Sensible tax debate? That’d be a relief

By Benjamin Butterworth

The debate on tax has become louder in the past 24 hours, as the Treasury revealed it is to reconsider the 50p top rate of taxation. Louder, but not, as I see it, progressed. The argument seems to be paralysed between goalposts of ideological dogma. Predictably there have been two polar arguments: the left demanding we tax the rich until the pips squeak, whilst the right asks that if we keep the 50p rate, will the last person in the country turn the lights off?

But, really, is this the best we can do? There are few areas of policy like taxation, which should be based squarely in the parameters of facts. Economic indicators, revenues, spending requirements and fairness – these are the grounds on which to base tax policy. Not instinct or ideology.

If the deficit is to be paid down responsibly, then it’s only right we ask those individuals earning the most to contribute the most. That’s why asking the top 1% of earners to stump up 50p in each pound they earn over £150,000 is a fair and reasonable policy. And contrary to what those in the pockets of big business on the right may say, many of the wealthiest agree, as the Guardian reports here.

It has been suggested, though, that the 50p tax rate does not in fact succeed in raising more money from the richest. Kieran Roberts argued yesterday that figures would indicate more money is garnered from wealthy earners when the top rate of tax is lower. He used figures which showed that when the top rate of tax was a remarkable 83% in 1979, only 11% of revenue came from the top 1%. Whilst when it was 40% under Blair, that top 1% contributed almost a quarter of the tax (wo)man’s revenue. This would suggest that a 50p tax rate is counter-productive. But what this fails to recognise is that the earnings of the top percentage have grown at a far more significant rate than they have for most of us. Therefore it only follows that they’ve been contributing more, even under a lower tax rate, as they have disproportionately benefitted from two decades of wage increases.

It seems to me wrong to tell hard-pressed middle and low income earners, who are working long hours to afford an ever increasing cost of living, that they should bear the brunt of deficit reduction whilst the richest pay less. Moreover, the richest are more likely to save their money, and so squeezing the middle instead risks choking off a vital economic stimulus.

So why not, you might ask, tax the rich much, much more? This was the argument of Owen Jones. He outlined that we should have a 60% tax rate. What he failed to outline however was any empirical support for why it should be exactly “60%”. Basing tax policy on an ideological viewpoint is self-defeating. Tax isn’t about getting as much as we can from people to fuel a ubiquitous bloated state. It’s about calculating the costs of providing effective, universal public services and a reasonable safety net for the vulnerable in society, then working out the appropriate rates to facilitate this, and encourage entrepreneurship.

Tax is not symbolic – it’s about what’s prudent and responsible for the economy.

But there is also a fairness argument against 60p tax. Asserting that because somebody earns a large salary the state should be entitled to more of it than the individual is deeply unreasonable – or as a predecessor of mine at the London School of Economics, JFK, put it: “a paradox”. For people simply will not endeavour to earn more, knowing that it becomes less and less worthwhile. It’s right we make work pay for those at the very bottom, and that’s why campaigns like the Living Wage are crucial for improving fair distribution of wealth and recourses. But we must recognise that rewarding hard work is a two-way principle, and people should always be incentivised to generate activity in our economy – wherever they lie on the scale. To spread wealth, you have to generate wealth.

Whilst I recognise that it would be 60p in each pound over £150,000, the idea that it’s fair for the state to take most of their money because it’s a very large number seems to assume people on large incomes don’t deserve their money. It is the repeated misunderstanding of the left that on our mission to see fairer distribution of income within society, we appear to discourage those who strive for something more.

To individuals who earn £150,000 a year I say, as a Labour Party member, well done. Congratulations on being a high earner. You’ve been successful and you’ve achieved something special. Although it seems tough, because you earn so much, the fairest option is to ask you to pay a bit more than those who can only aspire to your success, but aspire to your success they should.