Why “Taxing The Rich” Isn’t The Answer

The answer to the UK’s financial problems, according to the left, is simple, just tax the rich  (until the pips squeak). If they paid their “Fair Share” then we would be able to afford the high levels of public spending that we “enjoy”.

This is of course nonsense, if you take a few moments to examine the figures.

The UK central government will spend £520 Billion in 2012
http://www.ukpublicspending.co.uk/piechart_2012_UK_total

The deficit, the amount we overspend each year, is forecast at £126 Billion in 2012
http://budgetresponsibility.independent.gov.uk/wordpress/docs/March-2012-EFO1.pdf

What About a Higher Income Tax on “The Rich” ?
The first question of course is, who are “The Rich”?
The socialists view is usually,  “Anyone earning 5 times more than me”, but in absolute terms who do you include:

The Top 10% of UK income earners?
This would include anyone earning more than £50,500
(Business department managers, Deputy Head Teachers, NHS Dentists, Computer Programmers, NHS Managers)

The Top 5% of UK income earners?
This would include anyone earning more than £68,500
(Small Company Directors, Senior Managers, MPs, Provincial solicitors, provincial accountants, IT specialists, Pharmacists, Senior NHS Managers, GPs)

The Top 1% of UK income earners?
This would include anyone earning more than £156,000
(Larger Company Directors and Senior Managers, London Solicitors, Accountancy Partners, Top Doctors (GPs), Civil Servants (Pay Scale 4), top salespeople, senior bankers, the most successful people in most fields)

The Total income of those earning in the top 1% is £121 Billion a year.

So if you increase the income tax on “the rich” (and assume that they don’t work less reducing taxable income  or spend less reducing VAT, or leave the country altogether) this is the extra you can raise

+10% (55% Rate) £12.1 Billion
+20% (65% Rate) £24.2 Billion
+30% (75% Rate) £36.3 Billion

If you raised the tax rate on the top 1% of income earners to 75% you would raise enough to fund government spending for just 25 days!
(36.3B/520B x 365 = 25.5 Days)
http://www.hmrc.gov.uk/stats/income_tax/liabilities-april2012.pdf

We would still have an annual deficit of £89.7 Billion

If you are a more central leaning socialist and not comfortable with punishing the successful middle classes with tax rates of 75% you might want to focus instead on the “Super Rich”, perhaps defined as those earning £1M or more a year.

The problem is that there are simply not enough of them. There are 16,000 in total with a total income of £38.5B.

If you taxed the “Super Rich” at 100% of their earnings it would only generate enough tax to fund government spending for 27 days.
http://www.hmrc.gov.uk/stats/income_tax/liabilities-april2012.pdf

We would still have an annual  deficit of £87.5 Billion.

Even if you think it is OK to punish success, even if you think people will continue to produce at the same rate under very high tax rates, even if you don’t think any of the rich will leave the country, it’s still obvious that higher income tax for the rich won’t solve the problem of a government spending far more than its income.

How about a Wealth Tax on the Super Rich?
Some socialists assert that the “Super Rich” have an army of tax avoidance lawyers to make sure they don’t have any taxable income. What we need to do, they say,  is introduce a wealth tax to solve our problems.

The top 1,000 richest people in the UK have a total worth of £414 Billion.
http://www.therichest.org/nation/sunday-times-rich-list/

If you steal everything owned by the “Super Rich” it would be enough to fund Government spending for…. 291 days. 

Alternatively it would cover the budget deficit and enable the country to balance its books for 39 months. (Assuming of course, that the loss of taxation from the income, consumption, businesses and employees of the Super Rich remained unchanged.)

Of course from a Libertarian point of view all taxation is simply theft, but even from a socialist point of view it must be clear that taxing the rich, even at 100%, is not enough to solve the financial problems of the government.

You have to either significantly increase the tax burden on the middle classes or deal with the real problem and cut government spending to fit our national wealth.

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  • As a libertarian I fully agree and appreciate your analysis.

    This is why the left has moved it from being an income tax to a wealth tax…

  • ReefKnot

    Remember, if you want to steal everything from the Super Rich, then you can only do it once because they are then not Super Rich any more.

  • This is why I refuse to even interact with statists. They’re religious dipshits. May as well argue with Creationists – who gives a shit what they think? They’re not men, they’re a biological residue.

  • Razapasha

    I like your blog, Thnx.
    On the question of taxation, if the system is broke, and i think it is, the only way to distribute income fairly is via paid jobs. No one here in UK seems obliged to make anything, employ people and facilitate such a distribution. 🙂 

  • Stew

    I’m posting this to see if you post opposing views. From what I understand I don’t think anyone is claiming that taxing the rich is ‘the Answer’, that is a straw man argument.  But at the moment many ‘rich’ often don’t pay anywhere as much tax simply because there are so many easy ways to avoid paying tax. Ask an IT contractor.  A back of a beer mat calculation shows that the UK looses 1 billion, for example, by IT contractors using off shore schemes. What I don’t see on your blog is the implications of the alternatives to ideas like ‘statism’. Saying you don’t agree with something is simple, providing a well thought out alternative based upon positive language is much much harder. If tax is stealing then what is the alternative? 

  • Taxing the rich more AND the less rich less, that is the answer. You are leaving out the benefits for the economy.

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