1 thought on “Taxing the middle class to extinction”

  1. Posted 17/07/2014 at 13:27 | Permalink

    If the aim is for those with higher incomes to pay more in income tax, assuming that the nominal tax rates can be enforced, that can be achieved by a ‘progressive’ schedule, as we have now, where the rate of tax increases as income increases. It can also be achieved by what Blum and Kalven called a ‘degressive’ schedule, where there is a single flat rate of tax combined with a personal allowance deductible against taxable income. One of the arguments in favour of some such arrangement is that many indirect expenditure taxes are regressive in their impact, representing a higher proportion of income of those with smaller incomes than of those with higher incomes. Although precise numbers are impossible, the combined overall effect may be — at least across a very wide range of incomes — that the total tax burden is roughly proportional to total income. If one takes the view (as I do) that the most effective way to help the poor is to increase the national income (rather than to redistribute incomes on a national socialist basis), then an obvious concern is whether high tax rates may tend to reduce the rate of economic growth. That is why even the Labour Party is reluctant to suggest increasing the top rate of income tax to, say, 75 per cent as the French have recently done. Of course another relevant factor is the level of income at which the top rates of income tax start. Although in theory these are supposed to be index-linked, in practice the starting level has gradually been falling in real (as well as nominal) terms over recent years. There doesn’t appear to be much difference between the tax policies of the various parties. Just as they all agreed on top income tax rates of around 90 per cent up until 1979, so now, no British political party advocates a top income tax rate (forgetting about national insurance!) above 50 per cent. All UK parties are ‘tax and spend’ parties (or, perhaps more accurately, ‘tax and borrow and spend’ parties).

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