Wednesday, January 30, 2008

Sharing the proceeds of growth

Some good news from the Daily Telegraph today - the number of people who pay the highest rate of income tax has nearly doubled since Labour came to power, from 2 million to 3.7 million.

This is good for those 3.7 million, because they are earning lots of money (at least £39, 825), and good for the rest of us, as their taxes get spent on the NHS, tax credits, winter fuel allowances, salaries for Derek Conway's family and other good things.

But not everyone is happy. Tory Philip Hammond, shadow chief secretary to the Treasury, said: "Gordon Brown is using fiscal drag, raising allowances and thresholds by less than the rate of earnings growth to drag more and more people into the top rate of tax," and Roy Maugham, tax partner at UHY Hacker Young, said: "This is a stealth tax that has received very little attention."

If I earned 40 grand a year (or twice that, as Mr Hammond does, or even more, as I imagine Mr Maugham does), I would be rejoicing in my good fortune and spending it on cool stuff, and would have neither time nor inclination to be whining about the tax burden.

This nonsense about 'fiscal drag' got brought up during the fiasco about inheritance tax, where people who were in line to receive massive unearned lump sums of cash got fixated on the idea that they could get a little bit more money (or, if they were from a millionaire family, a lot more money).

I've got a better term for 'fiscal drag', which is a term which rich spin doctors have come up with as part of their constant campaign to enrich themselves at the expense of the rest of us. I call it 'sharing the proceeds of growth'. Higher earners see their salaries grow, thanks to their own efforts and the hard work of millions of people who earn less than they do from cleaners to nurses, bus drivers to sales assistants, and the amount of money the government has to spend to benefit everyone grows along with it.

Indeed, we could do with a bit more sharing. After all, some people have more to worry about than the fact that they are paying more tax now that they are richer, such as the fact that their income isn't increasing as fast as the cost of essentials like food and fuel.


At 2:09 pm , Blogger Tom Freeman said...

You're absolutely right: the tax and public spending system is precisely the means by which the 'proceeds of growth' are shared. Tax cuts for the rich means less sharing.

As for 'fiscal drag', raising income tax thresholds in line with inflation rather than earnings growth actually allows people to maintain their standards of living year to year just as well as a system of zero income tax would (details here).


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