I think the rich should be taxed more. A lot more, in fact.
People often get upset by the idea of taxing the rich, for some reason.
Michael Arrington (a stupid man I know, but stick with me) wrote this in TechCrunch:
What I really didn’t understand until recently though is why so many rich Americans seem to loathe their richness as much as everyone else does. Many in Silicon Valley want to tax the rich into the middle class and let government spend and spend and spend. The super rich tech elite flock to Obama, joining in the call to screw the rich as loudly as all the rest.
What nonsense. For one thing, no marginal increase in tax for the super-rich would “tax them into middle class”.
Tax brackets work like this: let’s say the standard tax rate in 30% and then there is a 40% rate for people who earn over £150,000 then they don’t pay 40% of everything, but rather they pay 40% on everything they earn over £150,000.
To clarify, someone who earns £160,000 would pay 30% on £150k on 40% on £10k. Capisce? Good.
Do remember, in Eisenhower’s day the tax rate for people earning more than $1million was 91%. Yes, 91%. But that worked exactly as I just explained. You paid 91% on everything over $1m, not all of it.
So, let’s explore some more – with maths! Let’s use the Green Party’s policy of 50% tax rate for incomes above £100,000. At the moment there is a 40% rate for incomes over £35,000 (which would remain under Green Party policy). So, observe the following:
| Income |
Tax payable under just 40% rate |
Tax payable under 40% rate and new 50% rate |
| £50,000 |
£20,000 |
£20,000 |
| £100,001 |
£40,000.40 |
£40,000.50 |
| £125,000 |
£50,000 |
£52,500 |
| £200,000 |
£80,000 |
£90,000 |
(Note: I realise now that I’ve forgotten to take into account the personal income limit, so the actual tax values will be slightly lower than they are here. However, the comparisons are still accurate, so it’s all good.)
Once you put that 50% rate into perspective you realise it really isn’t as drastic as it may sound on paper. In fact, it makes our tax system seem rather lenient. Why there isn’t a band for people who earn over £500,000 and over £1million I have no idea. Each year in the UK, 14,000 people earn more than £1million. That’s a lot of tax money. To Arrington’s point: these higher incomes with the new band of tax have lost a few thousand pounds at most – they certainly haven’t rocketed into middle class.
And let’s make one thing clear from a personal standpoint – this isn’t about raising more tax money. The last thing I want the government to do is raise tax. What I do want them to do, however, is reduce tax for poorer people. The smallest tax band is 20% and that’s for anyone earning from £0 to £35,000. In my opinion, there should be another band of 10% for income under, say, £20,000. That’s my belief: shift the tax burden away from the poor and towards the rich.
Warren Buffet, the billionaire investor recently wrote (I know this is in America, but it’s still relevant to the UK):
Last year my [tax bill] was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.
Think about that. The guy who made $39,877,839 in one year pays 17.4%, whereas his staff who are on normal salaries pay up to 41% a year. What possible sense does that make?
Warren adds:
I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.
He makes a brilliant point. People often complain that higher taxes for the rich will stop people becoming doctors or lawyers and we’ll all die and… have insufficient legal representation, or something. This simply isn’t true. People become doctors to become doctors. They will still do it if they’ll have to pay a few extra hundred pounds of tax because the bottom line is they will still make a lot more money by becoming a doctor than if they’d chosen to work at Tesco to avoid that tax. The very idea that doctors would just disappear is nonsense.
I’ve only discussed a few ideas about higher taxes for the rich here. There is still more to talk about. And, please don’t berate me in the comments or the Twitter or whatever for something which I haven’t discussed here.
Still, I hope you’ve learned something and have realised that higher taxes for the rich are actually very good.