Thursday, 10 September 2015

Let's Talk About Tax: Forget The Myth That The Rich Are Under-Taxed

Let's get a few facts straight when it comes to how much tax people pay. Last time I looked the top 20% of earners in the UK already pay a whopping 74% of all tax paid. But perhaps an even more compelling figure is that the bottom 50% of earners pay just 5% of all tax paid. I have to laugh when I hear people say that the rich aren’t paying enough tax. When a millionaire gets paid he gets taxed a whopping 50% on the majority of his earnings. If he acquires capital with the remains he gets taxed on that; he gets taxed on the money he saves; and he gets taxed on the goods he buys, the car he drives, the people who live in his house, the holidays he has, and so on, and so on. On one sum of money he can be taxed four or five times, and then if he dies and leaves it to his kids they pay tax on it yet again in the form of inheritance tax.

If he works in a corporation he gets hit with a double tax - on earnings and then on dividends - and on future income in the form of capital gains tax. This is a heavy bias against successful high earners, but it would never be tolerated in lower earners. To do so would be like fining someone for being drunk behind the wheel and then imposing a second fine for having too much alcohol in his bloodstream.

People who like Karl Marx tend to argue that this is quite fair because taxing corporation bosses is like recouping something back for the labour that earned those rewards. What these people don't realise is that such taxes are only a disguised tax on labour, rather like how minimum wage proponents don't realise that enforced labour rates are a price hike on goods and services. When companies pay high amounts of tax, those taxes are largely paid for by workers' wages and increased prices for customers.

Here is an example of the kind of thing the economic left never tell you when talking about inequality in the UK. Before the government has taken any tax from the highest earners and given any benefits to the lowest earners, earners in the top 20% have fifteen times the income of earners in the bottom 20%. However, after the government has taken tax from the highest earners and given benefits to the lowest earners, the income disparity drops to the much the lower figure of 4 to 1. So, those who are forever unhappy that politicians aren't doing more to tackle inequality should be made aware that State-intervening is already really really really going on with extreme measure.