Well, Yes Seumas

Even more significantly, 75% thought the poor paid too much tax and 60% believed the rich paid too little.

I\’m not quite with you 100% there for I\’m not convinced the rich are paying too little, but certainly the first part gets my attention. When someone working part time on minimum wage has to pay income tax then yes, I think it\’s obviously true that the poor are paying too much in tax.

Which demonstrates that the real problem is not the overall level of taxation, still lower than when New Labour came to power, but who shoulders the burden. There\’s a powerful case, backed by most voters, for taxes to be cut for the low paid and raised sharply on corporate profits and the wealthy. But all three major parties cower before the corporate elite, even as the financial edifice they have erected is crashing all around us, and instead are holding public services to ransom because of their refusal to countenance tax justice.

Leave aside the Trot-style bashing for a minute shall we and let\’s have a slightly more dispassionate look at tax. Is there some linkage between this burden on the poor (and if you wish, too small a burden on the rich)  and the level of overall spending?

Let\’s start by rounding out some numbers. It\’s something like 7% of the population that pay the higher rate of income tax. Let\’s call that 10% just for ease of calculation and we\’ll call them the rich. If we call everyone else the not rich then we\’ve got a 90/10 situation.

We agree that the 90% are paying too much tax. We want to cut that, good. But if we are to balance the books at the current level of spending that means that for every £1,000 less in tax that 90% pay then we\’ve got to collect another £9,000 each from the 10%. And yes, there is a limit (yes, the Laffer Curve really is true at some level of taxation) to how much we can tax that 10% without killing the golden goose.

That is, that we have more than one constraint here, the political will to face down those rich bastards and make them pay their "fair share". Which is that at some point they\’ll either leave or stop working as hard as they do and the tax take will fall from them.

Or look at some real (if imperfectly remembered) numbers. That £600 (?) rise in the personal allowance drained the Treasury coffers of £2.7 billion pounds. The mooted 50% higher tax band on incomes over £100,000 is thought (it\’s not been dynamically scored so this over states it) to raise some £5.2 billion.

OK, very much rounding things out here we can have a further 10% income tax on "the rich" and a £1,200  iincrease in the personal allowance if spending remains at current levels. Or, according to the Lib Dems, we can cut the basic rate of income tax by 4 p in the pound at a cost of £6.7 billion….meaning that we\’d have to make our new top rate 55%.

Now I agree, all of these numbers are indeed very rough indeed. But they are leading us to the same conclusion: we know we can\’t return to the days of 80%, 90% top tax rates as at that point we\’ll definitely be on the wrong side of the Laffer Curve (as indeed when we came down from those levels we saw collections rise).

So we cannot in fact rebalance the tax system, providing substantial relief to the poor (I do assume that we\’re all agreed that substantial it needs to be, not just tinkering at the margins?) and clawing it back from the rich because we simply won\’t get the sums we need from the rich….there aren\’t enough of them.

Thus the tax burden on the poor is indeed very much a result of the general level of public spending. In order to provide that relief we do in fact have to reduce the amount spent. They are connected.

To put it another way around, as I recall Mr. S&M doing. If you\’re going to have a big State then you must necessarily be taxing the poor heavily. Because, in aggregate, that\’s where the money is, for there\’s many more of the poor you can shake a few hundred or a few thousand out of than there are the rich you can get tens of thousands out of. If you really want to cut taxes for the poor then you do have to hack away at the level of spending.

9 thoughts on “Well, Yes Seumas”

  1. “we simply won’t get the sums we need from the rich….there aren’t enough of them.”

    It will always be that way because “there aren’t enough of them” is the very definition of rich.

  2. Your conclusion is time-invariant: throughout the decades in which I’ve taken an interest in politics, the income taxation arguments of The Left have been demonstrable tosh because they never grasp the point that the filthy rich are not numerous. Either that, or they are being disingenuous and really hope to arrest and execute the Filthy Rich and steal all their assets. But that works only once.

  3. Although I’m a part-time freelancer cum private pensioner, I fall into your ‘rich’ category and am forced to write a cheque to the HMRC twice a year. It hurts.

    My parents came from rural working class roots. During their life-times they were part of the low-paid poor and paid little or no income tax – all their working lives. They were part of that generation for whom a married couple with two children did not fall into the income tax bands until they earned ABOVE the average industrial wage.

    These people formed the largest cohort in society. It was easy, therefore, as non-taxpayers to call for increased taxes on the ‘rich’ as a way of paying for all those things, like pensions and healthcare that were felt to be ‘good things’. Tax was something other people paid.

    And that is the attitude that informs these calls for increased taxes. There’s still a feeling among the low-paid that tax is what other people pay.

    Whenever my mother talks politics, she does not comprehend that I pay tax (let alone the humungous cheques twice a year) because she didn’t when she worked and, surely, no matter how my career progressed I must still be part of the same class.

  4. Nice personal story, Geoff.

    “that means that for every £1,000 less in tax that 90% pay then we’ve got to collect another £9,000 each from the 10%”

    ’tis true, but you must remember that the top 10% earn on average six times more than the bottom 90%, so it’s almost the same % of their income.

    Tim adds: Erm, 1.5 times the percentage, no?

  5. Once again…

    Why are we punishing people for working at all?

    Why are we increasing the fine for people who increase their productivity?

    Tax property, not people.

  6. Yes, 1.5 times the %, but if you are round up 7/93 to 10/90 i thought it would cancel out to some extent.

  7. “Why are we punishing people for working at all? “Why are we increasing the fine for people who increase their productivity?”

    Because pensioners are the population group most likely to turn out to vote.

    (this has been another exciting episode of “easy, cynical and accurate answers to complex socioeconomic questions”)

  8. I agree with your conclusion, but you seem to be conflating poor and not-rich, which is never going to lead to a way of taking the genuinely poor out of the tax system.

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