Tax Research UK

Richard,
I was glad William Keegan exposed the myth that Lawson raised more tax revenue in his 1988 budget by cutting tax from 60% to 40%.

John, How did Keegan expose it? It is a fact that not only income tax receipts went up, but the proportion of income tax being paid by the top 5% also increased. And evidence from around the world who followed Lawson’s lead also showed it to be true.

Keegan’s analysis is simply wrong - not least the Cameron position is simply about priorities - Cameron has stated quite clearly why he thinks this tax is wrong, and it is a position that many in Brown’s party agree with.

But more to the point, when you say it can be made to work what do you mean? For example, do you really think it will have any impact in reducing the Darling/Brown deficit? Whether it will reduce or increase the tax take is somewhat academic - since there are more significant effects in play - or perhaps you had not noticed the reduction in taxable income caused by the recession?

In my opinion the state does not have the right to take 50% of a person’s income. It simply isn’t moral, fair or justifiable in any terms.

@Tom
Tom the government are not proposing to take 50% of a person’s income, they are prosing to take 50% of their gross pay from their employer. None of us ever see the NI and PAYE collected by the government.

Income tax is a tax on employment not individuals (unless you are in the minority who are genuinely self-employed). What is so bizarre is that given the unemployment figures the government should seek to keep Corporation Tax (a tax on profits) at a historic low, and yet push up taxes on employment!

We have been pursuing this strategy of keeping corporate taxes low at the expense of employment for too long. What does it lead to? Companies that make huge profits with few staff do very well (read investment banks, property development, consultancy) and companies that have tighter margins and high staff costs don’t (manufacturing).

Richard,

Why did the tax base go up? Because low taxes encourage risk-taking, entrepreneurialism and wealth creation. I do not know of anyone who seriously believes that a higher income tax rate will help us come out of this recession stronger. It will raise a negligible amount even if the full amount is paid (£2.4bn), which as you know many people doubt.

And Tom is right, it is immoral to tax anyone, regardless of their level of income, at 50pc.

There is no country in the developed world that is putting up its top rate of income tax, and 50pc would put us amongst the highest in the OECD. Do you seriously believe that makes us attractive for foreigners to invest in? I’m beginning to think that actually maybe you don’t believe in it and you just do it to assuage your middle-class guilt.

I dispute that definition of the tax base, but dealing with the question of morality:

It sends out the message that hard work and success are wrong, when in fact both of which we should celebrate. Taxes are essentially signals that the government sends telling us to alter our behaviour. Hence we tax punitively tobacco and alcohol as these are deemed to be “bads” whose consumption should be reduced. VAT essentially acts as a dampener to consumer demand. SDLT tries to act as a brake on the housing market. Raising the top rate of income tax tells people they shouldn’t bother working as long or as hard or as clever, and take more leisure time. Why would these people, who are probably already working stupid hours anyway, work longer to compensate for their fall in take-home pay when they can spend an extra two hours with the kids? The tax take will go down.

Hard work, effort and skill are not social “bads”, they are to be applauded, encouraged and rewarded. They create the wealth which pays for your beloved state sector largesse (yes, someone have to pay for it).

Real “social justice” (God, I can’t believe I just used that phrase) is about encouraging people to aspire to be as successful as they can. Confiscating half a person’s income above a certain level does not promote that in my view. Because let’s be blunt: this measure has absolutely nothing to do with economics (as I said it will only raise £2.4 bn at a time when borrowing will be £250bn, assuming everyone coughs up, which they won’t), but everything to do with politics. It is for that reason that it will backfire and be an expensive failure.

Peter

I think 50% is immoral because it offends against social justice. It is a petty attempt to punish one section of society simply because that section is seen as weak at the moment.

Social justice should be about promoting equality of opportunity, not equality of outcome. If there was a single income tax rate of say 20 or 25% and a single tax-free allowance of around £20,000 but no further allowances, the rich would pay most in absolute amounts and as a percentage of their overall income. Everything would be clear and simple and social justice would be achieved by treating everyone the same.

But the current proposals are aimed at subverting the outcomes of a democractic, free society. Equality of opportunity is what matters, and yet grammar schools, the great opportunity for many from less wealthy backgrounds, have been dismantled by those who believe that success should be punished and the opportunity to succeed taken away from those who cannot buy it themselves.

That’s immoral.

Peter, ‘Taxes are essentially signals that the government sends telling us to alter our behaviour’ is clearly not true. The main purpose of taxation is to fund public expenditure. There are secondary aims, including changing behaviour. All forms of taxation have ‘unintended consequences’ except annual land value tax (LVT), which, surprisingly, is not promoted by economists. However LVT by itself could not fund all the public expenditure to fulfil needs and wants, so we have to tax labour because that is the next most immobile factor.

Why do libertarians always seek to attribute “feelings of middle-class guilt” to those who disagree with them? Is this some sort of psychological projection thing?

However I will admit to having problems with the 70% effective marginal rate faced by low earners. The rate may be higher depending on whether you consider that the earner bears the cost of employers NIC.

“Talking immorality is nonsense - such attributes cannot be given to a number - but logic can be.”

The idea that morality is not quantifiable is fine in theory, but in reality the world is not black and white, it is full of shades of grey. If, for example, I am a farmer selling food to people who are starving and poor, then it would presumably be fair for me to sell the food for say £10, covering my costs, making a small profit and allowing the people to buy it.

But what if I put it up to £100, knowing that I was the only source of food and that people would have to deal with me? In that case, £10 is moral, £100 is immoral.

I would say a tax rate of 100% is immoral. I personally think 50% is immoral.

But lets not fool ourselves. The debate about 50% is simply a divide and rule ploy. Labour’s client state is now over 75% of the electorate in some towns in “Labour heartlands”. I happen to think a society where the wealthy few are expected to fund the many is a bad idea.

I think one could also make a clear case that current tax regimes, far from being “progressive” are in fact, discriminatory against the wealthy. And I think any form of discrimination is wrong.

Richard
If that is the case then I fail to see how changing the rate at which the rich manage not to pay tax will solve the problem.