What Exactly Is Your Fair Share?

Tax Fair Share Flat Tax

 

As every British taxpayer knows, this week the coalition Conservative/Liberal Democrat government will announce its budget for the coming fiscal year. And as usual, there is much speculation about what bold, eye-catching new initiatives will be announced, which favoured groups will receive the best and most insulting handouts (10p per week increase for those on the state pension, anyone?) and which of our cherished vices such as smoking or drinking will be slapped with the biggest tax increases to raise money to pay for it all.

But probably the biggest pre-budget story at the moment concerns the speculation that the government is poised to repeal the last Labour government’s spiteful, punitive, ugly and counterproductive 50% top marginal rate of income tax which they imposed just before being booted from office, either eliminating it entirely in a stroke or reducing it to 45% as the first step of a phased elimination.

Cue much indignation, huffing and puffing from the British left, who talk all the time of the importance of “the wealthy” or “the rich” paying “their fair share”.

Their fair share. What exactly does this phrase mean? It is grotesquely overused in British political and fiscal discussions at the moment, by both left and right. It is used by the left as an attack – “taking benefits and tax credits from hard working people while never asking the rich to pay their fair share!”-  and by the right as a defence – “ensuring that we are all in this together, and that those who can afford the most pay their fair share”.

So what is fairness when it comes to tax policy?

You could argue that since we all live in the same country and benefit from the same infrastructure, public services and national defence, the total bill for government spending should be divided equally between all people of a working age in this country. We can all avail ourselves of the public schools, the National Health Service and the roads in this country, so we should all pay the same toward their continued existence. So what if you’re on minimum wage and your tax bill for the year is greater than your income? Well, everyone has to pay their fair share, so better get a second, third and fourth job if you want to pay your tax bill and still eat. Otherwise it’s not fair to everyone else.

You could argue that some people use certain public services a lot more than others, and that aside from the national umbrella of national defence it is not fair to make any two people pay the same amount if they use different services, and that the best thing to do is to abolish the majority of taxes and move toward a pay-per-use scheme. So what if you’re on minimum wage and you don’t have the money you need to see the doctor? Too bad, you’ll have to make your own arthritis medicine yourself out of pressed flowers and tree bark.

You could accept that those who have been financially successful and/or fortunate should shoulder a greater burden of government spending in real terms, but that to ask them to pay a larger proportion of their incomes just because they are rich is offensive and unfair, and in this case you would support a flat tax system, where everybody pays the same rate. Everyone then gets access to the public services that they need, and everyone pays the same percentage of his or her income to support those services. Perfectly fair, no?

Alternatively, you could accept the premise that those with greater incomes should pay a higher proportion of that income in tax, in addition to paying more purely in real terms. And that’s pretty much the system we have in place here and pretty much everywhere else in the western world, a stepped, progressive tax system. If you earn little to no money you pay little to no tax either in real terms or as a percentage, and as your income grows, so does your tax liability. A lot of people think that this is fair.

My point is that each of these solutions can be described on one way or another as being “fair”. The word doesn’t really mean anything on its own, it is only given meaning through the context in which it is used, which is entirely based on your political beliefs. But in British political discourse it is always used to mean, in some general fuzzy way, that “other”, “richer” people more prosperous than us than us should pay more to cover all the bills. It is used lazily to impart a pious aura of nobility to demands for what are already significant transfers of wealth from the rich to the poor in this country at best, or counterproductive and demotivational daylight robbery at worst.

Under the present tax code in Britain, if you earn more than £150,00o in income in a given year, each additional pound you earn above that level to infinity is taxed at 50%. The income you earned between about £40,000 and £149,999 was taxed at 40%. And this doesn’t include the other huge tax-in-all-but-name, National Insurance, which means that many people earning much over £70,000 pay marginal tax rates greater than half of each additional pound that they earn. A yearly salary of £70,000 may sound like – and be – a lot of money, but if you are a family on a single income with several children, living in the South East, you’re not exactly the Monopoly Man. What’s fair about asking for more than half of that person’s hard-earned pay rise in additional tax contributions?

In order to win Liberal Democrat approval to cut the top rate of income tax down from the punishingly high 50% level, the Conservatives will doubtless have to make a number of concessions. Some of these may yet be sensible, such as moves to shift the burden of tax away from earned income (i.e. more ‘productive’ money) and more toward unearned income and wealth. This would help to ensure that income is reinvested in the economy, though whether it is the role of government to meddle in this way is not entirely clear. Some of the other concessions will doubtless take the form of yet more envious, baseless pokes at the rich. It is probably worth the government’s while taking most of these jabs in good humour in order to ensure the repeal of one of the highest marginal tax rates in the western world, a huge dampener on British competitiveness.

