Wednesday, February 22, 2012

Britain raises taxes, revenue drops

    The London Daily Telegraph has a story about how Great Britain raised its top tax rate to 50 percent. Instead of raising more revenue as expected, less money was collected by the treasury.
    The cutline under a photo illustration of a 50-pence piece says it all: "A Treasury source said the relatively poor revenues from self-assessment returns was partly down to highly-paid individuals arranging their affairs to avoid paying the 50p rate." Who'd a thunk it?
    Folks like me have been saying it all along: Soak-the-rich tax policies might make some people feel better, but they will harm the economy. The rich can and will stop earning taxable income, by working less, investing less, refusing to sell assets, or investing in non-income-producing assets. People can and will avoid taxable events, and when that happens, all of society suffers.
    Currently the top one percent of earners pay more than a third of all income tax collected. The top 10 percent pay 70 percent of all income taxes. The bottom 50 percent of earners pay about two percent of income taxes.
    Anyone who studies the figures will see that the percentage of tax revenue raised from top earners actually increased after the Bush tax cuts. In 1999, for example, the top 10 percent paid only 66.5 percent of taxes instead of the 70 percent paid in 2009. And the percentage raised from the bottom half has been cut in half, from four percent to just over two percent. With lowered taxes the rich worry less about paying taxes and just go out and make money.
    There's nothing wrong with making the rich pay more. Society spends a great deal of resources in protecting the assets of the rich, and it isn't unjust that they should pay for the service. But we need to recognize that high income taxes are counter-productive.
    A rational tax policy makes sure every citizen pays some type of tax. Everyone needs to be invested in government. Income tax rates should be kept low, so that they don't overly distort behavior. We can combine the low income tax with a wealth tax on the uber-wealthy; not the ruinous tax Huey Long proposed, but a lower wealth tax designed to raise revenue by taxing the mega-million and billion-dollar estates a nibble at a time. Add to the mix reasonable consumption taxes on those things we need to consume less of, whether its energy or cigarettes, and we are well on our way to a better and fairer tax code.
    You'll never hear these types of proposals from the left. They just want to raise income tax rates. If they succeed, revenues will drop and the economy will suffer. But the liberals can satisfy themselves with the knowledge that they have successfully punished industry and thrift.

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