...a blog by Richard Flowers

Wednesday, April 11, 2012

Day 4119: Shock and Snore – Master Gideon versus the Tax System


It's all about tax returns, this week.

Apparently, the Treasury HM Revenue&Customs*+* have been SHOCKING Master Gideon with some of the ways that rich people run rings around the taxman.

Plus, we've now gotten infected by the American habit of politicians releasing their tax affairs to prove what good citizens they've been.

First it was the candidates for Mayor of London, sparked off by Mr Ken Newt saying that anyone who avoided tax didn't deserve a vote. Apparently overlooking that this included himself.

Now the contagion seems to have spread to Mr Balloon, Master Gideon and the rest of the Cabinet.

"Hands up who in benefits from the 50p tax cut," demanded Mr Milipede in the Budget debate. Repeatedly*. "Come on come on own up who's been naughty then," he could have added, since he was already behaving like the milk monitor in the reception class.

Of course he was taking advantage of PARLIAMENTARY ETIQUETTE that meant that none of them could reply, knowing that the CAMERAS would show them having to sit there like a bunch of LEMONS.

The simple answer, though, ought to have been: "NONE OF THEM", since the Coalition Cabinet took a pay CUT on entering office so that they, unlike when Mr Milipede was in the Cabinet, do not earn more than £150,000 for their duties. And since Mr Balloon also banned Cabinet ministers from moonlighting that ought to be ALL they earn.

(OK, possibly NOT what with trust funds, investment income, property portfolios and all the other ways for WEALTH to make money...**)

But a somewhat overlooked fact is that Cabinet ministers are actually WORSE OFF because of the changes in allowances and thresholds. Remember that "withdrawal of personal allowance" that Daddy keeps going on about? Well, because they earn more than a hundred thousand squids, that affects the Cabinet. So, they DON'T gain from the increased personal allowance that takes millions out of tax, but they DO have to pay more of their income at the 40% rate because of the reduced 40% threshold.

The changes mean that they will be paying more than a grand MORE in tax next year than they were when the Coalition formed in 2010.

The net effect of the tax changes mean that it's actually people earning more than a hundred and fifty AND eight-and-a-half thousand squids actually get a tax cut.

So you would have to be earning TWENTY-FOUR GRAND ON TOP of your Cabinet salary (not fifteen, as the Grauniad thinks) in order to benefit from the upper rate cut from 50p to 45p.

Yes, I'm SURE that your heart BLEEDS for them; it's not EXACTLY like they'll be short of sticky buns. But it IS worth remembering this whenever Hard Labour are bleating about "Do you benefit personally"; a fair reply would be: "No, and we're paying more than YOU did!"

*Actually, speaking of people who repeat the same line over and over without listening to the reply, Ms Rachel Reeves – robotic Shadow to Mr Danny – likes to bang on over and over that reducing the 50p rate to, er, a higher tax rate than Hard Labour had for all but FOUR of the SIX-HUNDRED and SEVENTY-NINE weeks that they were in government, amounts to an "average tax cut of ten thousand pounds".

How do you get "an average of ten thousand pounds"? Well, there are three hundred thousand people in the 50p-as-was bracket, so you take three billion squids and divide that by three hundred thousand.

Hang on, where did those three billion squids come from? That's half a billion squids MORE than even the two-and-a-half billion that Hard Labour claimed would be raised by the 50p rate. (Or THIRTY times more than the hundred million squids that the figures checked by the Office for Budget Responsibility agree that the upper rate ACTUALLY raised.) How is this MATHEMATICALLY possible?

After all, she could not have just MADE UP a big-sounding number, could she?

**Actually, this manages to get oh so close to an important point while still managing to miss it entirely.

Mind you, Mr Milipede does like to BLUR the difference between BEING a millionaire – which means HAVING a million squids – and EARNING a million pounds a year which makes you a CONSIDERABLY FATTER cat-monster.

(Certainly, we'd none of us say "no" to having a million squids... unless they were ACTUAL squids... ew! But the days when a million pounds could buy you a "millionaire lifestyle" are in the past. You'd be MODESTLY but not LAVISHLY well off for the rest of your life – you don't get much that interest at the moment, but the capital at least would last forty years if you gave yourself the equivalent of the average salary. In fact, thanks to the house price boom, a lot of people, especially in the south-east, are millionaires on paper without having a lot of ready cash for buying champagne and yachts.)

But if you are REALLY WEALTHY then it's quite possible to arrange your affairs so that you only get a SMALL INCOME. If you've got pots of cash, then there are all sorts of SAVINGS you can make – you don't need to pay for a MORTGAGE 'cos you can just buy a house with capital; you don't need to pay into a pension 'cos you've got a tidy pot already; you don't have to pay a fortune for a ticket for your daily commute 'cos you don't actually have to have a job; and so on.

So it's is a whole lot more complicated that JUST knowing what someone's "taxable earnings" are OR knowing that on paper they're worth "a million". To see the WHOLE PICTURE you need to have an idea of their earnings AND their total WEALTH (and probably the WEALTH of their immediate family, like spouses, parents, children, that great aunt of a distant cousin who just happens to let them live in her castle and fly about in her plane etc).

People who are PAID millions of squids are at least DOING SOMETHING (even if you cannot credit that they actually EARN a salary larger than the GDP of a small country***!). People who just SIT on piles of cash are actually WORSE 'cos they're not just not contributing to the country, but their wealth is actually locked away from the economy when it could be being invested.

That is why shifting tax from INCOME to WEALTH actually MAKES SENSE.

Though of course Liberal Democrats prefer to pass the tax cut on to the millions at the bottom end, rather than the Conservatories preference for giving a bung to a few chaps in the city City.

***Actually****, the country with the smallest GDP is Tuvalu, with a GDP of thirty-six million dollars, which is still more than Bingo Bob Diamond of Barclays gets paid. Shush, don't tell him.

****Too many "actuallys".


*+*Actually, not the Treasury, but Her Maj's Revenue and Customs, thanks to Hon Lady Mark for correction. Arrgh "actually" overload!!!!!


Mark Valladares said...

With respect, oh fluffy pachyderm, it was not those kids at the Treasury who showed George what was happening, it was adults at HM Revenue & Customs. We take badly to being lumped in with HM Treasury...

Millennium Dome said...

Thank you for pointing that out, Lady M, and duly corrected!

Tat said...

Not only too many 'actually's but too many 'gotten's, especially in a sentence about picking up bad habits from America.