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David T Breaker: Why it's vital taxes have a broad base

"Tax doesn't have to be taxing", claims the Inland Revenue. Part of me wonders how much of our money went on that tagline, which must have taken all of ten seconds to think up, and whether that person has ever done much accounting or paid much tax; I'd personally have gone for "Inland Revenue: we've got what it takes to take what you've got", which is far more accurate. Maybe it was a joke: "Tax doesn't have to be taxing...but we made it so anyway." The tax code, which could be simple - say a flat rate - is instead a pile of differing rates, allowances, thresholds, and rebates, none of which truly makes sense. Taxes alas are not the product of classical economic logic, calculating how much we need to fund services then raising that revenue in the least damaging way, but rather of politics, an altogether more warped process; economics may be known as the dismal science, but politics should be known as the abysmal science, so much of it built on pandering to the core emotions of the mass public. Envy is therefore a strong player. "Tax the rich" is always a popular theme, though what constitutes "rich" - funnily enough - differs by who you ask so much so that it very rarely includes the person you are asking; "the rich" are always someone else, somewhere else, presumably wearing top hats and eating caviar for breakfast while ragamuffin children sweep their chimneys. People want higher taxes, as long as it's not them paying, and they're convinced they're not "rich" and so shouldn't pay a penny more than currently.

It is in this light that we must view our policies in regards to taxation. If our ultimate aim is a low taxed economy - low taxed across the board that is, because we realise that punitive taxation is severely debilitating to a nation - then we must not only argue for lower taxes but also do whatever is in our power to frame the debate in a way that is conducive to this objective. We must ensure that we understand the psychology behind voters' opinions on tax, then adjust the system to assist our debate so that the public support tax cuts and oppose tax increases at the ballot box. (Yes, we should be sneaky, but Labour is sneaky also so we'd be stupid not to be.)

YouGov's poll for the Sunday Times has some interesting results regarding this, with the data showing 59% opposing abolition of the 50p rate against only 23% supporting abolition. I would guess that if the 50p rate threshold was raised upwards from the current £100,000 then those figures would drift yet further apart, until such a point when the only people wishing to abolish the 50p rate would be a small band of anti-tax obsessives such as myself. Likewise with a higher starting threshold the tax rate which the public would tolerate would also drift upwards; a tax on people earning over £1 million a year would probably gain majority support even if the rate was set at 90 percent or more, as the higher rate once was, even though - just as the 50p rate - it would raise little or negative revenue. The simple fact is that whatever the economics most people have never heard of let alone understand the Laffer Curve. Most people only oppose a tax if it affects them or they think it may do so one day, and a significant percentage of the public are motivated by envy; alas, there is nothing we can do about that. Thus in order to create popular opposition to high taxes it's therefore necessary to ensure that each tax has a base sufficiently broad enough to form an effective voter block against tax hikes, and ideally form an effective voter group in support of tax cuts. It's a numbers game.

This debate rages in the United States where news that 47% of voters pay no Federal Income Tax has been met by alarm among some Republicans on a simple but strong basis: if a majority don't pay the tax, a majority won't support reducing it. As Indiana Senator Dan Coats put it, "everyone needs to have some skin in the game". It's typically American language but he has a point, a point Conservatives this side of the Atlantic need to wake up to.

This leads me to recent discussion in the UK over taxation, in particular the Lib Dem dream of a "mansion tax" and a Land Value Tax. YouGov's survey found that 63% of voters back an annual tax on £1 million houses with only 27% opposing it (the numbers are 56% for and 38% against among Conservative voters). If such a tax were to be introduced these numbers clearly show that there would almost certainly be pressure to increase the tax, or at least insufficient downwards pressure on the tax rate, and as such a cash cow would have been created for future Labour governments to extract yet higher amounts of our GDP for State spending. At what rate would it stop: one percent a year, two percent, ten? The property owning "rich" would never rally enough voters to campaign effectively against it. The issue would then be worsened by the geographical distribution of property wealth: the tax would fall upon areas largely in the south-east, and largely in safe Conservative seats, meaning that opposition is left further weakened thanks to our electoral system that favors swing voters in swing seats. (Just look at fox hunting as proof that the rural shires don't matter).

So as we consider reforms to taxation - not just whether a "mansion tax" is a good replacement for the 50p rate but also our own policy to raise the Inheritance Tax threshold, the increased personal allowance, etc - we must do so with the utmost caution and care. We must note that taxes that have a narrow base will always face upwards pressure but taxes with broad bases will face downwards pressures, and then act accordingly. I'm therefore inclined to oppose taxes on wealth and property; they're simply too risky and too tempting to tax hungry governments, and that's the last thing we need!


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