Blessed are the Rich

Excessive travelling for work has meant little blogging of late. The coalition’s cutting of the highest level of income tax has not failed to catch my eye though.

The main arguments for these type of tax cuts always seem to be that we are unfairly penalising the wealthy, that we are making the UK a terrible place for the rich who will all leave and (even more bizzarely) that tax cuts on rich people will mean higher tax revenues overall.

The OECD recently published a report on income inequality. You can read the whole thing here but this is a graph from the report showing how the share of the income received by the richest 1% has changed between 1990 and 2007 (data for the UK is to 2005, see footnote).

Income inequality 1990 - 2007

Income inequality 1990 – 2007

So, of the countries featured, the UK has the second highest level of inequality between the top 1% and the bottom 99% after the US and has seen that measure of inequality rise from 9.8% of total income in 1990 to 14.3% in 2005.

The income of the rich has been diverging from the income of everyone else for a long time and cutting their income tax is not really a brilliant idea in these circumstances. The Osborne fans will tell me it will boost the economy and help sort out the economic mess they inherited from the last government. I’ll respond pre-emptively – the current economic problems were really not caused by the rich not being rich enough.

If you want to believe that tax cuts for the rich is a good thing then fine, we’ll agree to disagree but can you honestly look at the graph and say that the richest 1% have been getting a raw deal or that the UK is a bad place for rich people?

If you answered “Yes” to those two questions then you probably also think we are all in this together.

RedEaredRabbit

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About RedEaredRabbit
My name is RedEaredRabbit, King of Kings. Look on my works ye Mighty and despair.

2 Responses to Blessed are the Rich

  1. Richard says:

    That graph shows pre-tax income, I’m not sure it really proves your assertion that the rich are getting a great deal in the UK, that graph could look like that if tax on over £150,000 was 50% or 99%.

    I’m not sure why you think the idea that lowering taxes can increase total revenue is bizarre either, I’m fairly certain it’s this very site where I learnt about the Laffer curve which shows that it is possible, although I haven’t heard an airtight case for either outlook in this particular instance.

    • Thanks, Richard.

      Good points and I was in a bit of a hurry when writing that so should have been clearer. My thoughts are that pre-income tax earnings tell us a lot about the ideal tax system we would want to implement. If pre-tax earnings are increasing disproportionately for the richest 1% then I would propose that a tax policy that reduces the amount of income tax they will be paying in future is not a good one.

      Regarding the Laffer curve, yes if we got to really high levels of income tax we would see a reduction in revenue but we aren’t talking about reducing income tax from 95% to 90%. Where we are on the curve, up is up and down is down.

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