Budget 2012: The myth that lower taxes for the rich generates more tax revenue

Published on Left Foot Forward.org, by Danny Dorling, March 27, 2012.

One of the greatest myths that was regurgitated in the aftermath of the budget was the claim the tax take on the rich rises the less they are taxed.

It was said this occurred when Nigel Lawson was chancellor in the 1980s. What actually happened in the 1980s was that as the rich took a greater and greater share of national income the share of income tax they paid went up. 

The richest 1% now pay more than a quarter of all direct income tax. This is not because of the 40%, 45% or 50% top tax rate, but because they now take home such huge salaries and bonuses (and incomes in other forms).

Today the best-off 1% take home a greater share than they have done at any time since directly after the First World War.

Allowing the richest 1% to take home more and more income and pay less tax does not create wealth and jobs. Employment levels have been highest in Britain in the years when the richest 1% had their lowest shares of national income, from 1945 to 1979.

The richest 1% didn’t pay a great absolute amount of income tax then because they were not taking such a high and unfair share of all the monies paid out in wages and salaries nationally … //

… The UK is slowly transforming itself into one of the most unequal, most low taxing, most low public spending countries within the rich world.

That transformation began under Margaret Thatcher, was slowed under John Major, accelerated again under Tony Blair, slowed a little again under Gordon Brown, and is now accelerating again under the coalition.

Under Tony Blair, the highest paid 0.1% of households gained from ‘earning’ 61 times the average wage of the bottom 90%, to receiving 95 times their average wage a year by the time Blair resigned. It was possible to get away with this then because of overall income growth (a very little at the bottom, a great deal at the top).

For the government now, as their economic arguments fail, they may come more and more to rely on hate to maintain their credibility. Hate ‘benefit-scroungers’, hate ‘immigrants’, hate the last government said to have ‘overspent’ your money.

It should be possible to offer an alternative to hate. And an alternative to simply offering the policies of the coalition a little watered down. A small part of that alternative would be the case for more austerity among the rich and dispelling of the myth that reducing taxes on the rich somehow makes the other 99% better-off. (full text and grafics).

Links
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Institute for Public Policy Reasearch IPPR;

Danny Dorling:

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