Tuesday 4 February 2014

Using stealth to avoid tax

“Highly paid people oppose extra tax for highly paid people” isn’t exactly what I’d call news, but given the dominance of highly paid people amongst those who make news and define it, the prominence given to Labour’s pledge to reinstate the 50p tax rate is hardly unpredictable.
There are two elements to the criticism however which strike me as valid - up to a point anyway.
The first is that the amount raised by the extra 5p would be small, partly because the number of people affected is small, and partly because they will find ways of avoiding it, using the convoluted rules of the UK tax code.  All that is true, but surely the best approach to tax avoidance is to prevent it, not to allow it to constrain taxation policy, which seems to be the Tory position. 
And anyway, since when did the fact that a given tax raises only a small amount become a bar to it as a source of taxation?  As we’ve seen in the debate over devolving tax powers to the assembly, there are a range of taxes which raise miniscule amounts when compared to total government expenditure – but that is not in itself adequate reason to abolish them.
The second apparently valid criticism is that the proposal has more to do with politics than economics.  Well, yes – but so what?  The proposal has come from a political party seeking votes.  Given that their economic policies are virtually identical to those of the government, it’s inevitable that they will be looking for a bit of gimmickry to try and present themselves as being in some way different.
But if those two criticisms have some validity, what about the more central claim that taxing the 1% of the population a little more heavily will result in some sort of mass exodus of entrepreneurial talent from these shores? The evidence in support of that proposition is scant.  A few vague threats and a couple of anecdotal examples – but there will always be some who choose to go elsewhere, whatever the tax rates.  Three points in particular strike me as pertinent here:
·         Even at current tax rates, there are other countries and economies with lower tax rates.  If tax rates, or small differences between them, were the main determinant, wouldn’t we be seeing more of a flow in the direction of those countries?
·         Most entrepreneurs, even fairly successful ones, earn less than the £150,000 at which the proposed tax rate would apply.  Some might well aspire to cross that boundary, but by number, most new and developing companies are small to middling.
·         Many, probably most, of those earning over £150,000 aren’t “entrepreneurs” at all.  That target group will include bankers of the speculative kind, and chief executives and senior managers, as well as a not insignificant number of people in the public sector.  Whilst the worst of the bankers, certainly, could take their questionable activities elsewhere, the mobility of many of the rest is limited by factors which have nothing to do with taxation.
It is not through ignorance of the facts that the opponents of Labour’s proposal deliberately conflate two different things here.  “Entrepreneur” is a nice cuddly concept; it’s easy to persuade people that we want to keep "entrepreneurs".  But glossing over the fact that most of the people affected are not entrepreneurs at all is an attempt to protect wealth, privilege, and rent-seeking by stealth.
It is part of the ideology which capitalism builds around itself that those at the top are somehow special and unique rather than merely lucky; they are to be revered and rewarded for their talents, even as they suck our wealth into their hands.  The biggest problem that I have with Labour’s proposal is that it doesn’t really challenge that ideology at all.

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