The rich must pay more

And so they do

by Sir Thomas Crapper

The rich should pay more tax. We can all agree on that, can’t we?

But we can’t agree, it seems, that by and large, the rich do pay more.

The fact is that 28% of revenue collected by HMRC is paid by one percent of tax payers. So, the rich pay more. But when did you last read a headline that said: “Top one percent of earners pay 28% of total tax revenue”?

One of the problems is that the media just loves a good tax evasion story. “Comedian doesn’t pay tax” is a much better headline.

But this much is true: most of the rich do pay tax. And, being rich, they pay more tax.

If you were earning, say, £1m a year, and paying on the same basis as someone earning £30,000, you would be handing over the best part of £400,000 to HMRC. And this, indeed, is what most high earners do, which is how you get to that extraordinary statistic that one percent of earners pay 28% of the tax take.

When George Harrison wrote Taxman, the opening track of The Beatles’ 1966 album Revolver, taxation at the time was, as he sang, “One for me, 19 for you”.

One pound comprised 20 old shillings, and the government took 19 of them. Are we not shocked by that? Can we not see, with hindsight, how that might encourage high earners to take themselves off to some tax haven?

Which is why so many top-earning French people have responded to François Hollande’s ridiculous Socialist tax regime by decamping to London.

French people? Living in London? Ah oui, mais certainement, monsieur et mesdames!

But still we are not persuaded by empirical evidence that whenever a government is persuaded to raise the top level of tax, the Revenue’s income drops? Postwar figures show this in terms that cannot be denied.

Perhaps we can all see that taking 90% of earnings above the national norm is a disincentive. For instance, in the years leading up to 1979, when the top rate of tax was 83%, the top one percent of earners contributed just 11% of HMRC’s income.

Dropping the top rate to 40% resulted in the current upswing where that same one percent now contributes 28% of the total.

So it’s a fair conclusion that there is an optimum level of tax which everyone feels is fair. Problem is, we can’t agree on where the optimum level is. The Laffer Curve is an attempt to illustrate this graphically. Arthur Laffer gets a lot of stick (being a cheerleader for Reaganite supply-side economics) but he didn’t invent the concept.

The argument has been going on in general and specific terms for hundreds of years. The Muslim writer Ibn Khaldun made general reference to it in the 14th century. In the 20th century, John Maynard Keynes was more specific: “A reduction in taxation stands a better chance of balancing the budget than an increase.”

It’s a shame we live in an age of unreason, where propaganda and hatred of those with more than the rest of us rule the roost. Demanding that ‘the rich must pay more’ generally translates as ‘they must pay more than they already do’. So instead of a top rate of 40%, we are encouraged to raise it to 50%, so that the £1m wage earner now paying £400,000 tax, will in future pay £500,000.

Well, good luck with that. History shows that when tax gets punishing, the punished get going – somewhere else. But then we never did learn from history, did we?

http://www.forbes.com/sites/danielmitchell/2012/04/15/the-laffer-curve-shows-that-tax-increases-are-a-very-bad-idea-even-if-they-generate-more-tax-revenue/#58eb18a06307

 

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