Taxation rules distort the way the market operates

Sir, Robert H. Wade (Letters, January 8) lays the blame for the current crisis on the market. At a superficial or symptomatic level this may well appear true, but should we not first look at the laws under which the market functions before blaming what to this writer is the messenger, not the author, of the message?

Even a relatively cursory examination of our system of taxation indicates that tax is levied in a way that causes huge distortion to the operation of the market. Income tax on labour, for example, is not a tax on income, it is a tax on employment, as are the misleadingly named “national insurance” contributions. Having been penalised for trying to support themselves, the working taxpayers also pay value added tax, which is not a tax on value; it is a tax on consumers, who add no value but have to pay the price of their consumption.

Of the three factors of production, both labour and capital bear most of the burden of taxation, but the third, land, is heavily protected from such burden, and thus a highly attractive investment, resulting in a huge amount of finance being made available for its purchase to the detriment of industry and commerce.

The availability of such finance and the resultant boom in land prices is not caused by the market, it is caused by the distortion created by the rules, the creator and sustainer of which is the government. This is fine for the government, as putting the blame on the market enables it to extend the reach of its power by increasing controls on it.

So Prof Wade is rightly concerned about the protection of employees, but is not the real damage being done to them by the government-made rules and not by the market processes specifically encouraged by such rules?

John Read

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