...a blog by Richard Flowers

Wednesday, September 07, 2011

Day 3902: Let's Tackle Britain's highest tax rate… no, it's not the 50p band


The Conservatories want to abolish the 50% higher rate tax band.

Master Gideon and Mayor Bojo want it, because tax cuts make Tories feel all MANLY and POWERFUL, and tax cuts for RICH PEOPLE will make them POPULAR with all their RICH FRIENDS.

Now twenty "high-profile economists" (or "rich people") have written in to say they think it should go too because it makes Britain LOOK like a high tax country (that's LOOK like, not actually BE a high tax country, 'cos we're not).

But 50% ISN'T the highest rate at which people can pay tax on their income. Some people – they're still PRETTY WELL-OFF people actually but they're NOT the richest earners, so, you know, Mr Potato Ed would still call them part of the "squeezed middle" – pay a HIGHER rate of tax only it's a STEALTH TAX and it's down to the "withdrawal of personal allowance".

In the UK, if you earn more than £150,000 then you pay tax at 50% on each extra pound that you earn. Well, actually, you pay tax at 52% because of National Insurance, but that's a different dishonesty.

However, thanks to the stealthy thieving fingers of Mr Alistair Dalek (who's been plugging his memoirs "Gordon was a big fat bully" all this week), if you earn £100,000 then your personal allowance starts to get taken away at a rate of 50p for every extra pound you earn.

This means that if you earn £1 more, your TAXABLE earning go up by £1.50. You pay 40% tax on that extra £1.50, which is 60p of tax, or really a tax rate of SIXTY percent.

So, to the Conservatories, if you think that the 50p rate is iniquitous, why are you not kicking up a bigger fuss about this (assuming you actually UNDERSTAND the tax system)?

And to the progressives, if you think that the tax rate should be higher the more you earn, why are you not complaining that the super-rich pay a lower marginal rate than the merely very nicely off?

But the REAL problem is that it is COMPLICATED and DISHONEST. It is a HIDDEN 60% tax band.

If you want to raise more tax from the better off, then do it by LOWERING the starting threshold for the 50% band.

And it is DIVISIVE – typical Hard Labour – it says that rich people someone "don't deserve" the same personal allowance that everyone else gets. As though people who've worked hard and earned more are somehow LESS deserving.

(Talk about "deserving and undeserving poor" we've managed to invent the "undeserving rich" – yes, I'm sure Lefties will have no problem with that term, but hello we're Liberals and we should be feeling uncomfortable about it. Particularly when this definition of "undeserving rich" is so focussed on EARNINGS (where people at least have to do SOMETHING for their wage, even if you think they are overpaid) and MASSIVELY IGNORES people whose wealth, often inherited, is all in land and investments and grows fatter WITHOUT them working for it – see, THIS is why Liberal Democrats have plans to tax mansions and land and have already delivered higher taxes on capital gains: because it's MORE FAIR, but see also Hard Labour CUTTING the tax on capital when they were in power.)

So, before anyone even THINKS about abolishing the 50p band – yes, I know, Master Gideon "thinking"; it's laughable, isn't it – they should FIRST talk about abolishing the withdrawal of personal allowance (and say how they're paying for it; I'd suggest by having the higher rate start at, say, £140,000 rather than £150,000), otherwise they're NOT seriously addressing tax inequality; they're just GRANDSTANDING.

And while we're tackling the UNFAIRNESS caused by the withdrawal of personal allowance, we need to think about the UNFAIRNESS caused by the withdrawal of BENEFITS.

Because the poverty trap is such that some people at the VERY BOTTOM pay an EVEN HIGHER marginal rate than the squeezed-nearly-super-rich (or, as Mr Potato Ed would say, very very slightly upper middle) – but that means REFORMING the way that benefits are paid and withdrawn as people get into work AND increasing personal allowances for EVERYONE not taking it away from your favourite hate group.

Remember, there isn't actually any money to PAY for a tax cut.

And even if there WERE money, it would be BETTER for the economy to give that money back to people who are more like to SPEND it than to people who are more likely to SAVE it (or invest it in the stock market or in gold or in Swiss bank accounts etc.)

Which is EXACTLY what the Coalition IS doing.

We are giving a tax cut to lower and middle income earners by raising the personal allowance year on year up to £10,000.

But these are the LIBERAL DEMOCRATS' tax cuts and because the Liberal Democrat's tax cuts are going to LOWER paid earners then for Master Gideon they just doesn't quite hit the spot. And by "spot" I mean "the City".

As Daddy Alex has pointed out, the Conservatories are being driven OUT OF THEIR TINY MINDS by just how LIBERAL DEMOCRAT the Coalition's policies are.

For them, abolishing the 50p rate would be something big and visibly CONSERVATORY.

So let's not pretend that it's about fairness or even Britain being "competitive"; this is about the Conservatories wanting to WAVE THEIR WILLIES about because they need to look BIG and IMPORTANT and not in any way IMPOTENT!

So let's try and take the MACHO POSTURING out of the tax debate and try and put in a bit of honesty and transparency.

The highest tax rates are NOT borne by the highest earners and some of the wealthiest avoid income tax on their land and estates altogether, And that's WRONG.

And if we're going to give a tax cut to the rich, let's make the RICHER pay for it!

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