GoSeigen wrote:Well that would be stating the bleeding obvious, and when I read it that doesn't seem to be the point he's making. He's ridiculing people for linking tax to spending; he's mocking the concept of government accountability to the taxpayer; he's encouraging the man in the street to proclaim that "tax doesn't pay for stuff" based on the say-so of someone who calls himself a chartered accountant.
GS
You can of course believe what you like, but the simple operational fact of the UK spending system is that tax collection, and government settlement are not connected. Not at all - anywhere up the chain.
To the extent that there are two separate acts of Parliament covering them. The Supply and Appropriation Act gives government departments the authority to make payments in Sterling. The Finance Act gives HMRC the authority to collect taxes.
Every day the Consolidated Fund Account at the Bank of England starts with a zero balance, and every day ~£400m of state pension expenditure is transferred from that account to the Paymaster drawing account by 8:30am, which is then used to settle the BACS payments across the banking system. The Bank of England has no authority to halt a payment. s13 and s15 of the Exchequer and Audit Departments Act 1866 requires that the Bank make the issues.
Tax collection proceeds separately into HMRC's accounts at the Bank of England. It is only swept into the Consolidated Fund at the end of the day.
The net result of all this is that government spending adds money to the system and taxation drains it. Paying a nurse causes income tax and national insurance, when the nurse spends their remaining salary that causes VAT to arise. Then the remainder is used to pay salaries and profit which causes more income tax and NI and a little corporation tax perhaps. The spending of the what is left continues down the chain, like a stone skipping across a pond. If nobody saves anything anywhere down the spending chain then the sum of the taxation streams will exactly equal what government spent for any positive tax rate. All tax rates do is change is the number of transactions necessary to get there. It's a simple geometric series.
There isn't a fixed amount of money people are fighting over. It's a dynamic quantity that grows and shrinks as necessary to get transactions done. The quantity of taxation raised has little to do with the rates charged and more to do with the amount people decide to save rather than spend.
What that means is that, in real terms, taxation is about reducing the capacity of the private sector to offer jobs to people. That leaves some people unemployed, which the public sector can then hire to achieve the public purpose and pay accordingly. That payment is always newly created money. Each time, every time - just has it has been for the last 150 years or so.
Gory details here if you're interested.
