So, Compass insist (it\’s really Richard Murphy, again) that we can raise taxes on the rich and everything will be just hunky dory. There are a few leetle problems with their assumptions though, it should be said.
There are strong grounds for
supporting reasonable proposals to limit the
capacity of corporations to avoid tax by moving
their tax base to national regimes with lower
corporate taxation rates. This would require
international co-operation, probably initially at
an EU level.
Well, there\’s ambition for you. They want to tear up one of the defining characteristics of the European Union. The free movement of labour, goods and capital across the 27 countries. Good luck renegotiating the Treaty of Rome guys.
On a financial transactions tax.
London’s $2–3 trillion a day in transactions is
speculative, the effective tax rate increases
substantially for repetitive transactions, thus
reducing the incentive for speculators to trade
and so reducing price volatility. At times of significant
price change in the market, the effective tax
rate rises, thus dampening speculation and acting
as a disincentive to the herd instinct.68
Yes, they believe that speculation increases price volatility: when every fule kno that it dampens it.
There are, however, other forms of FTT. A tax
could be imposed on all debits – that is payments
– in bank accounts. The rate might be very low –
say, 0.1%. The GDP in the UK is at present
approximately £1.4 trillion per annum. To
achieve this level of national income, several
times this volume of debits is required in bank
accounts (for example, wages paid are a debit, and
when those who receive them spend that cash
they are a further debit). Speculative activity also
creates substantial cash movement for little
income generated. If it is supposed that debits run
at three times the level of GDP, a tax at 0.1%
would raise £4.2 billion, costing the average
household less than £20 a year, far less than most
households pay in bank charges.
You recall how the financial crisis was brought on by people taking their money out of ATMs, tenner by tenner do you? No, me neither, but that\’s what they\’ve decided they\’d like to tax.
The simplest reform would be the
most effective: all UK passport holders should
pay UK tax on all their worldwide income
whether or not they are in the UK.
Congratulations, you\’ve now become a slave of the State. Whatever you do, wherever you go, you\’ve got to pay Alistair Darling. This is to move to the US basis of personal taxation and it does seem perverse to pick up on the very worst part of their system (so bad that they\’re the only country that does it) as the one thing you\’d like to copy.
I also have a feeling that this would fall foul of EU rules: you\’re not allowed to discriminate between different national origins. But if a Latvian (or Frenchman) working in Latvia pays 20% flat tax (or whatever their rate is) and an Englishman working in Latvia has to pay 40%, that looks like discrimination to me.
But finally, here\’s the great guffaw.
They intend to raise the average tax rate (that is, the percentage of total income paid in taxes….this is not the marginal rate) for the top 10% of households from around 34% to 55%. That\’s an over 60% rise in taxation on this group of 2.3 or so million households.
We also see marginal tax rates rise substantially (as of course they would have to). I can see something over 70% easily: top rate of 50%, two sets of NI adding something like 23/25 % (for they will lift the NI cap).
In fact, with their \”minimum tax rates\” of 40% at £100,000 and 50% at £150,000 (ie, withdrawal of personal allowances and of perhaps even the lower rate allowance) we might well have bands where marginal tax rates are above 100%.
Now, we might think that there could be some changes in behaviour over such changes in rates. You know, this Laffer Curve thing: yes children, it really is true, the Laffer Curve exists. The argument is not over whether but at what rate we move from maximising tax income to diminishing it by raising the rate further. That\’s an empirical matter of course but recent rough estimates would put it in the 40-50% rate area (note, for marginal tax rates, not average). So what do our brave boys and girls think of this, the possibility that their tax rises would lower revenue rather than increase it?
Our view on avoidance is
that if the top rate is increased while at the same
time reforms are made to the tax system,
minimising avoidance and evasion, the taxable
income elasticity is likely to be small, if not zero.
Correct, they simply claim that it won\’t happen. That no one will trade leisure for lower income. That hoicking tax rates by 60% will not change work patterns at all.