Why abolishing the 50p tax rate would be morally wrong

This is a guest post written by Jonathan Chilvers.

Jonathan leads a  homeless project and is part of Jubilee Church Leamington. He takes care to consistently contravene the ‘no religion or politics’ rule at  dinner table wherever he goes.

Last week  Liberal Democrats were happily displaying  ‘I love the 50p tax’ badges at their conference. It’s a fair bet that  George Osborne won’t be proudly pinning one to his suitacase as he travels North for the Tory version next week.

He’s not the only one.

 Scrap the tax?

Instead well paid ‘business experts’ in the UK have been pushing and shoving to grab the chance to explain why the 50p rate of tax for earnings over £150000 must be scrapped. It will “damage the economy” claims one, “punishes entrepreunership” shouts another; “Economically inefficient– an unhelpful symbol” yells a third.

“Economically inefficient” is economist speak for the problem that the more you raise tax the more wealthy people pay their accountants to avoid paying tax. No one knows whether the 50p rate will make any money.

A problem of pride

But the truth is that it doesn’t matter.

This is not an economic problem. It is a social and moral one. It’s seen as fair game amongst too many (not all) wealthy circles to go to whatever lengths possible to stop the tax man. It wouldn’t be “economically inefficient” if people paid what was intended.

We all like to rationalize that what’s in our own self interest is also in the greater public interest. Yet most of the arguments churned out are at essence one of collective pride – you need, you can’t do without ‘people like us’ and therefore no-ones going to mind if we don’t pay a bit of tax.

Creative Entrepreneurs

Yes, we do need entrepreneurs.

But we don’t need entrepreneurs that are put off from hard work because they believe that an additional £5000 tax on an income of £200 000 is ‘punishment’. (They should try moving from benefits into work – the effective tax rate is over 90%).

We need entrepreneurs who take risks to build profitable businesses which explicitly aim to create good quality jobs at a living wage, whilst protecting our environment. That takes creativity, flair and dedication.

These are the entrepreneurs we need.

Symbolic 

So, yes the 50p tax rate should be symbolic.

Symbolic that we as a nation will not tolerate people who believe that they can get rich ignorant of the social and environmental context of which they are part.

Symbolic that an effective, honest security guard is just as important to our society as a securities-dealing hedge fund manager.

Symbolic that whilst we are not naïve to the profit motive that we will not allow ourselves to be held captive by a greed driven economy.

We need as many people’s God-given gifts and skills as possible to rebuild the UK economy after the worst recession since the 1930s, but if you can’t accept paying the 50p tax, please don’t moan or dissemble. Just leave us to it. We’ve got a job to do.

About Jon Kuhrt

Jon Kuhrt works with people affected by homelessness, offending and addictions at the West London Mission. He, his wife and three children are part of Streatham Baptist Church and he is a member of the Christians on the Left. He likes football...but loves cricket.
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15 Responses to Why abolishing the 50p tax rate would be morally wrong

  1. ianchisnall says:

    I have no idea if the following is still relevant but these are my thoughts on the 50p tax rate based on the context of the time when this was written http://ianchisnall.wordpress.com/2011/09/07/economists-must-understand-history-and-other-peoples-needs/

  2. Liam Purcell says:

    Well said! We’ve actually got an e-action that lets people write to their local papers about this issue: http://action.church-poverty.org.uk/ea-action/action?ea.client.id=128&ea.campaign.id=12059

  3. Doug says:

    I’m not sure this really answers the true question here and to be honest feels a little emotive, if not naive. On a side note it is amazing to me how quickly we can all become armchair experts espousing all kinds of heartfelt theories about complex issues (think to the reactions to the US bank bailouts where we all cried “Stop the bailouts”…as if we knew anything about the systemic impact of overleveraged global swap portfolios or how a Mortgage Backed Security even worked).

    But I think the real question is, will the extra revenue in the hands of the government be as effective to society as remaining in the hands of the private sector (or heaven forbid, put into the coffers of faith-based community ventures)?

