“Can a people tax themselves to prosperity?” (Winston Churchill)
Taxation is a subject of fairness for some; to others a demand those with wealth pay for those who have less. An ideal which is neither fair, practical, nor moral.
The top rate of tax, for the best part of the last decade has been 40%, rising to 50% in 2010 under Gordon Browns brief premiership and then falling to 45% in 2013, under David Cameron. These figures represent only one third of the equation – the second third, is of course the levels at which the higher rates apply – £33,000 in 2006/2007, £150,000 from 2010 and; the tax free allowance from £5,035 in 2006/2007, £6,475 in 2010/2011, rising to £11,000 for 2016/2017. These figures differ depending on circumstances, however you get the gist of it.
The 50p tax rate for an annual income over £150,000 has been controversial since inception. It came into force in April 2010 (rather than April 2011 as planned) by the Labour Chancellor, Alistair Darling in the midst of a deep recession and in times of great uncertainty. Labour as the self-styled saviours of the “working class” promoted the concept of the “rich” paying more to support the “poor”, but it was evident this was a desperate attempt by an incumbent government to replenish the public purse.
Labour argued the 50p rate should remain in principle on the premise, Income inequalities in the UK are reaching levels not seen since the industrial revolution and it is our future economic success as well as our ability to build a fairer society that depends on closing them. Which then begs the question, “can a man stand in a bucket and lift himself up by the handle?” (the second part of Winston Churchill’s quote).
Let’s face it, taxation is nothing less than a demand for payment to HM Treasury. Its’ purpose is (or should be?) to fund infrastructure for society to share – our schools, the NHS, public housing and act as a safety net for those who can’t rather than choose not to contribute, the welfare state. We all feel the benefits of government spending – some more than others. An imperfect and arcane system is therefore tolerated, and accepted for the most part. But it is wrong to suggest, if you earn £150,000 or more, you need to contribute more – why? Is there some additional benefit you receive for your tax contributions? With the rising costs of housing, rent or purchase, food, clothing, child care, rail fares, petrol one could argue enough is paid, through indirect taxation already.
A ‘fair’ society must be fair for all and not discriminate on income inequalities, in isolation. The tax free allowance rise, is a good thing; free childcare, is a good thing; a controlled welfare state, is a good thing (albeit in practice complications in the process can adversely affect some) and so on. In order to continue funding the State, we must look to a fair taxation system, direct and indirect. An equal system, a proportional system. Where does this equilibrium lay? That’s a tough question, but in terms of direct income taxation, this should not exceed 33% – one third for the State; one third for the present and, one third for the future. The larger the third, the better for the State, the present and the future.
To impose an unreasonable tax burden on wealthier members of society is to disregard their intuition, hard work, investment, innovation, entrepreneurship. In March 2012, a study conducted by HM Revenue & Customs concluded the 50p tax rise brought in hundreds of millions, not the £2.3bn anticipated. The study also found, as a result of the increased rate, high net worth individuals engaged in “tax planning” to reduce tax liabilities and waste resources on avoiding taxes – resources that could otherwise be put to productive use (the “Behavioural Response”). Thus, reducing taxable incomes to such an extent that the lost revenue from the reduced income exceeded the additional tax paid on the income that remained.
Closing down tax avoidance schemes and removing the incentive by tax cuts is a proven effective tax policy allowing for quicker payment of taxes’, investment, entrepreneurship and success to stimulate growth as part of an overall strategy, with real growth to promote wealth and prosperity. Prosperity benefits society as a whole but provides that extra little help needed by those on a lower income, for example paying for an increased personal tax allowance proportionality benefits those on a lower income; the Help to Buy scheme; Tax Free ISA’s; free child care; more school spaces; more affordable housing. These initiatives allow an opportunity to advance and contribute to a sustainable economy for themselves and society.
After all, “when people earn money, it’s their money. Not the government’s money. Then the government takes some of it away in tax. So if we cut taxes, we’re not giving them money – we’re taking less of it away.”(David Cameron, former Prime Minister).