Economy,  UK Politics

Income Tax on the Moral Maze

A slightly belated post – but the topic isn’t one which goes away.  Michael Buerk introduced this recent edition of The Moral Maze (a BBC programme which you can listen to here)  as a debate between those who are instinctively attracted to a more equal society, and to the research which suggests that such societies are happier – and those who see it as outrageous that the state can take such a large proportion of your earnings, and think it doesn’t matter how rich the rich are as long as there is a safety net for the poorest.  The four regular contributors were Clifford Longley, Michael Portillo, Claire Fox and Kenan Malik.

The first ‘witness’ was Heather McGregor – a Director of Taylor Bennett. She was strongly opposed to high taxes (while approving of progressive taxation up to a certain point) and asserted, rather vaguely, that before income tax was introduced those who were well off helped those who were poor.   Clearly this is true, but not of everyone.  (I share many of the concerns raised by Andrew Coates in relation to this issue.)

She pointed out that it’s been proved that high tax rates are counterproductive because the rich will find ways round them – but perhaps that could be a cue to make such dodges more difficult rather than to give up on the thing completely.  The same point was made in the comments to a recent piece on Left Foot Forward (though only very slightly forward, given that the author was arguing against the 50% rate.)

McGregor reminded me a bit of a militant trade union leader, threatening that she and her kind would punish the country if she wasn’t able to have her way. I found myself thinking, as I listened to her, that I’m sure many in this income bracket would not object to giving a little more.  Once you are in a high tax band you’ve bought all the really necessary things – food, clothes, fuel – and any additional income can be spent on luxurious extras – I don’t believe you have to be particularly saintly to think it fairer that your marginal income should be taxed rather steeply than that the most disadvantaged in society should lose vital benefits and services.

This was certainly the view of the next guest, Dieter Lehmkuhl, who represented a group of wealthy (but not super rich) Germans who wanted to contribute more to help the poorest in society – those who are likely to suffer most in the current economic crisis.   Michael Portillo questioned him about the relationship between the citizen and the state, and advocated philanthropy as an effective alternative.  Lehmkhul argued that philanthropy cannot replace the basic tasks of government.

Eammon Butler, co-founder of the Adam Smith Institute, was the next witness.  He first objected to the high tax rate on pragmatic grounds  – it encourages tax avoidance – which, as Kenan Malik rightly pointed out, surely meant that the avoidance rather than the tax rate itself should be seen as the problem.  Butler’s follow up point – that high tax was wrong because it turned people into liars and cheats – also seemed rather dubious.

The last guest, Nicola Smith, Head of Economic and Social Affairs at the TUC, was tackled by Michael Portillo.  He pointed out that public spending had increased while inequality went up under the Labour government (though I think the rate of inequality did in fact go down).  He also raised the problem of those who feign disability (he and Smith not surprisingly had different views about the scale of the problem) or are trapped in welfare dependency.

I’m not completely opposed to all suggestions for welfare reform – I’m attracted to the simple and libertarian idea of a citizen’s income, for example, combined with a tax system which wouldn’t de-incentivise work. And I’ve seen no good arguments raised against Michael Ezra’s posts on the likely negagtive consequences of a transaction tax. Claire Fox more than once mentioned the importance of stimulating growth and new jobs – but that goal might be better served by helping reduce any unnecessary bureaucracy, or by looking at corporation tax or at tax breaks for small businesses rather than at personal income tax. For the very rich to pay 50% tax above a certain level (or be taxed in some other way such as via a ‘mansion tax’ if that would be fairer or more effective) seems reasonable –  if we are really ‘all in this together’.

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