On high taxes and evasion


by Sunny
28th April, 2009 at 10:41 am    

Janic Turner wrote in The Times recently:

The disturbing thing about Alistair Darling’s Budget was not that it extracted a few extra thou from the few, the fortunate 350,000 or so who already enjoy six times the average British salary. It was the implication that taxation for the rich is a punishment, some vindictive redress for the misdeeds of the bankrupting bankers called for by a torches-and- pitchfork-wielding posse, rather than what it should be, what it is for the rest of us: an enduring social obligation, a mark of citizenship, a duty.

And a decade of wealth worship perpetuated the notion that money turns people into delicate super-beings who might take fright at mortal rules and financial regulation. The £30k flat tax imposed on non-doms last year – a sum Notting Hill bankers might spend unthinkingly on flying their family to Antigua for Christmas – was received with threats, as yet empty, of escape to Gstaad. And now we learn that if our wealthiest few pay 50 per cent tax on earnings over £150,000 it could kill their work ethic entirely. While most of us toil to pay the mortgage, to keep our jobs or – weird thought – to contribute to society, the rich… well, take away a tiny fragment more and they might just stop trying, or give up altogether. If people now revile the rich – and The Times poll yesterday suggests that 57 per cent regard the tax hike as fair – it is because so many have spent a decade being loathsome.

All spot on, of course. What I find interesting are the hypocritical arguments used by many about the economy.

1) Where is the actual evidence that raising taxes to 50% will lead to lower tax receipts? The Laffer curve is a theory – I’d like to see actual evidence.

2) Why is the thinking that lower pay will lead to a flight of talent not applied to public sector workers? That’s the first thing Tories want to cut – why not assume talent will also leave there, leaving us with less talented teachers, doctors and police constables?

3) How it is ‘class-war’ if it only affects less than half a million people out of a population of 60 million? The right-wing media really is insane.

4) Why should we have sympathy for ‘wealth creators’ who only destroyed all the wealth created over the last decade? Where is the evidence that courting these tax dodgers is good for the economy over the long term, instead of ordinary people who earn less than £100,000? We should be rewarding the hard-working middle-classes not the freeloading, tax evading super-rich.


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  1. pickles

    New blog post: On high taxes and evasion http://www.pickledpolitics.com/archives/4412




  1. cjcjc — on 28th April, 2009 at 11:28 am  

    What a bizarre rant.

    1 – I’m sure others will point to what the IFS have to say on the technicalities. They seem to have their doubts about the revenue effect.

    2 – these are groups which have seen substantial pay rises, so I doubt whether a small cut will see them rushing off. Though many teachers are leaving, of course, because of concerns over discipline.

    3 – what have the numbers to do with it? Is it OK to pick on a minority?

    4 – what are you talking about? who has “destroyed all the wealth created over the last decade”? What numbers are you referring to exactly? And I don’t think anyone is supporting tax-EVADERS at all, are they?

  2. WheresMyVote — on 28th April, 2009 at 11:32 am  

    What a juvenile set of comments:

    1. See the late 1970s, once the last moronic Labour supertax rate was abolished the tax take went up. Is that clear enough evidence?

    2. The people in the public sector you mention are already low paid. The front line is not the issue, it is the bloated quangocracy being used as a retirement home for failed and incompetent friends of labour. We can happily get by without any of these. There is no talent here and hence they have no ability to move elsewhere.

    3. Funny, I didn’t realise numbers came into the definition of class. When exactly were the aristocracy (or upper classes) in great abundance?

    4. The people who destroyed all the wealth over the last decade was a Mr G. Brown and Mr T. Blair and their lobby sheep (remember who created the tri-partite structure for bank regulation?). These are the people who should be being punished, not those who create wealth and help to sustain Labour’s client state through their taxes.

    Oh and finally, tax EVASION is illegal, tax AVOIDANCE is using legally available means to reduce your tax bill. It really isn’t that difficult to grasp, see the Guardian Media Group for examples.

  3. cjcjc — on 28th April, 2009 at 4:55 pm  

    Oh look – the Treasury’s *own* assumption is that 70% of the potential revenues from the 50% rate will be lost through legal avoidance – leaving just 1bn.

    http://business.timesonline.co.uk/tol/business/economics/article6186203.ece

    Leaving aside the opportunity cost from any disincentive effect on higher earners who might otherwise have come to the UK, of course.

    Gesture politics. Brown all over.

  4. marvin — on 28th April, 2009 at 5:51 pm  

    NO surprise that the olde guard socialists think it’s a good idea for Britain to hark back to the ‘sick man of Europe’ days of the 70′s.

    The 50% raise is the thin end of the wedge. Whilst I’ll shed no tears for the rich loosing a few £££’s I will place the place the blame squarely where it belongs if the wealth creators start to think ‘fuck it, I’m off’. It’s the poor that will suffer.

    I love Giles Coren’s article in The Times Me, I’ve always been a Labour man. Until now. This is the ‘fuck it’ attitude I’m talking about. It will back fire.

    Wake up smell the stale olde guard socialist nonsense for what it is! A crock of shite.

  5. Refresh — on 28th April, 2009 at 6:06 pm  

    Marvin,

    What is a ‘wealth creator’, do you know? Could it be that you have fallen for the duplicitous definition which equates wealth with wealth creation?

