From Mr Richard Murray
Sir, - The proverb "Fools rush in where angels fear to tread"
came to mind when I read Canon Tilby's column (Comment, 23 May).
Having worked in the belly of the beast, I can assure her that tax
policy is more complex than she imagines.
The tax gap, which is defined as the difference between the
amount of tax actually collected and the tax that Parliament
intends should be collected, is eye-watering, whether one accepts
the official figures of HMRC or those estimated by tax-justice
experts, according to their different calculations. At the very
least, the amount lost to the Exchequer by tax avoidance would
substantially ameliorate the current austerity measures, and go
some way to closing the inequality gap that exists in our
Canon Tilby speaks of "punitive" tax rates. It is widely
presumed that those subject to the higher tax rate pay this on all
their income in tax to HMRC. That is not true. They pay the higher
tax rate only on their earnings in excess of the specified amount,
and those earnings are reduced in any event by the allowances and
reliefs that they can claim for tax purposes. It is more accurate
to speak of higher marginal rates of tax.
Are there not good social reasons to apply high marginal rates
of tax to the income of the wealthy? In the UK, tax rates as a
proportion of income are highest on the very poorest, even after
taking benefits into account, because the burden of indirect taxes,
often left out of the argument, falls most heavily on them. And why
should higher marginal tax rates not be used to have an influence
on the behaviour of some corporate executives, for example, when
they realise that they would be unable to keep the excessive
rewards that they give themselves? Why should maximising income be
the primary aim for the very rich, but not for anyone else?
"Tax planning", which in the main is concerned with reducing tax
liabilities legislated for by Parliament, is one thing. Most people
save to some extent, and ISAs are used to encourage such saving -
in effect, they are a way of reducing taxation at low- and
middle-income levels, for the vast majority of the population.
Encouraging investment in enterprise, a productive form of public
investment, which is mainly an opportunity for the wealthy,
requires some extra encouragement because it involves risk. But
using the system to exploit these incentives, to avoid paying tax
that is rightly due, is quite another matter. In a strict sense,
such avoidance may be legal, but it is hardly moral.
Implicit in Canon Tilby's argument is the assumption that
hitting the rich with "punitive" taxes is unproductive; so the rich
should not suffer even higher marginal rates of tax, because
"preventing wealth does not cure poverty." But research has shown
that the argument that the rich save more than the rest of the
population, in order to reinvest productively, is a myth.
A growing economy requires educated workers, a well-developed
modern infrastructure, and a healthcare system when workers fall
ill; so an efficient tax system is essential for the public
finances. Higher taxes on the rich do not damage the poor; falling
GDP does; and the economist Thomas Piketty has shown that cutting
taxes for the rich doesn't benefit anyone except the rich.
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