SOAKING the rich it ain’t; Labour’s decision to introduce a 45% tax rate for those earning £150,000 a year or more is largely symbolic, as many commentators are already busily pointing out. But sometimes – in times like now, for instance - symbolism is important in politics.
According to preliminary calculations, the move will hit just 400,000 people and raise a mere £2bn, which is next to nothing when set against government borrowing of £120bn. Yet even this gesture will generate paroxysms of entirely feigned moral outrage from those who make it their business to defend the wealthy in print. Look here and here for instance responses.
Let’s get some sense of perspective. Even a few years back, the Lib Dems were sufficiently bold to call for a 50p in the pound take on the rather lower threshold of £100,000 a year. How quickly the political right forgets that even during the hey-day of High Thatcherism, the top rate of income tax was 63%; despite his status as a former Trot, Alistair Darling is but a hopeless wuss by comparison to 'Red Geoff' Howe.
I mean, correct me if I am being needlessly controversial here, but the basic principle underlying any left of centre take on taxation is simple enough; the more you earn, the more you owe the Inland Revenue.
The idea that the rich should hand over a higher proportion of their income than the less well off has been a mainstay of the broadly progressive outlook since Lloyd George’s people’s budget of 1909, and it is high time the principle was restored.
Levying taxation on this basis has many advantages. Not the least of them is that, however much people grumble when they get their pay slip each month, it is widely perceived to be more or less fair.
But as someone on £42K – a decent wedge, ‘tis true, but hardly one that provides for a life of unbridled luxury in contemporary London - I am a higher rate taxpayer. If there is any logic in extorting the same proportionate rate from middle class types like me and people on £420,000 a year or £4.2m a year, I must have missed the meeting.
Taxation has been responsible for getting New Labour getting into more than a few political scrapes in the last period, from the indecent haste in following up Tory calls for the abolition of inheritance tax to the cack-handed reform of CGT and the entire non-dom fiasco and the 10p tax band balls up of last year.
At last the government have done something broadly right. Clawing back some of the spectacular giveaways doled out to the super-rich under successive governments since 1979 is entirely justifiable.It is not as if the City elite live on another planet. It is just not on for a small number of plutocrats to pay little or nothing to the public purse, while benefitingdisproportionately from the things for which it pays.
Even if they do use private hospitals and independent schools, who do they think foots the bill for the roads their chauffeurs drive them along and the streetlights outside their offices, or the courts that hear their litigation claims, to give just a handful of examples?
Given the way in which three decades of neoliberalism have seen society reconstructed around the needs of capital, what excuse can those at the top evince not to properly contribute to the arrangements that enable them to accumulate and hold their wealth? The rich have been taking the piss for too long, and they damn well know it.
Posted at 13:47, 24 November 2008
Comments (13)
"who do they think foots the bill for the roads their chauffeurs drive them along and the streetlights outside their offices, or the courts that hear their litigation claims"
Uh, they do, and more besides.
But as you say it's just symbolism. More precisely it's an attempt to play party politics with the current crisis. It smacks of a government far more concerned with their own jobs than anyone else'
A report on the Govt's statistics website by Francis Jones: "The effects of taxes and benefits on household income, 2005/06" shows that the poorest quintile in the UK paid 36.5% of their income in tax, whilst the richest fifth actually paid less - 35.5%.
Worth bearing in mind when people start bleating about how the "brightest and best" will be leaving the UK because of high taxes.
"Even if they do use private hospitals and independent schools, who do they think foots the bill for the roads their chauffeurs drive them along and the streetlights outside their offices, or the courts that hear their litigation claims, to give just a handful of examples?"
Good question.
1) Roads. Road users do. The duty paid on fuel more than covers the roads budget. So no, paying from the roads does not come from income tax. (Plus, of course, rich people tend to drive more fuel thirsty cars and for more miles, meaning that they pay more for the upkeep of the roads.)
2) Street lights. That comes from Council Tax. Rich people tend to live in larger and more expensive houses and thus pay more such Council Tax. Again, there's no real connection with income tax.
3)Litigation claims? Those litigating, in civil courts at least, pay the costs of their litigation. Yes, including the infrastructure of the courts.
Yes, of course, we know what you mean, but you could have chosen better examples.
"I mean, correct me if I am being needlessly controversial here, but the basic principle underlying any left of centre take on taxation is simple enough; the more you earn, the more you owe the Inland Revenue."
Erm, no. That would be a flat tax system. The left of centre take would be that the more you earn the higher rate of taxation that you pay.
Someone making £10 k a year and paying £1k tax, someone elsemaking £100 k and paying £10k...that's paying more because you earn more. What you think rather is that the person making £100 k should be paying a higher rate of tax, not just a higher amount.
The idea that the rich should hand over a higher proportion of their income than the less well off has been a mainstay of the broadly progressive outlook since Lloyd George’s people’s budget of 1909, and it is high time the principle was restored.
It goes back far further than the beginning of the 20th century. Charles I got himself into trouble in the 1630s because he expanded royal prerogative revenue raising powers and extracted more money from the wealthy, aristocratic land owners of England than they liked.
