Monday, April 27, 2009

Top rate tax

Top rate tax

The politics of the new top rate are potentially toxic; the economics of it are much more straightforward.  The main problem with it, of course, is that it is in itself a popular measure – everyone wants ‘the rich’ to pay more tax, provided always of course that ‘the rich’ is defined as ‘people who are richer than me’.  Any suggestions that it is somehow unfair to impose higher rates of tax on the rich are met with incredulity and anger – let them sod off to a bloody tax haven, as Janice Turner put it.

And fair enough really, on an emotional level.  But then, I’m a Conservative, and I don’t believe that tax should work on emotional levels.  I believe that tax should be levied for two purposes: to raise revenue and to influence behaviour, and I’m not too keen on that second purpose in most cases.  Since the new rate will not raise revenue significantly, and may actually reduce it, it should be scrapped in the Tories’ first budget – even if, especially if, that budget is a tax-raising budget.

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