Discuss: Should the rich pay more tax?

(Originally published by the Guardian)

Gerard Depardieu fled to Belgium following the French "super tax"

Should the rich pay more tax? A poll taken at the end of an entertaining debate at Manchester Central Library found the overwhelming majority of the audience in favour of the motion. But with many leaders of the finance world hostile to increasing tax rates, the discussion heard a range of conflicting views over whether or not the wealthiest in society should contribute more to the national coffers.

Five reasons the rich feel they shouldn’t pay more tax…

The rich already pay a high proportion of income tax

Head of Tax at the Institute of Directors, Stephen Herring, argued the progressive nature of income tax already ensures that the rich contribute their fair share. “According to HMRC, the top paid 3000 people pay more [income] tax than the bottom 9 million people. Our system is already deeply progressive in how it applies, and rightly so. But it would be foolish to take it to the levels of confiscation and would disincentivise investment in the economy.” John Ashcroft, CEO of Pro-Manchester echoed the sentiment, adding: “The rich should pay more tax…but indeed they do.”

Additional measures to tax the rich may be doomed to failure

Prior to their general election defeat Labour proposed a mansion tax under which owners of properties worth over £2m would face an annual charge. However, Herring insisted the tax would cause more problems than it would solve.  “Estimates for how much it would raise range from £700m to £1.7bn. Let’s say on the high side we collect a billion, if we set that amount against the £170bn collected by income tax…it’s a tiny sum that makes no difference to the funding of public services. It does have a disincentive effect and it’s a price just not worth paying.”

Rich people say they are better at spending their money than governments

Ashcroft argued that rich people are better placed to spend their money on good causes than governments would be if they received it through taxation. “We know we have an obligation to do our best for the poor…But the great arrogance of the left it to suggest that somehow they are better at spending other people’s money than anyone else.”

Removing tax reliefs for large charity donations could result in less money for good causes

The rich may be less inclined to donate to charities if they are denied tax reliefs on charitable donations, claimed Ashcroft: “Some of the very wealthy give considerable sums to charity. I have a client who gave £2m out of a £3m income to charity. The charities say if you took away that relief so that the rich pay more we will get less in charitable donations.

When rates of tax increase, rich people flee.

Following François Hollande's planned "temporary supertax" on earnings of more than €1m (£815,000), French actor Gérard Depardieu made headlines in 2012 when he fled to Belgium to avoid paying the tax. “The way to get more out of the rich is not actually to increase the tax rate,” said Ashcroft, “it’s to keep it around the premium level of around 50% because anything more yields to a negative take.”

…And five reasons why they should…

Taxing the rich is the hallmark of a civilised society

Lydia Ebdon of Approachable Accountants argued the simple moral case for getting the rich to pay more tax. “For the rich to pay more is simply a hallmark of a civilised society. How rich we are depends somewhat on luck and the rich paying more is a nod to togetherness. Just as the healthy should give up their seats for the frail, so the rich should pay more tax.”

Desperate inequality requires desperate measures

According to the Equality Trust, the UK is one of the most unequal countries in the developed world. This has caused many to call for redistribution of wealth through a more progressive tax system. “Tax is the symptom, inequality is the cause,” said Ebdon. “Inequality is at an obscene and dangerous level. We need to allocate resources much more efficiently to remain competitive. We should tax the rich to redeploy wealth.” Towards the end of the event a teenage schoolboy addressed the panel: “How is it fair that kids in Salford whose families pay tax can’t afford to pay for university. If the rich have got the money, why can’t they pay for it?” he asked, to rapturous applause.

Overall the poor pay more tax than the rich:

According to a MORI poll, 68% of British people believe the rich pay more of their income in tax than the poor. In reality, argues Mike Emmerich, Co-founder of Discuss, complex loopholes allow the rich to exploit the system and pay less tax than they should. “Rich people have got lots of incentives built into our tax system so that they can invest in good things like starting businesses. The problem is that that every time you create a loophole for a good thing the rich storm through it for a bad thing and you end up with some of them manipulating the system through complex avoidance.” Add to this the regressive nature of VAT and Council Tax which disproportionately hit poorer households and you end up with a system in which, overall, the richest tenth pay 35% of their income in tax, while the poorest tenth pay 43%.

Corporations get off lightly

While accepting that Labour’s 50p tax rate on earnings over £150,000 yielded limited benefits, Emmerich said governments should focus on corporate tax avoidance. Highlighting the case of Microsoft which courted controversy in 2012 after it emerged the company paid no UK tax on £1.7bn of online revenues, he said: “I don’t think it’s about income tax. It’s much more about the tax codes and complexities which allow global corporations not to pay their tax,” he said.  

The case for inheritance tax

Echoing the arguments set out in Thomas Piketty’s bestselling book Capital in the Twenty-First Century, Ebdon made the case for a global tax on inherited wealth. “Current gross excesses of wealth are set to become gross excesses of inherited wealth, which is even worse. Inheritance divides families and communities. Outlawing inheritance by maximising inheritance tax would let us deploy capital on merit rather than on the inefficient accident of birth.”