Tax pledges, Chris Giles and tax distribution. How much does being proud need to cost?

April 09, 2015 1:35 PM

At the Financial Times, economics editor Chris Giles laments pre-election tax pledges which restrict their ability to raise taxes once in power. And his argument in favour of simplifying tax by abolishing national insurance is a strong one for which the TaxPayers' Alliance has campaigned vigorously. But he also argues that the personal allowance "undermines" income tax:

"Individuals with incomes in the top 10 per cent pay 47 per cent of income taxation, which is arguably acceptable since they control 34 per cent of income. The top 1 per cent pays 27 per cent of income taxation on 12.5 per cent of total income. How much the rich should pay is a political question, but the economic reality is that the present degree of concentration is a risk to the public finances. What seems a secure revenue stream can vanish, like corporate tax revenues from the financial sector in 2008-09. Expensive further increases in the personal income tax allowance undermine the integrity of income taxation and help the hardworking poor much less than a rise in tax credits."
Official statistics on income tax distributions are even more stark than Giles reports - it is the top 5 per cent who pay 47 per cent of income tax receipts, not the top 10 per cent. Nonetheless, while he makes a good point that relying on the rich to such an extent that marginal rates are only a shade below their revenue-maximising levels is risky, the idea that the problem with the tax system is that the chancellor is letting taxpayers on low incomes keep too much of their own money misses the point. After all, as Arthur Godfrey memorably put it
"I am proud to be paying taxes... The only thing is – I could be just as proud for half the money."

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