A
relatively minor bit of party political manoeuvring in the UK over the weekend
shows us quite a bit about the political battles going on over economies
worldwide at the moment. The story is simple – the shadow chancellor (i.e. the
man who will be in charge of the economy if the centrist Labour party wins the
next election) has promised to bring in a 50% tax rate on people earning over
£150,000 a year (that's around $250,000 for comparison). Essentially that's the
story – politician makes promise he might or might not keep in the future, if
he even wins an election in the first place. But the response has been telling.
Business
leaders have reacted in outrage to the proposal, saying it shows that Labour
are 'anti-business' and don't understand economics. They say it will stop rich
people from creating new businesses and providing jobs. They say the rich will
simply leave the country and go to places with more 'friendly' tax regimes,
like Switzerland (which does sound appealing, though more due to the scenery
than the fiscal policy). In fact, it seems like business leaders across the
country have two things in common with each other: they're all against this
policy, and, coincidentally, they all happen to make more than £150,000 a year.
But
what interests me the most is the way in which the issue is purposefully
obscured and misunderstood by the press and the public, with the help of those
quotes of outrage from business leaders. It seems to be generally assumed in
the UK that a 50% tax rate means you give exactly 50% of your income to the
government – so £75,000 of your hard-earned money is wrenched away from you
each year and used by the government for whatever it feel like. This, of
course, is not actually how tax works.
Marginal
tax rates mean that only the money you earn above £150,000 will be taxed
at 50%, with the rest of your money being taxed at the same, lower rates as
everyone else. It is ridiculously fair, and seems to be perhaps the only way to
ensure that everyone pays a reasonable amount according to their ability to do
so. But it's disguised by commentators in the press and on the online forums to
make it seem unfair on the rich. This is a dirty trick that appeals to the
British sense of 'fair play' – the average British person wants the rich to pay
their share of taxes, but they don't want to feel like anyone is being forced
to pay too much. So, of course, it's in the interests of the rich – and their
helpers in politics and the press – to try and convince the public that they
are indeed going to be made to pay too much, even when they're being taxed in
exactly the same way as everyone else in the country.
The
end point of this circus-like debate is always the same – the amount of tax
paid by the rich continues to go down as an overall percentage, while the
amount paid by the poor goes up. We very rarely hear about tax rates for the
poor dropping, but we do hear about sales taxes like the British VAT going up –
which affects the poor more, by taking away a greater percentage of their
overall income. Meanwhile, how often do we read about rich people calling for
(and usually getting) tax cuts, contracting lawyers to help them avoid paying
tax, or simply funnelling their money offshore to tax havens like Jersey and
Luxembourg? In truth, the rich are not being taxed too much, as they would have
us believe – they're not being made to pay enough, and they have far too many
loopholes to get out of paying anything. And that's the story that should be
all over the British newspapers this week.
[ business leaders, tax regime, marginal tax rates, shadow chancellow, fair play, money offshore ]
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