Taxing the rich is always popular with all save the few who realise they are rich. Many socialists who love higher taxes do not seriously believe they themselves should be paying a lot more. I remember how much they protested when a past Conservative government (against my advice)gave everyone the opportunity to make a bigger contribution to better local services through the Community Charge. Labour had continuously argued for more local spending and here was the opportunity. It soon showed that those who want more tax and spend do not usually want to pay it themselves.
Taxing the rich more right now would be especially popular. Top bankers and celebrities with enough money to issue a super injunction or two, are far from popular. The question should be how do you do it?
Many think that is obvious. You raise the rate of income tax and captial gains tax. Then anyone rich has to pay more out of their income, or is caught if they try to shift it into capital. The problem with this theory is it does not work. Rich people leave the country. Rich people employ better accountants and tax advisers and find ways round the rules. They delay selling assets with gains. They refuse to invest in riskier ventures. They sit on their money or leave it abroad. Fewer rich and enterprising people come here,a nd fewer already here venture or work as hard. There is less point because the marginal tax rate has gone up.
So what is the way to tax the rich more? The answer is a paradox – set internationally competitive rates, so rich people want to come here, invest here and create jobs here. In the 1980s the then Conservative government cut the top rate of tax from 98% on unearned income and 83% on earned income to 40%. The rich not only paid a lot more tax as a result, but they paid a higher proportion of total income tax.
When this government raised CGT to 28% they said anything higher would lose them revenue. I agree. Now I see that their forecast for CGT revenue shows that even with a top rate of just 28%, they expect some temporary fall in revenue. UK and US past experience suggests you collect more CGT if you keep the rate below 20%
Right now we need all the jobs, investments and growth in revenue we can get. That requires competitive rates, to tax the rich more. Tony Blair did not allow the Income Tax rate to rise above 40%, and Gordon Brown cut CGT to a very competitive 18%. The Coalition goes in for higher tax rates. They may in turn keep the growth rate down and cost the state lost revenue. We need to tax the rich more. That requires knowledge of the maximum rates to maximise the revenue.