But whether the top rate drops down to 45% or back to 40% where it has been since Margaret Thatcher’s day, prepare for a lot of noise from the left and a lot of opportunistic point-scoring from the Labour Party. Be assured that these talking points have already been written and are waiting to be deployed as soon as George Osborne stands up at the despatch box in the House of Commons to read his statement. We will hear that he cares only about looking after his rich friends and is not concentrating on doing anything for the poor (because, of course, the government can only ever have one priority at a time, the rich OR the poor, and a policy that ostensibly benefits the rich could never also benefit the economy as a whole, and therefore everyone who works in it – and no, I’m not talking about “trickle-down economics”). We will see every rhetorical trick under the sun being deployed to convince the population that now is the wrong time to be focusing on “the wealthy few” when “the hard-working majority” are suffering. So expect all of this, and more. But regardless of the merit of these individual arguments, they all miss the point by a country mile.

Are there a myriad of loopholes in the current tax code that need to be closed? Absolutely.

Do further efforts need to be made to clamp down on tax fraud, and make tax avoidance more difficult? Sure.

Do we need to look again at tax rules for non-domiciled individuals, in terms of their income and property taxes? Almost certainly.

So let’s press for the government to include such measures in the upcoming budget.

But please, let us separate these issues – and the plight of the multi-millionaires and billionaires and bankers and premier league footballers that we hear about in the newspapers – from the doctor or accountant who maybe earns £200,000 a year and who now doesn’t want to take on that extra patient or new client because she is worn out, working hard trying to get ahead and to pay her “fair share” to an insatiable country.

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George Osborne Must Avoid The Urge To Become A Control Freak

George Osborne - Chancellor of the Exchequer - Budget

This well-written piece from The Freedom Association is worth reading, warning the Chancellor of the Exchequer to avoid raising taxes on beer in his upcoming budget announcement.

As an avid beer drinker myself, I can argue from a position of self-interest alone that it would be bad to raise the level of tax on a pint of beer.

But let’s forget about that particular issue for a moment, and concentrate instead on the ludicrous yearly spectacle of the Chancellor of the Exchequer standing at the despatch box in the House of Commons, and reeling off a list of everyday products that he intends to extract more tax from in the coming year.

Could there be a greater example of heavy-handed, over-centralised, petty, British authoritarianism than this?

Why should the central government, in addition to raiding our personal incomes and (if we are so fortunate as to have them) corporate profits or capital gains, also be allowed to decide that it wants a slice of the pie every time we buy a pint at the local pub, or a pack of cigarettes, or a bottle of wine to drink at dinner?

Is the punishingly high rate of VAT (currently 20%) paid on most goods insufficient? Are the higher (40%) and top (50%) rates of income tax not enough, or the additional national insurance “contributions” that we all make (an additional tax in all but name, meaning that the highest marginal rate of income tax is now well over 50% – why bother to work at all when the government snatches more than half of every pound you make before it even hits your bank account?)

Since the Second World War, and for some time before, government in Britain – and the raising and spending of government funds – have been far too centralised. Wouldn’t it be a wonderful thing if taxes were simplified in this country, so that there was one deduction for income tax, one for VAT, one for capital gains, one for corporation tax and nothing else to worry about? Forget “national insurance” and sneaky tax increases on a pint of cider here, or a pack of cigarettes there, or doubling the tax we pay for the privilege of passing through any of Britain’s dilapidated airports (air passenger duty), or any other thing that the Chancellor thinks he can extract revenue from?

If that’s an impossible pipe dream, how about restoring some semblance of a link between the stealth taxes that are raised and what that money is spent on, so that I can be reasonably sure that the ridiculous amount of tax I pay when I fly from Heathrow Airport actually goes to make air travel or general transport better in this country, rather than being added to some massive central pot and disbursed to fund a score of other schemes that I probably either object to, or don’t benefit from?

And since no government will ever do this in the foreseeable future, can we at least implement Ben Gummer MP’s idea to give each taxpayer a yearly statement, personalised for their salary and annual tax contributions, showing where their contributions are going.

And when, for example,  people buy petrol at the pump (or rather, go inside the shop to pay, because this is Britain and paying at the pump is still proving too great a technical feat for us to master in 2012), it would be nice if the receipts would show the original price charged by the company, and then the price payable by the consumer once the onerously high rate of fuel duty is added on.

Government should be transparent, open and accountable, and I for one would like to see where my money is going.