    There is little evidence to prove that is the case. In fact there is recent activity to show that government fully understands their lack of ability in effectively reallocating wealth. If ‘people’ and businesses who have more, were to understand their position in society as carers and supporters of those less advantaged in and around them, perhaps things like this would be less of a need.

    I am not arguing a specific taxation rate per-se. I’m also not saying that the widening rich-poor divide isn’t of great concern. I’m just proposing that taking added tax pounds from the wealthier isn’t going to fix the problem.

    And the whole argument about bankers providing as much value to society as a janitor or a teacher – an old chestnut that at its heart is actually a very capitalist notion. Your argument presupposes that financial compensation is the only appropriate reward for an important job. A Banker will never receive the job satisfaction that a teacher enjoys seeing their years of investment in a muppet like me, eventually doing something quasi-useful with their lives. She may get paid well for creating millions of Euros of true economic value in her 70 hour work week, but boy does she miss out on other richer, satisfying things.

    Whatever the true underlying motive, if the government thinks that increasing the tax rate is going to fix societal inequality, they are sorely mistaken as each historic generation can attest. Instead you will have a disengaged and disgruntled wealthy class and a society who will be even more prone to leave neighbourly responsibility to government based initiatives. Just my two cents worth.

    • Jonathan Chilvers says:

      @Doug,
      I don’t want the banker to miss out on the work that God has called her to do, which I believe will be creative and fulfilling for her. Yet we have created a framework in which she is incentivised to burn herself out working a 70 hour week at the expense of families and relationships. It’s also at the expense of the guy working on the minimum wage for way more hours than he’d want to, still living on the edge of debt putting strain on his familiy and relationships. This kind of set up means that we are bound in a net of consumerism which marrs our God-given identities.

      No, tax is not the whole answer. Far more satisfactory would be for people to be paid a just, living wage for what they do -the current suggested figure being a minimum of c.£7.60 per hour. Corporations argue that they couldn’t afford this, but this isn’t true – what they mean is that they couldn’t afford it without more justly distributing salaries and the profits of the businesses’ endeavours.

      So, no, as much as I’d want it to be so, at the moment the money wouldn’t be better in the hands of the private sector – people don’t want charity, they want justice. But charity too often holds onto the strings of financial power, justice ensures it is given away.

      • Jon Kuhrt says:

        Thanks Doug for your thoughts and great to hear from you – but (as you can imagine), I disagree with you (but in a nice, British kind of way).
        We don’t have to be experts to have opinions. I know nothing about banking but I can still pass comment on the irresponsibility of the bankers who gamble recklessly with other people’s money. Homelessness is also a technical and complex issue but its fine for people to pass comment on it even if they do not work within it
        Taxation is about justice and not replying simply on the charity and niceness of the wealthy to pass on a bit voluntarily. Taxation has done amazing things in our country – the NHS, schools and welfare – often a lot of in building on what the church had pioneered. We ourselves benefitted from that very connection between taxation and ‘faith-based community ventures’ in the school we attended in Croydon.
        I know that revenues raised by tax can be wasted but for me, good public investment in education, health and housing is never wasted and is the benchmark of a strong society.
        A few pennies worth from me…

  4. Jon Marshall says:

    I’m nervous at posting because it doesn’t seem particularly fashionable to be in favour of abolishing the 50p tax. I think a little bit, but not thoroughly enough, so excuse any silly comments.

    I read your post about the 50p tax thing, which you are in favour of as symbolic I believe.
    I have to say, I’m not a fan of it, for similar reasons that I think you are a fan of it.
    I struggle with the idea that the state has the right to ask you for 50% of your earnings. I just find that genuinely astonishing.

