Day: 20 September 2011

Britain faces the economic crisis as one; we are all in together this- or so we are told. The 50p income tax for Britain’s wealthiest- the 350,000 earning over £150,000 per annum- predates the economic crisis; if we’re all in this together, in what sense have Britain’s top earners been squeezed? To reduce the budget deficit, the cuts/tax split is currently 77%/23%, which seems disproportionately high. Recently, twenty economists wrote to The Times to say that the current tax rate is harming our economy and that it should be lowered. As Nick Clegg said at the recent Liberal Democrat party conference, the richest in our society must “pay their fair share”.

The libertarian argument for little, and in some cases no, income tax is something that is only seriously discussed by America’s Tea Party movement -along with how we can prevent alien invasions and steal Iran’s rain. Western democracies tend to adopt a progressive taxation system; an argument that seems to have been won, for the time being at least. The question in contention is the size of the difference to be paid between better off and less better off earners .

Interestingly, a recent letter to the Times from twenty British economists did not include an account of how an increased incidence of tax on top earners violates civil liberties. Arguments from the right now revolve around consequentiality. The liberal phenomenon, that a libertarian political philosophy coincidentally is also the most efficient way to allocate resources (and the fairest), has long been dismissed.

We are repeatedly told that windfall taxes are taxes on jobs that will inevitably lead to unemployment. This has rarely proved to be the case. Scaremongering from businesses is all too familiar, especially persuasive with well funded, influential lobbyist groups. When Labour raised the tax rate for high income earners to 50p, we were warned there would be mass exodus to the Cayman Islands and Barbados, with decisions not (solely) weather based. This proved not to be the case.

Some 60,000 families are set to lose their local Sure Start Centre. Cuts will hit the poorest hardest and the ‘middle’ have been squeezed. High time, perhaps, for the tax on our top earners to be raised. Whether we introduce a new tax bracket for those earning over £300,000 a year, or raise the existing tax 5p on the pound, the government needs to show the British public that we are indeed “all in it together”. If we are to survive current economic perils, our higher earners, instead of employing armies of accountants to find tax loopholes, might do worse than follow Kennedy’s famous exhortation: “Ask not what your country can do for you – ask what you can do for your country”.

We also need to reject the notion that we cannot replace our ‘top skilled’ workers with people who are not deterred by paying 5p more tax on the pound, once they are earning over £150,000. In fact, in many professions, it probably would be more conducive to our economy if we did have people who were willing to pay tax; I tremble in my boots to think what we would do without our currently highly skilled bankers, who just so happened to cause one of the largest global economic crises in the history of humanity! Is it a coincidence that the very same individuals who would rather leave a country they are citizens of than pay 5% more tax also brought the national economy to its knees? We cannot be held hostage to CEOs of businesses, of bankers, threatening our elected politicians if we dare raise the tax threshold. Such individuals are completely unaccountable to the British public; allowing these unelected minorities to dictate our politics is arguably the most severe threat to our democracy today.

Lobbying from groups such as the Taxpayers Alliance to lower the top rate of tax is not reflective of all top earners; indeed, in Europe there has been a remarkable feat: France’s 16 billionaires, along with the chair of Ferrari, have written written to concede that they are willing to sacrifice a few yachts in order to rescue the country that provides them with a welfare system that gives them money if they are ever poor, which offers to treat them if they ever fall sick, and which offers to educate their children.

We not only need to change the incidence of tax, but make sure people pay their existing taxes. Obama promised multilateral action on tax avoidance, and it’s time to deliver. The coalition’s welfare reforms appear to display an eagerness to prevent people abusing our benefit system, but at the other end of the scale, they need to ensure people pay their taxes. The dichotomy of benefit cheats and tax avoiders shouldn’t exist, and the stigma attached to the former should be applied to the latter too. Britain’s companies save a fortune on giving medical packages to employees here, due to the state funded welfare system. Danny Alexander drew plans at the Liberal Democrat party conference to recruit some two thousand tax inspectors and to try and fix any loopholes in our taxation system. This is a step in the right direction.

Our system is based too much around people who want to take money from Britain and place it in foreign bank accounts. Such a system is essentially unsustainable and our democratic system should not be dependent on these people.