Saturday, February 01, 2014

It's not the role of the Tax system to punish the wealthy and penalise success

At the Fabian conference a week ago, which I attended, Polly Toynbee said that the 50p tax rate should return even if it doesn't bring in much revenue. Since then many others on the Left have been using the construct that it will "increase HMRC receipts" (or some such). This is of course true. But it isn't the point. Studies suggest, as Paul Johnson of the IFS actually said at the conference, that the overall effect of having a 50p top rate of tax compared with the current 45p rate is neutral. Some go further and say that overall government revenues would actually reduce. Which is why some Labour peope are using the "increase HMRC receipts" evasion. So is it the role of taxation to punish the rich? Moral grounds if you like. I find the idea repugnant.

I pay my taxes and always have. I do this willingly as my obligation to society. I pay them for things I don't need, like education or maternity care and hundreds of other things Government spending looks after. I accept that on the margin I pay 40% (not 45% - I'm not in the 1% !) because it seems morally right that if I can afford it, which I can, I pay more than someone who can't. But I am not being punished for this fact. That would be punishing me for having been more successful (financially) than someone else - why would you do that? 

If it can be shown beyond doubt that the 50p tax rate has no fiscal benefit compared with the 45p rate then Labour should drop the idea. Because it would be vindictive to go ahead with something that discriminates against success with no benefit at all other than some rather unworthy feeling that you have bashed the rich. That would bring politics into disrepute. And it would be bad politics as well. In the 1950s the top rate of tax was something like 90%. I always though this iniquitous and still do and governments gradually came around to the idea that it was as well. But where you draw the line (what the tax rate range should be and at what levels the bands should be drawn)  is problematic. The challenge is to find the system that maximises revenues and honours the principle that richer people should pay more taxes. That principle is important but it does not mean the the driver is punitive - it should be pragmatic as well as being perceived as fair. But not punishment. 


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