So, a regular feature here will be to pick out a story in the media and give it our own little rebuttal.
To kick off, I figure we may as well swing by the Telegraph to address an important issue of late. At the Lib Dem Conference, a big point has been made about making the rich pay more in tax, whilst the next election will in someway or another come down to a decision about who pays for the reductions in the deficit both main parties want to achieve.
The Tory position is one of welfare cuts, Labour’s (and apparently the Lib Dem’s) is one of keeping taxes on the wealthy in the picture. So let’s address the issue by taking a look at Allister Heath’s piece in the Telegraph:
His premise; the rich pay the lion’s share of tax as it is, rather than increasing taxes on them, why not lower taxes and let them earn more – and thus be taxed more.
It’s a nice idea, but one with many hitches. The piece starts unpromisingly with the tagline; ‘One of the most pernicious myths in the current political debate is that the rich don’t pay much tax.’
Now, I don’t know about you, but I’ve always assumed the rich do pay a lot of tax. The question though, is whether they pay a ‘fair’ amount of tax. And at a time when cutting money to the vulnerable means more kids growing up in poverty and disabled people robbed of the means to support themselves, one has to ask whether a less painful way all-round would be for the rich to instead forgo some of their luxuries instead.
He launches straight into the maths to show that, hey, shock horror – if you earn a lot of money, you pay more tax than someone who earns less money! Something anyone with four brain cells and a calculator could have worked out. Even a flat rate of tax means that someone on, say, £150,000 a year pays more income tax than someone on £20,000. The fact we have progressive taxation which increases the percentage the wealthy pay on their incomes means this is even more so.
He also throws VAT into the mix – neglecting to mention its regressive nature – but rather focussing on the fact that because richer people buy more (lucky them), they pay more VAT… yeah… cheers for that one. Tell that to someone struggling to make their money stretch the week. Oh yeah, your weekly shop may have cleared you out, but don’t worry, rich people buy so much more than you they end up paying more in tax…
Of course, some rich people don’t pay more in tax do they? Thanks to those much publicised tax loopholes and schemes to avoid paying taxes at all. Or as Mr Heath diplomatically puts it; ‘A minority engage in extreme legal avoidance’… yeah, you mean they’re tax dodgers.
The fact this major issue for many is brushed aside in three lines seems strange, given this is what could be singled out as the whole issue of the rich being made to pay their fair share. But no, onto how complicated it is… yes, I’m sure the highly paid accountants the rich employ are completely bamboozled by the whole system… poor them. It must be all this red tape which stops them paying their taxes like everyone else.
We see a brief segway through the issue of non-doms making it clear we have enough in place here already – through some more ways the rich pay more tax – inheritance (heaven forfend we have equality of opportunity in this country), council tax (which they seem to pay a lot less of then you’d expect) and stamp duty (to the Telegraph, the notion of paying more to own a mansion must be quite a shock). But the crux of the argument is soon arrived at: The rich are taxed too heavily.
Because aside from us taking some from them when they’re dead, buying a big house, or just doing their own grocery shopping – we also, it seems, tax them on their incomes. And apparently, we take too much from them.
‘During the 1970s, when the tax system specialised in inflicting pain, the top one per cent of earners contributed 11pc of income tax. By 1986-87, with the top rate down to 60pc, that had increased to 14pc.’
The argument continues in this vein to the present day. The less we tax them, the more they contribute. So, how d’you get around that one, liberal class warriors?
Well, quite simply. The gap in wealth between the top one percent and the rest of society has increased greatly since the 1970s – in part because of the tax cuts. The rich have gotten much, much richer, whilst the rest of us haven’t. A simple study of average CEO pay versus worker pay will demonstrate this trend quite adequately. So obviously the top one percent have contributed more in taxes, because their wages are proportionally much greater than they used to be compared to the rest of us. This isn’t the miracle of lower taxes providing more taxes for the country overall though. This is wealth distributing itself differently and being taxed accordingly. If, instead of the top 1%s incomes rising so much, that money had distributed itself more equitably across the population at large and we’d all be paying more taxes. But because the wealth has streamed to the wealthy (largely impart because of their own decision regarding how much they pay who), it is they who are paying more proportionally in taxes.
Given that since the 1980s the average household’s income has basically flatlined in real terms, whilst the richest 10% and 1% have seen their wages in real terms reach ridiculous heights, ask yourself who should be paying a higher rate of tax?
As for the central position; lower taxes mean more taxes and a better country for all of us… well, its nonsense. Cutting taxes on the richest doesn’t mean they ‘make’ more money, it just means we’re taxing them less. To argue otherwise is to suggest rich people can’t be arsed to go to work and earn more money if they’re only going to get a certain percentage of it after taxes. Most studies on this show a 75%+ band is required before the rich actively stop working to earn more wealth. Obviously there will be more tax avoidance and any government has to be careful not to drive the rich overseas, but it’s not as if we’re taxing our rich more than similar countries as it is. And we’re not going to get them flooding to us in any great numbers unless we become a tax haven.
Speaking of which, most evidence on the trickle-down theory of economics suggests this is what happens to the wealth of the super rich – it goes to tax havens never to see the light of day. So it’s not as if less taxation on the super rich even has added benefits to the economy at large. Quite the opposite. Give £1000 to the richest 1% and the chances are it’ll go overseas to a tax haven. Give £1000 to one of the bottom 10% of earners and nearly every penny will go straight into the economy, creating jobs, giving small businesses a lift and generally boosting the economy.
Right now, our economy is suffering, GDP is not growing and that is why (some) rich people are feeling the pinch as well (the article lets us know the number of rich people has fallen slightly since the crisis). The solution to making more people rich isn’t to give them tax cuts though, its to get the economy growing. And a tax cut on the rich will likely have no positive effect in that regard, whilst a similar tax cut on the poor would.
We’re a terribly unequal society. The richest 10% take roughly 30% of the nation’s total income, whilst the bottom 10% take less than 1%. If we’re going to talk about who gets a raw deal in this country, let’s start with those figures as a jumping off point.