    I completely agree that the rich go a long way to not pay their tax, hence some of the letters written out of the US and the like. Wouldn’t it be far better to fix that rather than get to this amazing position of the state requiring half your income?
    I, of course, personally hold to the position that I’d prefer to do something better with my money, where I know what cause it has gone to. Although in the case of the 50p tax I guess probably doesn’t sway the giving much either way, so that is not a point in favour or against.

    Me? I like the levitical method of 23% tax 😉 Seems like a better order of magnitude, but I don’t think we’re likely to get near that any more because society is used to “paying” for their social services, not contributing time, effort, compassion, which makes the rather chunky state more necessary. That’s tough to fix

    • Jon Kuhrt says:

      Hi Jon – thanks for your reply and don’t be nervous – this is a safe comment zone whatever your views!
      We obviously have to be careful when we discuss the application of Old Testament for today but they do give us pointers. I think the emphasis in the Bible is very redistributionist – if you think as well as the tithing laws which as you say added up to around 23% and all the stuff about widows, orphans and the alien. But consider the laws of Jubilee and how utterly economically radical they were. Every 50 years, land was to be returned to its original owners so that the rich could not pile up land upon land (Leviticus 25). It acknowledged that the land was God-given and not just to be used as a pawn of those who happened to acquire wealth at one point and pass it onto their children at the expense of others.
      Also, debts were to be cancelled every 7 years (Deuteronomy 15). Again it shows an understanding of how capital works – once you have some, it’s easy to get more and more and more. This stops the spiral getting out of hand.
      Of course the Bible says loads about compassion, generosity and kindness but the dominate thread in Old Testament, especially in the prophets, is economic and social justice – and for me distribution of wealth is fundamental to this.

    • Jonathan Chilvers says:

      Hi Jon,
      Thanks for posting.
      I think that the state has always demanded signficant amounts of tax from us, so I’m not sure it’s astonishing as all that. Historically it was the powerful grabbing what they could, at least now we are taxed in a transparent way with democratic controls.
      Given that we’ve always paid tax the question then is about what is an equitable rate for different sections of society and I think 50p for earnings over £150000 is more than reasonable.

      Your comment about people not paying tax reminds me of a story in a recent economist article where a very senior bank was talking about the closing of tax loopholes with a Tory MP. The banker said ‘Labour gave us a 50p tax rate and now you’re expecting us to actually pay it!’

      I agree that in an ideal world we wouldn’t have to pay as much tax and that the government does not do things as well as civic society (churches/businesses/voluntary orgs) are capable of doing it. The state should always be looking to withdraw from areas of public life, but not until it has helped build capacity within civil society to be able to safely do that. When we have actively supported and equipped active communities we should need less policeman. When we support parents and marriages as a society more actively we should need less social workers.

  5. Jonathan Ellis says:

    I don’t know what people are grumbling about. Look at this history. I remember 1974 (though I didn’t earn that much!)

    In 1974 the top-rate of income tax increased to its highest rate since the war, 83%. This applied to incomes over £20,000 (£155,247 as of 2011),[2], and combined with a 15% surcharge on ‘un-earned’ income (investments and dividends) could add to a 98% marginal rate of personal income tax. In 1974, as many as 750,000 people were liable to pay the top-rate of income tax.[4] Margaret Thatcher, who favoured indirect taxation, reduced personal income tax rates during the 1980s.[5] In the first budget after her election victory in 1979, the top rate was reduced from 83% to 60% and the basic rate from 33% to 30%.[6] The basic rate was also cut for three successive budgets – to 29% in the 1986 budget, 27% in 1987 and to 25% in 1988.[7] The top rate of income tax was cut to 40% in the 1988 budget.

