Of recent times one hears a great deal about tax cuts and whether or not such cuts would or would not solve our unemployment problem, but one hears little of the merits or mechanics of any proposition. In the following notes and the accompanying graph the FDP describe a new tax structure which would solve the problem.

Considering firstly the premise that there is a finite quantity of capital available at anyone time to invest in productive employment, and that there is a certain number of people (not necessarily known) desirous of being engaged in that work. It follows therefore that those enterprises employing the greater numbers for the least capital investment are more efficient and less burdensome on the state, from the stand point of unemployment.

The FDP scheme incorporates the above principle, and encourages employment by a parallel reduction in tax demands.

The system is based on an index of unit capital employed, divided by the labour utilisation per unit of capital employed, all as depicted on the said graph. If, for the purpose of the analysis, the unit of capital is taken to be 100,000 (one can deduce the number of employees per l00k for any undertaking) a curve, such as here presented, can be drawn up for a whole range of labour utilisations; and not surprisingly the curve goes to infinity on both axes, with the 'Y' axis being nothing more than a reflection or the inverse of the 'X' axis Times 100. Indeed, it is not necessary to produce a graph at all to demonstrate the concept numerically (some people might even say it is not a proper graph), but it does graphically illustrate the marked structural difference between capital intensive and labour intensive industries, and demonstrates the principle against which a standard tax norm can be substantiated.

CAPITAL_EMPLOYED

The illustrated tax ranges are, of course hypothetical and they could in fact be continuously variable; it being necessary only to calculate the capital employed/labour utilisation index. It would however be necessary to have max/minima as the curves tend to infinity.

It is significant to note that all Ministry of Defence contractors have their profit-take calculated on a much more complicated formula (copy paper attached) based on the relationship of cost of production to capital employed. Because of this, the concept would not be foreign to official Government sources. Also, individual companies would not be required to do anything other than to ensure they had the most advantageous staff/profit/tax ratio: the auditor/accounts department would routinely advise on this.

Neither would it require any complex calculations by the auditor/accountants, as all the necessary information to produce a company's individual tax 'code' rate is recorded in the annual accounts and is that very same Data all companies must record to calculate their individual overhead rates.

Of course, it is recognised that the proposition here presented lends itself to a whole range of tailoring; it could be made much more complex, but also very simple operationally: we all have personal tax codes.

The above scheme also counters any criticism about minimum wages. Employers of large numbers of low paid workers could easily pay the minimum wage because they would be getting tax relief to do just that.

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Last Updated (Friday, 09 April 2010 10:52)

 
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