Progressive Taxation » Tax Research UK

Think tank says raise income tax by 6p in the pound

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Apr 302010

Raise income tax by 6p in the pound, UK told | Business | The Guardian .

According to the Guardian:

Britain should raise income taxes by 6p in the pound to make bigger inroads into its huge deficit or risk being vulnerable to the next financial crisis, according to a leading thinktank that advises the Treasury.

Current plans by the political parties to reduce spending and pay down debt would not be enough to prepare the country for a collapse like that of Lehman Brothers and a deep recession, said the National Institute of Economic and Social Research (NIESR).

The hard-hitting criticism of plans by all political parties to cut the deficit, and especially the reliance on “mythical” efficiency savings, came as Europe was convulsed for a second day by the aftershocks of Standard & Poor’s decision to downgrade Spanish government debt.

They’re right on cuts and savings: they’re just not going to happen.

6p tax change would increase revenue by up to £30 bn.

It’s going to happen.

But this is not the best way.

That’s explained in The Great Tax Parachute.

Will income tax changes for the very rich raise any money?

Progressive Taxation, Tax avoidance, Tax justice, Tax management 2 Responses »

Apr 202009

That’s what the Institute for Fiscal Studies asked in a press release issued today. They said:

The Government’s plans to raise income tax rates for people on incomes above £150,000 are very unlikely to raise the revenue that it has predicted, and indeed more likely to reduce revenue overall than increase it, without additional steps to tackle tax avoidance or to discourage people from reducing their taxable income by other means, according to a study by IFS researchers.

All that follows from the IFS is technical analysis of their number crunching – which means as ever they’re focusing on their Excel spreadsheets and not on the big issues.

And yet they mention the big issue – whether advertently or not – in the quote I reproduce. They have recognised the reality that progressive taxation is possible – but only with significant anti-avoidance measures attached.

The easiest of these by far to introduce is that which I first proposed in the TUC’s The Missing Billions in which I suggested:

the introduction of a minimum rate of tax to be paid on the income of those earning more than £100,000 a year to ensure that they do not unduly benefit from tax reliefs and allowances that society cannot afford to provide to them;

Put simply, this would set a minimum rate of tax a person with that level of gross income should pay on that gross income. The rate may be higher of course, but whatever allowances and reliefs they claim their tax rate could not fall below the minimum rate set.

This is incredibly simple. It would work. It meets absolutely all of Adam Smith’s tests for a fair tax system. It is just.

It would not initially tackle some problems, such as income shifting, the use of corporate entities, offshore or capital gains being taxed at lower rates, but all are easily overcome by ‚Äòlooking through’ corporate income in private companies and offshore structures of all sorts and by treating gains as income. Then we would have a real chance of a progressive tax system.

Pity the IFS show no such imagination.

Or is it that they, like the accountancy profession, wish to turn a blind eye to the possibility? All the evidence of their behaviour suggests that is the likely explanation.

A budget for redistribution of income and wealth |

Economics, Progressive Taxation 1 Response »

Apr 152009

Prem Sikka argues for a progressive budget in the Guardian:

As Chancellor Alistair Darling drafts his annual budget, he needs to give priority to putting cash in people’s pockets. This is the only sustainable way of stimulating the economy.

For far too long, people have been encouraged to borrow to keep the high street afloat. That is no longer possible. We should not be returning to the debt-fuelled economy – we should, instead, improve distribution of income and wealth.

He has his chosen approaches:

The cost of the above can be met by removing the upper limit on the national insurance contributions and levying higher rates of income tax on the rich so that the benefit of higher personal allowances is clawed back. Tax relief on pension contributions should be restricted to the basic rate of income tax. There should be an aggressive assault on the tax avoidance industry, which is costing the UK more than £100bn a year. Tax should be deducted at source for all dividends paid to non-domiciled individuals so that they cannot easily avoid taxes.

What I am delighted to see is the widespread adoption of the idea I first promoted for the TUC a year ago – that allowances simply be withdrawn above a certain level of income and a minimum rate of tax on gross income must be paid.

It ticks every box of justice – simple, fair, efficient, redistributive and predictable.

The tax profession says it loves these things.

Let’s hear them sing its praises.