The immorality of the 50p rate

September 16, 2011 11:26 AM

The 50p tax rate harms the poorest in society most. It can do so in two ways: their jobs may cease to exist or never be created; and because the poor end up paying a larger share of the total tax take. It is time for the Government to stand up for what is morally just and get rid of the 50p rate.

When you increase tax on the rich, they have less money to spend. So they cut back. What do they cut back on? They may reduce spending on luxury objects: not buy that painting or that antique chest. This is likely to be a minor change – their house may be full already. Or they may reduce spending on services. Restaurants may suffer in a minor way. Minor, because the rich still have to eat and typically do not have much time to cook for themselves.

Or perhaps they cut back on domestic staff: the window cleaner, the cleaner, the cook, the gardener. Precisely those jobs for which you do not need university degrees or a long CV. In other words: the jobs for the less well-off are the most likely to be dispensed with. Sometimes full national insurance paid jobs will be replaced by cash-in-hand jobs. Full time may become part-time – now entitling the cleaner to claim housing and other benefits. This is the trickle-down effect; so often derided, but a daily reality for those who have not many opportunities at the best of times.

A large number of studies have shown that if you cut tax for the highest earners, they end up paying a higher share of the total. The opposite is true, too: when you increase their taxes, the less well-of pay a higher share. This is because paying for tax experts who can find methods to avoid taxes becomes a more lucrative alternative than to pay the increased tax. In addition high earners (and companies) will flee – either in person, or with their capital. There is a lot of evidence that this is happening in the UK right now. Those who are no high earners therefore end up paying a larger share of the total tax take.

All this is made worse by the fact that the rate was introduced as a political measure. The fact there needs to be a review on whether it raises money demonstrates that there was no work done before its introduction to prove it would raise money. We need to say this loud and clear. Taxing high earners more does not make the rich suffer much: it’s the poor who end up poorer.The 50p tax rate harms the poorest in society most. It can do so in two ways: their jobs may cease to exist or never be created; and because the poor end up paying a larger share of the total tax take. It is time for the Government to stand up for what is morally just and get rid of the 50p rate.

When you increase tax on the rich, they have less money to spend. So they cut back. What do they cut back on? They may reduce spending on luxury objects: not buy that painting or that antique chest. This is likely to be a minor change – their house may be full already. Or they may reduce spending on services. Restaurants may suffer in a minor way. Minor, because the rich still have to eat and typically do not have much time to cook for themselves.

Or perhaps they cut back on domestic staff: the window cleaner, the cleaner, the cook, the gardener. Precisely those jobs for which you do not need university degrees or a long CV. In other words: the jobs for the less well-off are the most likely to be dispensed with. Sometimes full national insurance paid jobs will be replaced by cash-in-hand jobs. Full time may become part-time – now entitling the cleaner to claim housing and other benefits. This is the trickle-down effect; so often derided, but a daily reality for those who have not many opportunities at the best of times.

A large number of studies have shown that if you cut tax for the highest earners, they end up paying a higher share of the total. The opposite is true, too: when you increase their taxes, the less well-of pay a higher share. This is because paying for tax experts who can find methods to avoid taxes becomes a more lucrative alternative than to pay the increased tax. In addition high earners (and companies) will flee – either in person, or with their capital. There is a lot of evidence that this is happening in the UK right now. Those who are no high earners therefore end up paying a larger share of the total tax take.

All this is made worse by the fact that the rate was introduced as a political measure. The fact there needs to be a review on whether it raises money demonstrates that there was no work done before its introduction to prove it would raise money. We need to say this loud and clear. Taxing high earners more does not make the rich suffer much: it’s the poor who end up poorer.

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