    I am inclined to tax people based not only on their income but also their accrued wealth. This might just get us round the issue of tax evasion.

  6. Rumbold — on 28th April, 2009 at 6:42 pm  

    Well, the Laffer Curve is a theory in the same way that evolution is a theory; that is as an evidence-based explanation of things. How exactly to draw the Laffer Curve is the real question, as common sense tells us the more you decrease the incentive to do something, the more people are likely to stop doing it.

    I don’t have a problem with taxing those with high incomes more, proportionally. However, anyone who supports the current level of government spending does not care about those on low incomes, as otherwise they would demand swinging cuts in order to raise the tax threshold and reduce National Insurance. At the moment someone earning the minimum wage who is working full time pays a four figure sum in tax and N.I, in order to pay for government spending.

  7. Bert Rustle — on 28th April, 2009 at 8:19 pm  

    Sunny Wrote … The disturbing thing about Alistair Darling’s Budget was not that it extracted a few extra thou from the few, the fortunate 350,000 or so who already enjoy six times the average British salary. …

    In my opinion, it is far more disturbing that the Ruling Class failed to obey the law.

    You omit this. Why? Do you believe that a simple shuffling of the Ruling Class, will make it behave lawfully in the future?

    In a interview with William Black http://jessescrossroadscafe.blogspot.com/2009/04/crisis-of-our-democracy-corruption-in.html he outlines the industrial scale of corruption across elected representatives, presidential nominees and bankers.

    It is highly alarming and I currently do not have any reason to assume the position is any different in the UK.

    For a related video interview: William K. Black, author of The Best Way to Rob a Bank Is to Own One: How Corporate Executives and Politicians Looted the Savings & Loan Industry is interviewed on video by PBS (akin to a BBC of the USA) regarding the industrial scale fraud within the Ruling Class which has precipitated the current financial situation: http://www.pbs.org/moyers/journal/04032009/watch.html

    This is the only program I have seen which in clear and measured terms sets out the situation. In my opinion.

  8. Random Guy — on 29th April, 2009 at 8:07 am  

    Ouch Bert! Those links have some pretty eye-opening statements in them…

  9. Tim Worstall — on 29th April, 2009 at 1:51 pm  

    This is Pickled Politics so JM Keynes is a god like figure here, yes? You know, the last person to get it right before all those ghastly neo liberals screwed it all up?

    JM Keynes on the Laffer Curve before it was called the Laffer Curve.

    “Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget. For to take the opposite view today is to resemble a manufacturer who, running at a loss, decides to raise his price, and when his declining sales increase the loss, wrapping himself in the rectitude of plain arithmetic, decides that prudence requires him to raise the price still more–and who, when at last his account is balanced with nought on both sides, is still found righteously declaring that it would have been the act of a gambler to reduce the price when you were already making a loss.”

    OK?

  10. Adnan — on 29th April, 2009 at 3:14 pm  

    Tim @ 9.

    The disagreement would be what constitutes the critical level for this tax rate. Maybe 50% and the removal of allowances, tapering pension rebates, seems below that to Brown.

    What should they have done ?

    1. Renege on past commitments.

    2. Go for radical cost cutting e.g. privatise the Beeb, cut the public sector, let unis. charge as much as they like.

    3. Go for less “gesture” politics and add 1 or 2 percent to everybody’s income tax.

    Seriously, what alternatives do you recommend for the Tories ?

  11. The Common Humanist — on 29th April, 2009 at 4:37 pm  

    But those nasty neo liberals have screwed us all and royally.

    Only in wingnut land is this not the case, despite all the mountain of evidence over the past 36 months.

    At least Rumbold, though a rightist, is actually concerned about taxation levels of the bottom half – though I suspect more as an axe to attack Govt spending deficts (Largely caused by bailing out Neo Liberal failure) then as to genuine concern for the working class but, still, welcome to ‘The remove the Bottom 25% from Income Tax Club!’

  12. Guano — on 29th April, 2009 at 9:43 pm  

    In Africa, for example, the Government may not be effective at collecting taxes so raising the tax rate may simply lead to evasion. In Europe and north America, the Government should be able to collect all the taxes that it imposes. If it isn’t we’re half way to a failed State.

  13. Rumbold — on 30th April, 2009 at 10:57 am  

    TCH:

    I believe that cutting tax is a good in itself (there are limits mind). The only way to achieve this is to cut spending. The top few percent of earners (from income, shares. etc.) can cope better than the bottom section of earners. That’s why tax cuts should be targeted there first.

  14. Evan Price — on 1st May, 2009 at 11:49 am  

    Sunny, have a look at the tables for tax takes for the top 10% of taxpayers for the years 1978/79, 1984/85 and 2007/8. You’ll see clear evidence of the ‘effect’ of the Laffer thesis. In addition, note that the Treasuries of most countries accept that this ‘thesis’ is correct, including most of the major economies of Europe and the Americas.

    There is an effect on the top rates of pay in the public sector – but the demand for public sector jobs will have an influence on pay as well; and people will factor in things like the ethos for public service and the benefits of job security and pensions arrangements in their decision. The interesting thing at the moment is that the public sector in certain areas of employment is paying more than the private sector for similarly qualified employers – see the IFS on this.

    The number of bankers who actually made the decisions (probably better described as omissions, but that is another discussion) that led to the failure of a number of banks is probably quite small in comparison to the number of people earning very high salaries.

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