Last night I was a speaker in an Intelligence Squared debate on the motion "Tax the rich (more)". It can be heard on the Spectator magazine website here.

I, of course, was against the motion. Our side won easily and gained many more of the 'don't knows' than the other side. Our case was given great assistance by the data. According to a detailed study by the Institute for Fiscal Studies earlier this year, if you taxed the rich more, there is a good chance that you would reduce the proportion of tax revenue which they pay. It was pretty difficult for the pro-tax side to argue with that. Polly Toynbee chose to ignore the point entirely in her speech and then later said "It's just not true!" without supplying any evidence.

The background to the paradoxical fact that taxing the rich less, induces them to pay more money is the simple history of the past 30 years. In 1978/79 when the top tax rate was 83%, the richest one per cent of the population contributed 11% of the income tax paid. The top rate was then reduced to 60% in the following year. The investment income surcharge of 15% was abolished in 1984 and then the top tax rate was brought down to 40% in, if I remember rightly, 1988/89.

The innocent would have assumed that this would lead to a massive reducation in tax contributed by the rich. In fact, by 2001/02, the contribution of the richest had doubled - yes, doubled - to 22%. If you were to increase the tax rates on the rich, all the evidence suggests you would be in great danger or reversing this benign process.

Kelvin MacKenzie gave by far the most outrageous and amusing speech which made the evening entertaining as well as interesting.

ADDED LATER

In my speech I referred to a study published by the Institute for Fiscal Studies. This suggested that the marginal rate at which the richest one per cent are taxed is currently 53% (this includes indirect taxes). It further suggested that the rate at which the treasury could extract the largest amount from these people was 56.6% or 40% or 49% depending on different ways of analysing the data. The paper commented on the latter two estimates, "...both these estimates imply that cuts in the Marginal Effective Tax Rate facing the richest 1% would actually increase revenues".

The paper can be accessed on the IFS website at http://www.ifs.org.uk/mirrleesreview/press_docs/rates.pdf .

Posted by James Bartholomew • Indexed in Tax and growth

Comments (0) TrackBack (0)