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.”
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