The taxpayers should get what they ask for: good and hard
AN interesting idea from the US. OK, so there’s a fight going on over how to deal with the deficit. Some want to raise taxes to close it, others want to cut spending. Shrug, up to you which method you prefer.
But let’s just run through this for the UK for a moment. The deficit is some ghastly number over £125 billion a year. One side says we can’t cut spending at all, every single penny currently spent is vital. Mebbe: but let’s have a look at what that actually means for taxes. How much do we have to raise taxes then to pay for all of this?
Well, obviously, we can just take it all out of the hides of the rich, can’t we? Except there aren’t enough rich people and they don’t have enough money.
There are 2.5 million households in the top 10% of the population. The average income of each of those top 10% households is some £80k. So £200 billion in total. And they already pay some 40% of their gross income in tax (this is adding everything in, from income tax to insurance policy tax via NI and VAT). Which leaves them with £120 billion a year: less than the deficit.
So, if we decided to take all the money off the rich, every last single penny they earn or receive in a year, we still wouldn’t have dealt with the deficit. Not to mention, if we try to have 100% tax rates (note, please, not 100% above some certain amount, but 100% of every single penny) we’ll not have anyone bothering to try and make anything the next year so the scheme falls apart then as well.
It’s simply not physically possible for the rich to be taxed enough to deal with the problem. At which point we have to admit that we all have to get taxed to pay for all this lovely government we get. And the answer rather changes then, doesn’t it? Deal with the problem by taxing them over there does get a different answer from deal with the problem by taxing me, no?
Another way of looking at this. VAT brings in £80 billion odd a year. So, to beat the deficit, well, we’d not even manage it if we doubled VAT to 40%. Income tax brings in £150 billion. So we’d have to nearly double everyone’s, yes, absolutely everyone’s, income tax bills to close that gap. Or we could do it by only doubling national insurance.
Cracking down on tax evasion doesn’t do it either: we’re still trying to suck the entire current income tax take out of the economy. Corporations can’t pay it: we’d have to have (even if it worked!) corporation tax at 80% or more and that’s not going to do much for investment or jobs, is it?
We’re going to have to throw a few of those diversity advisers over the side you know.