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Friday, June 13, 2014

Milking the rich

Fraser Nelson writes in the Telegraph of the extraordinary and unexpected success of the coalition in taxing the rich.

He says that tax cuts have been viewed with deep suspicion by those around Mr Cameron and it took some time for him to realise that they are often the surest route to recovery and stability. But, then, the top rate of income tax was lowered from 50p to 45p in the pound, and the Liberal Democrats forced the Government to lift three million of the lowest earners out of income tax. 

As a result millionaires are now paying more tax than ever. The figures show they now earn 13 per cent of all paid income, and provide 28 per cent of the income tax collected. This is higher than at any point under the last government, and twice as high as under the Callaghan government (when the top rate of tax was 98 per cent).

Fraser Nelson says that we are witnessing what John F Kennedy called the “paradoxical truth” that lower tax rates can mean higher tax revenues. He says that when people are taxed less, they tend to earn (or declare) more. It has taken Britain into a golden era of milking the rich. 

You can join the “one per cent” club with a salary of £165,000 a year, not quite enough to satisfy Mr Miliband’s “millionaire” status (which, of course, he enjoys). He has in mind the top ten-thousandth of earners, the best-paid 3,000 people. Treasury figures show that members of this club paid an average tax bill of £2.6 million a year in 2013-14. If a single one of these super-taxpayers emigrates, then the Exchequer will notice.
He continues: Never in recorded history has so much tax been drawn from so few. Never has the lower-paid half of British workers been asked for a smaller share of the income tax. Champagne corks should be popping all over Islington: if you define a fair tax system by those with the broadest shoulders bearing the largest burden, then Britain’s system is fairer than ever. And all under the reforms of a tax-cutting Conservative Chancellor. 

None of this will surprise economists. When Nigel Lawson cut the top rate of tax from 60p to 40p, the system became much fairer. It was precisely Gordon Brown’s greed for tax money that led him to leave the top rate untouched until the final few weeks of Labour’s rule. He knew something that Mr Miliband has not quite grasped: that, nowadays, countries need to compete for people. Governments have become horribly reliant on a tiny number of very successful businessmen, often immigrants, the sort whose stupendous wealth we gawp at in the Sunday Times Rich List. And these people seldom stay around to be taxed to death.

His conclusion provides food for thought: Ed Miliband is still proposing to put up taxes – but he may be able to detect a trend at work. A French president found he was running his economy into the sand with tax rises, so he’s now pledging tax cuts. Meanwhile, in Britain, corporation tax is falling – and ever-increasing revenue is projected. Tax has also been cut for the low-paid, helping lure people to look for (and find) work in record numbers. The Liberal Democrats ought to be shouting from the rooftops about this: they cut taxes, and employment soared. But it seems even they struggle to make the connection.

Labour is right to regard inequality as a problem. No one can be comfortable with a system where the richest buy a shot of whisky for the cost of feeding a family of four. Inequality has, again, become one of the hottest topics in public life. It deserves to be discussed – but, ideally, with more facts. We cannot, really, pretend the highest earners are dodging the fiscal draft. And we should welcome the fact that the top 3,000 taxpayers pay in 10 times as much as the bottom three million. And all this is from just a modest tax cut – imagine what proper ones might do.

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