in the words of Nobel prizewinning economist Paul Krugman, the media’s promotion of a “false narrative”. A survey reported in The Independent on 17 February 2014 found that “the British public is wrong about nearly everything”, from benefit fraud to immigration. Murphy does not touch on this, but it is clear that without reliable information, the electorate cannot make rational decisions about tax systems or anything else, and our democracy is seriously undermined.
The Joy of Tax is a brief but critically important book. It needs to be read by politicians and journalists as a matter of urgency before the Alice in Wonderland policies of the present UK government cause the country to disappear down the economic rabbit hole.
Marcus Chown, formerly a radio astronomer at the California Institute of Technology, is author of What a Wonderful World: Life, the Universe and Everything in a Nutshell (2014).
The Joy of Tax
By Richard Murphy
Bantam, 256pp, £16.99 and £9.98
ISBN 9780593075173 and 9781473525-7337 (e-book)
Published 1 October 2015
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Print headline: Many contribute, few understand
