Nick Clegg wants the rich to pay more tax, to finance tax cuts for the lower-paid. As he says in his plausible and unctuous way, “The broadest backs should bare the biggest burdens”. (I love the alliteration). What could be more reasonable? But only, of course, if you leave aside the fact that increasing taxes on the better-off is unlikely to raise any new revenue — we’re already well on the wrong side of the Laffer Curve.
Clegg seems to have missed the recent report showing that the top 1% of taxpayers pay 27% of the total tax, while the top 10% pay nearly 70% between them. Our tax system is already hugely “progressive”, though here the word is shorn of any positive connotations. It’s only “progressive” in the sense that it gets progressively worse as you earn more. It’s better described as grotesque discrimination against the better-off. It’s also a massive disincentive to overtime, effort, prosperity, growth, aspiration, investment, wealth creation and capital accumulation. It will make us all poorer. And despite all that, dear old Nick wants to pile on the agony.
I’m perfectly happy for people who earn twice as much to pay twice as much (that’s called a flat tax, and it’s UKIP policy, by the way). But I’m not happy for the man who earns twice as much to pay ten times as much.
Of course there are very well-paid folk who pay almost no tax, or buy huge houses without paying stamp duty — and those are simply using loopholes that need to be closed. They don’t justify new imposts on the aspiring middle classes.
Nick has several bright ideas. He wants to keep the current 50% tax rate, even though he knows it raises no new revenue in the short term and depresses economic growth in the medium term.
But if he can’t have that, he’ll settle for a “Mansion Tax”. Even though recent studies show that it will cost more to collect than it raises.
And if all else fails, he’ll settle for reducing tax relief on pensions for higher-rate tax payers. But Nick — that’s double taxation! A large proportion of people who pay 40% while they’re working will still be higher-rate tax-payers in retirement. So they’ll be taxed at 20% on their premiums, and then taxed again at 40% on their pensions.
At the moment, pensions are comparable to ISAs. With ISAs, you pay in out of taxed income, but take money out tax-free, while with pensions, you pay in tax-free, but your pension, when you take it, is taxable. So in each case you pay tax only once, before or after. Now Nick wants pensions taxed twice — at the every time when everyone agrees that we don’t save enough. Gordon Brown raided our pensions and did huge damage. Now Nick wants to make matters worse.
None of these measures is likely to deliver significant new revenue, so the supposed (and excellent) purpose of financing tax cuts for the lower-paid will fail. I have to give Nick credit for some sense (I suppose), and I have to assume that he understands this, and that he makes his proposals for purely presentational reasons — to differentiate himself from the Tories, to exploit public resentment against high-earners, and to claim the banner of friend of the poor. But to damage the economy, and make a lot of people poorer, simply for purposes of political posturing, is deeply irresponsible.
But I suppose that’s what we expect of the Lib-Dems.
Disclaimer: I am not arguing a personal interest here. I am not a 50% tax-payer. My home is well below the proposed Mansion Tax threshold. And I make only modest tax-deductible pension contributions.