UK should tax the rich more intelligently

August 3, 2011

By Ian Campbell. The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Britain’s wealthy need to share the country’s pain — and be seen to do so. That’s why renewed calls for the UK’s 50 percent top tax rate to be abolished are a non-starter. It would be political suicide to hand a tax break to the rich while the overall tax burden is going up. But when the mood allows, punitive marginal rates for the wealthy could be replaced with something more intelligent.

The 50 percent rate was never going to be a huge money-spinner. Some 308,000 UK taxpayers will be caught in the band in 2011-12, which will provide some 30 billion pounds of their expected total 47 billion pound tax contribution. If taxed at 40 percent (the previous top rate) their collective bill would be 6 billion pounds lower. But the plain arithmetic ignores many complexities. The Treasury itself puts the likely gain at just 2.4 billion pounds in 2012-13. The Institute for Fiscal Studies says there might be none at all. Workers may work less, rather than be taxed more, and could even flee the country.

But ditching the 50 percent rate would not, as some have argued, spur a quicker UK recovery. The rich are unlikely to spend all or even most of their additional income. The poor on the other hand tend to spend what they get. A more stimulatory tax break would be a broad-based tax cut — as advocated by the International Monetary Fund — perhaps by raising the personal tax threshold. The 50 percent band may be more symbolic than useful but now is not the moment to ditch the symbol.

The government should however prepare better ways to tax the rich in future. The 50 percent rate could be dropped in favour of a new property tax. Currently, those owning the most valuable properties may pay only several hundreds pounds more than those in average-sized properties. When Vince Cable, the business secretary, barked about a “mansion tax” on valuable properties, the backlash from the upper middle class caused the coalition to put him quickly back in his kennel. But Cable is right to see in a property tax a transparent, fair and hard-to-evade way to tax the wealthy.

No government has had the guts to make property tax progressive — or even up-to-date in its housing valuations, which are still based on 1991 figures. It’s time for a government that means business to show some nerve.

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the middle class takes a hit every single time the feds cut taxes for the rich.

taxes and fees have gone up across the board on the state and local level, most of those new taxes are regressive.

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