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Friday, September 09, 2011

Myths surrounding the 50p tax rate

Whatever the merits and demerits of the 50p tax rate those seeking to abolish it need to do better than claims it raises little or no money. The 20 high-profile business experts who wrote to the Financial Times believe that lower tax for the richest in our society is necessary to enable Britain to return to an "internationally competitive tax regime" to stimulate the stuttering economy.

However, in interviews afterwards some were claiming that as a revenue raising device the 50p rate was particularly ineffective. According to yesterday's Independent that has led the Chancellor of the Exchequer to ask Revenue and Customs to conduct some analysis on the amount of money being raised.

Today's Times though says that official figures suggest the higher tax band will raise over £13 billion over five years. This calculation apparently takes into account the possibility of top earners fleeing the country to dodge it. These figures are based on the answer to a parliamentary question tabled by Conservative peer and former deputy chairman, Lord Ashcroft.

This leaves us free to debate the merits and demerits of taxing higher earners more. There may well be a built in disincentive of such a policy but there is also an issue of social justice. Liberal Democrat President, Tim Farron is quite right when he says that abolition would cause anger at a time when many are struuggling to make ends meet. After all many of the beneficiaries of a top rate tax cut were those who helped get the economy in a mess in the first place.

Despite misleading comments by Ed Balls, the coalition is cutting tax, but for lower earners. They are pursuing a deliberate policy of seeking to help the worst-off by attempting to make the tax system more redistributive. There may be a time in the near future when it is appropriate to remove the 50p tax band but this is not it. Our priority must be to help those who really are in need first.
"The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing". Jean-Baptiste Colbert (1619 - 1683)
Not sure about social justice as a reason for fiddling with taxes per se, however surely if the top 300,000 see a reduction from 50% to 40% the effect for the economy overall would be much less than if the hardest strapped 4million or so were given more cash to spend? If only because the botton 4m need more money to spend, to make ends meet.
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