Thursday, 8 September 2011
50% tax rate
Income is one thing, i.e. what you get paid each month, whereas wealth is another, typically what you own, which for the vast majority means that bit of a house that’s left after the mortgage. So while income is typically a flow of cash received in exchange for selling your labour, wealth is a stock of assets.
Now some forms of wealth can generate income, most obviously the dividend on stocks and shares. And wealth can also become cash depending as when you sell your house, buy a cheaper one and pocket the difference. Similarly, income can be transmogrified into wealth when you use some of it to buy shares and houses. But, still there remains a fundamental difference between wealth and income.
That’s why I got confused by the 20 terribly eminent economists who signed a letter to the Financial Times saying remove the 50% tax rate. Being a simple soul I thought the 50% income tax was simply a tax on income until these terribly, terribly eminent economists started claiming the 50% tax rate “punishes wealth creation by imposing on entrepreneurs and business people a marginal tax rate in excess of 50”%.
I guess, but income tax is a tax on income not wealth whereas wealth creation and its realisation are subject to wholly different taxes aren’t they? Like when you create wealth like a muthafuckin’ entrepreneur the big bucks don’t come from income, rather they come from dividends and selling the business to others. In fact I’m sure some private equity bods are more than happy to advise on the relevant tax efficient capital gains strokes to be played here.
So yeah, I was confused until I saw Roger Bootle was one of the terribly, terribly eminent economists who’d signed the letter. Given the quality of his analysis of well anything really I started to have serious misgivings. Then I saw Patrick the Thatcher guru Minford was also a co-signee, I realised this was simply the same old from the predictable same old.
Now sure the fact one of the signatories is called Ronald MacDonald makes it all seem a bit funny (as well as conceptually flawed at a fundamental level and essentially a statement of prejudice by people who appear to be assuming their qualifications will distract readers from the fact they’re presenting a series of assertions as opposed to a substantiated argument). But, given there’s a PR firm involved orchestrating things, its all actually rather iffy in a leaving a nasty taste in your mouth type style.
The other thing, besides the obvious conceptual failure, predictability of the prejudices being spewed and the fact that rather than argue these terribly, terribly eminent economists are simply presenting the threat of cut taxes or else all teh hedge funds will go away, is the failure to engage with the fact taxation is a matter of political economy.
Oh but they’re being pragmatic, hard-headed and common sensical you might say. I guess, but then if I was focussing solely on my cost base the last thing – given London wages, labour market fluidity and accommodation costs – I’d ever do is locate my hedge fund in London, rather it’d be Swansea all the way.
Except that’s a fucking stupid idea; I’d still set it up in London because (a) Swansea is ghastly and (b) business locational decisions take into account a much broader range of factors than the immediate cost base; there are additional medium to long-term structural things like say physical proximity to clients, access to expert labour and say the kudos of an office in Mayfair, that simply aren’t affected by temporary tax rises. In fact, given shit like that it’s us that have got the high earners over a barrel for a change.
The other thing these cheer leaders for doing away with the 50p tax cut completely fail to take into account is the tax’s broader meaning at a time when the all in this together ConDem rhetoric genuinely matters. The context here is that the UK economy was taken behind a shed for a hard, dry arse-raping into what increasingly looks like the second half of the current decade (if we’re lucky), by a small bunch of financiers who are either still in place or early retired off with big pensions the vast majority can only ever dream of; they fucked us without so much as a please or thank you then left us to mop up the slop.
Now whereas yer old skool paternalistic Tory understands pleb screwing requires some paternalistic give and take to lubricate the process if it’s to remain legitimate enough to continue, yer Minfords want the raw shit to continue in perpetuity. And fair play to them I guess except so far what’s marked out civil disobedience in Britain compared to say Spain or Greece, is that its essentially been different types of fanny acting up, be it students or latterly neds/chavs. Except, given every new economic forecast seems to be worse than the last one, if you really do want to start unpicking even token gestures of fairness, then I reckon you should at least (besides providing an accurate account of locational decisions and acknowledging the conceptual flaws of your argument) give some thought to the potential broader social and political ramifcations. If no, then you’re a fool.