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Social justice
9 October 2012

Are the rich really paying more than their fair share?

The case for a ‘wealth tax’ has supporters on both left and right. Those on the right say that taxing wealth – for instance, by creating new Council Tax bands for high value properties – is less discouraging of hard work and enterprise than taxing income. However, those on the left – who don’t much bother about hard work and enterprise – have a different motivation: which is make the rich pay their fair share.

This provokes protests from people like Dominic Lawson, that the rich are already paying their fair share – and more:

  • “The top 1 per cent of income earners paid 24.8 per cent of all income tax collected: the same group’s earnings were 11.2 per cent of the total.”

Other rightwing commentators have weighed in with similarly convincing figures.

So, that’s settled, then. Or is it?

Not according to Jonathan Portes, who uses a piece in the Independent to offer a little context:

  • “To make arguments about the fairness, or otherwise, of the UK tax system purely on the basis of the burden of income tax is simply absurd. Income tax is the largest single tax; but it constitutes only about 27 per cent of the overall tax take. VAT and National Insurance Contributions (NICs), combined, account for considerably more, and bear much less heavily on high earners (let alone the asset-wealthy).”

The point about NICs is a particularly good one.  National Insurance has always been a bit of a con. It is, in practice, an income tax – but one from which the wealthy are, for the most part, exempted.

  • “So what can we say about the overall “fairness” of the UK tax system?  The definitive source here is the ONS annual report on the effects of taxes and benefits on household income. Looking at Table 14, we can see that the top 10 per cent have gross income averaging £107,500, of which they pay £35,000 – just under a third – in all taxes, direct and indirect. Meanwhile, the average household has income of £37,700, of which they pay £12,700, or just over a third, in taxes.”

Therefore, for this and other reasons, the idea that the rich are paying more than their fair share doesn’t stand up. Lawson and the others may complain that they were only trying to make a point about income tax and that, as such, their figures are spot on; but the trouble is that in trotting out such facts shorn of their proper context, the right gives the appearance of bias to the rich. This plays right into the hands of Ed Miliband and the Potemkin village that is his ‘One Nation’ Labour Party.

Portes alludes to Mitt Romney’s observation that “47 percent of Americans pay no income tax” – a claim which ignores the fact that “many of these are retired, and most of those who are not pay the payroll tax, while all, of course, pay tax in one form or another.” Romney was, of course, widely condemned for his slippery line of reasoning and the rather unpleasant conclusions it led him to.

Surely, there is lesson here for the British right – which is that a technical truth can be as politically damaging as a barefaced lie.


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