The United Kingdom’s Labour Party recently pledged to lift Britain’s top marginal tax rate from 45 per cent to 50 per cent.
The reaction was interesting because it illustrates the way people in politics sometimes talk past one another in political debate.
The policy has been partly framed as a deficit reduction measure and partly as an effort to create a “fairer” economy.
In critiquing the proposals, detractors have focused on the first of these, pointing out that the analysis of Her Majesty’s Treasury is that the higher tax rate only accounted for an additional £100 million in tax revenue.
In isolation, that seems like a lot. Given that the UK Budget deficit exceeds £116 billion, however, the proposal would not meaningfully contribute towards putting Britain’s public finances in order.
It’s a rich prick tax. Would plus the deficit by 0.1% only. They’re doing it to punish.
There are other factors at play, too. In a modern, globalised economy the transnational elite can easily shop around for competing jurisdictions in which to base their economic activity.
The best way to get more companies to pay tax in NZ, is to have lower tax rates.
American President and liberal icon John F Kennedy recognised this when calling for the slashing of the top income tax rate in 1962. Kennedy, no rabid Right-winger on domestic affairs, opined that: “. . . tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now”.
Yet left parties in NZ are promising to increase tax rates.
Polls show that large majorities of the British public would support the move. About 40 per cent would do so even if it raises no revenue.
An envy tax.
For the current generation of progressive leaders, stiff marginal tax rates are not exclusively (or even primarily) a means of raising money for the government to spend. Decreasing the wealth of the rich is considered a legitimate end unto itself – even if nobody else benefits.
That is so sadly true. This is what many proponents of reducing income inequality want – less rich people rather than less poor people.