Parliament, representing the land owners and men of property and trade in the country, went to war over the issue of the royal revenue.
Higher taxes and what you consider progressive politics don't always go hand in hand.
He should crack down on tax avoidence by the rich and large corporations next, which Richard Murphy of Tax Justice UK, reckons is a staggering £25 billion a year.
Hi Tim
3) Alas, no they don't Tim. Not in all cases.
Perhaps Tim Worstall didn't see my post. I think it's worth repeating - the poorest 20% in the UK paid 36.5% of their income in tax, whilst the richest 20 % paid 35.5% of their income in tax.
As for today's budget, it's half decent considering the circumstances. The Tories are being absolutely pathetic whining about the debt. Just one year ago they proposed that the threshold for inheritance tax would rise from £300,000 to £1m (benefiting just the richest 4%), a cost to the Treasury of a mere £3.1 billion.
Yes but I wonder how many of the filthy rich will now be paying any tax. The non Dom's the people with large pools of money stuffed in banks accounts off shore, how about the companies who use off shore accounts, but in the end it's no good giving me £2 a week for two years then taking back £4 a week after wards to repay the debts, but all major employers are blaming the cost of fuel for the rise in food the rise in material so what did Labour do it put up the price of fuel. god help us all.
Raising income tax to 45% will presumably raise £2 billion only if all the current taxpayers in this band still have their jobs by 2010. This seems highly unlikely and makes even more of a mockery of the government's pathetic attempt to convince us that upping taxes during a downturn will stave off a deep recession.
I couldn't agree more than penalising those on just over £40k is hardly going to encourage us to spend spend spend.
"spend spend spend." Sadly, this is crass underconsumptionism, you cannot spend your way out a crisis, the thing clogging the system up is debt, and nothing short of the destruction of capital will clear the way (that, or years of very sluggish growth, and waiting for an external stimulus). Redistributing investments is what's required.
um, Dave, if you earn £42k per annum, you may be a higher rate taxpayer but you are not (in theory anyway) paying income tax at the same rate as someone with ten times your income because you only pay the higher rate on the proportion of your income which is above the threshold.
Since the personal allowance is £6k and the higher rate threshold is £35,800, this means your tax bill ought to be about £13,000 - 30% of your income.
However, someone on £420,000 a year would pay 40% on all his income over £35,800, meaning that his bill would be £160,000 or 38% of income. That sort of tax bill gives you a pretty powerful incentive to look for loopholes.
The proposed change hits our putative city slicker for a further £13,000 assuming he continues to make no effort to avoid tax. How likely do you think that is?
The problem with this plan is that people who make that kind of money do indeed engage in tax "planning". Which is why the richest quintile pay a lower proportion of their income in all taxes (including VAT, duty on Dom Perignom etc) than the above calculation would suggest they should be paying in income tax alone. That means that this proposal will, in fact raise even less than the £2 billion budgeted.
A smarter move, and one that wouldn't have to wait until after the next election to be implemented would have been closing existing loopholes.
Some chance
Of course, the really smart rich, like Lord Rogers, follow the advice of karl Marx, David Ricardo and Adam Smith, and recall that the burden of taxation doesn't fall on wages and salaries, but ionly takes a slice of surplus value (or surplus, if you're taxing peasants).
lord Rogers had his salary calculated with a negotiated *after tax* sum, the company then paid a full nominal salary calculated to leave that after tax sum. The same applies for the rest of us.
Taxing income is just an effective way of taxing profits - it turns us all into tax inspectors. We have no particular interest in the relative rates of tax, our only interest is organising to secure enough pay for workers to live on.
A lot of people don't seem to 'get' the limitations of higher rates of tax. The problem for Governments is that the higher rates of tax for higher earners do not raise much more money ... for a number of reasons largely related to the numbers of people earning large sums.
As someone earning more than £40,000, David, you are, believe it or not, in the top 10% of earners in the UK. The problem is that if you increase the top rate of tax by 5% in a market where there is already pressures on income as a result of the recession, you will end up with comparatively small sums coming in by way of additional revenue (maybe £1,500,000,000). The real sting in this PBR proposal is with the reducing personal allowances and their elimination for those earning over £150,000. The Government estimates are that they will raise £2.5 billion by way of revenue as a result of the totality of their proposal for the top rate.
By comparison, 1% on the basic rate of income tax will raise nearly twice that sum - indeed, the 1% increase in NI (1/2% each for employers and employees) is estimated by the Treasury to raise £4 to 4.5 billion. The simple reason for the difference is that there are many many more people earning sums in the basic income tax range and so small changes to the marginal rates raise relatively large sums.
Another problem with so-called 'progressive' taxation is that, in my practical experience, the people we want to tax more (those who avoid large amounts of tax through seeking expert assistance and advice) will not pay the amounts that we might expect them to pay - even some Labour ministers and ex-ministers indulge in these activities for their own and their families benefit.
In my view, you don't create a 'fairer' tax system that disproportionately hits people earning £40,000 or a little above it. The simpler the tax system, the less room for avoidance and the fairer it is for everyone.
BTW, had you realised that the Government was planning for VAT to rise to 18.5% in 2011-12?