    http://en.wikipedia.org/wiki/Taxation_in_the_United_Kingdom

  6. Timothy says:

    I cannot get worked up about whether it is 40% or 50%. One problem that I think should be addressed long before is the marginal rates of taxation for some. The article cites 90%. Even the Daily Telegraph, not particularly noted for its socialist leanings, give the marginal rate for some poor people as 73%. I do think this needs addressing.
    The other anomaly that needs addressing is the imposition of National Insurance upon earned income but not on unearned income. As NI is effectively a tax, the result is that some income is more heavily taxed than other. And then there is a ceiling upon NI. So that the marginal rate for the superrich is 50% (assuming they cannot conceal it either legally or illegally) whereas for others ON THE BASIC RATE in no kind of poverty trap it is around 32%.
    The principal argument for a lower rate for high earners is that the effect is to reduce the tax burden on others because more rich people pay, albeit at a lower rate, yielding more tax. If this could be shown to be true (I don’t know how) would people still be against the lower rate?
    Going back to the issue of earned and unearned income but germane to the issue that entrpreneurs ‘create’ wealth (I have my doubts about this but wealth creation is an important issue), I heard a lecture addressing the problems of Arab economies from a noted Pakistani (and Muslim) economist. He argued that the principal problem of Arab economies is the extent to which it operated on “rents”. I think rents for him included royalties, monopoly proceeds, government money, aid and other things. He regarded this as fundamentally corrupting of a society. As an economy we have seen a vast switch from factory income to rental (in the literal sense) income and also government spending. Is there scope for taxing ‘rental’ income differently from factory income?

    • Jon Kuhrt says:

      Thanks Tim for highlighting the way that the poor get a rougher end of the deal in terms of % of income – and I love the line ‘Even the Daily Telegraph, not particularly noted for its socialist leanings, give the marginal rate for some poor people as 73%’. thanks!

  7. Doug says:

    So I understand what is being said here. But I guess let me take my line of thinking a little further. Simply taxing the hell out of the wealthy is not going to cut the mustard if there aren’t effective ways of spending it. In order to have a decent balanced discussion there has to be some understanding of how and where it is going. And I’m not saying we can’t have nice chats about topics as laymen, I’m just saying that if we want to be effective and heard, we have to do our homework.

    My opinion is that governments in general are not great at redistributing wealth merely through increasing their taxation. Income taxes throughout the developed world (as a % of GDP) have never been higher, yet poverty in many countries are at their highest also. The US is a great case in point currently at a 15 year high. Rather than banging a long broken drum (namely what I’m perceiving as Keynesian economic policy) let’s expend our time and energies positively and get creative! And I’m not saying that anyone thinks free-markets are the way forward either. Especially in light of the latest financial crisis. Whether we are for big or small government, let’s find something that actually achieves what we want.

    For example in the US (and let’s ignore their issues for the moment) we have the Community Reinvestment Act which requires local bank branches to invest a certain portion of their profits into the local community. Great stuff. Or the LIHTC – the system of Low Income Housing Tax Credits which provide a way to build inner city housing for the poor at an affordable price. I went to Anacostia – a horrifically poor section of Washington DC and took a tour of amazing developments that people are now able to live in. Not to mention things like SPEAR in London that I was involved with – a faith-based back to work program now being provided special government grants because of it’s effectiveness.

    I know I’m preaching to the choir and you are all admirably involved in many aspects of societal improvement. But I really don’t think attacking the very people who (as the top 1% of earners now pay 28% of the nation’s overall income tax bill) are needed in the UK right now more than ever, is the best idea.

    This quote was interesting:

    “The bottom line is, the wealthy generate growth by investing. And today growth is something most economies in the civilised world need. The key to get a state’s finances in order is to drastically (and sometimes cruelly) cut spending, not invent new ways to apply higher taxes on people in order to spend more. Getting the economies growing and the people working again should be a top priority. When the wealthy reinvest their earnings in the economy, they create jobs. And for a state it’s better to have people working and paying reasonable income tax, rather than having people on unemployment benefits.”

    Source: http://www.empirechronicles.co.uk/eng/2011/09/27/bigger-income-tax-doesn%E2%80%99t-work-fairer-does/

  8. Pingback: George! No more benefit cuts before we get a living wage | Resistance & Renewal

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