A brief thought on income tax

A mini debate was launched in the blogosphere earlier this week when the fledgling (Devil’s Kitchen-guided) Libertarian Party’s first policy was unveiled: abolish income tax.

Mr Eugenides modestly claims that he inspired the policy. He also notes Iain Dale’s hostile, seemingly hypocritical, reaction.

Iain Dale is right that the probability of doing away with income tax is roughly on a par with that of hell freezing over, and other similar clichés. But it is still interesting to think about. If it is true that you could do away with income tax while still leaving enough money to fund the Government’s 2001/02 budget, it is very interesting.

It is obvious why those who favour low taxes in general would be in favour of doing away with income tax. But I have wondered if it would really be in the interests of the left to abolish income tax as well. When I say left, I am talking about redistribution — good old fashioned soak the rich stuff. Those on the left typically believe that this should be done via a progressive income tax.

I might be missing something really obvious. I am not an expert when it comes to finance. But I’ll throw it out there anyway.

Surely an income tax is the easiest tax for rich people to avoid. I’m not just talking about the possibility that rich people will move abroad when tax increases, although that is probably true.

But if I was rich, I doubt that earning income would be among my top priorities. Maybe I would spend all day playing Xbox. Perhaps my whole life would be spent hopping from one skiing holiday to the next. If I got really bored, I would start sorting out my many fivers in order of tattiness.

I would be doing anything but working.

Rich people don’t earn income (except interest on their savings, which I wouldn’t have thought amounts to that much in the grand scheme of things). For this reason, I think the argument about making income tax more progressive in order to soak the rich and redistribute wealth is a bit of a red herring.


  1. eh? you’re nuts. they may not work much for it, but they still earn! they avoid income tax by taking dividends out of the (tax-haven registered) holding companies that own all their assets. its not rocket science.

    also “the rich” are a very small minority of the general population.

    fair tax is the way forward. set your own tax rate based on what you spend…

  2. What’s your definition of rich? The average income in the UK is “only” somewhere around £25k/year (don’t have the latest numbers to hand at the moment).

    So is someone earning £50k/year rich? or £75k/year? Or only more than £250k? Either way, there will be plenty of those left.

    Apart from that, where is your non-working rich person getting their money from? All of this counts as taxable income:
    # interest on most savings
    # income from shares (dividends)
    # rental income
    # income paid to you from a trust

    I’d say that covers most “rich” people as well.

  3. Tom, although you say I’m nuts, it looks like we agree.

    …they avoid income tax… also “the rich” are a very small minority of the general population.

    That was my point. I assume by ‘fair tax’ you mean a consumption tax, which is what I was thinking of as a better solution than income tax.

    Armin, I would have said the definition of rich is not having to worry about working any more. In any other case, money is still scarce, so you could hardly describe yourself as rich in any meaningful sense.

    My point is that a rich person is different to a high earning person. Asking whether I think a rich person is someone who earns £50k/year or £250k/year is like asking if I think a deep lake is one that has a high waterfall.

    The point is that using an income tax to redistribute wealth won’t do any good because it only takes into account income, not wealth. A wealthy person could take a year out of all income-generating economic activity and still be almost as rich as he was the year before. For this reason alone, to look at income tax is surely to get the wrong end of the stick.

    (I’m not saying that there aren’t good reasons for a progressive income tax. There are sound reasons to tax high earners at a higher rate — diminishing marginal utility of wealth, for instance. But in a way, diminishing marginal utility provides a form of progressivity naturally, because the incentive to become richer decreases anyway.)

  4. We’re always hearing from the Tories that these rich people – or businesses or whatever – will take their business away from the UK if tax rates are higher.
    If taxation is all shifted to spending then I can see the point: the rich would buy all the stuff they need to buy elsewhere than in the UK – so that wouldn’t work.
    But businesses seeking to make money from UK consumers can’t do that in other countries can they? Only in the UK. So tax the profits they make in the UK, make the shifting of money from the UK arm or arms of a business to other countries illegal and make any scheme designed to avoid tax ipso facto illegal.
    Or am I missing something?

  5. Don’t believe one optimistic word from any public figure about the economy or humanity in general. They are all part of the problem. Its like a game of Monopoly. In America, the richest 1% now hold 1/2 OF ALL UNITED STATES WEALTH. Unlike ‘lesser’ estimates, this includes all stocks, bonds, cash, and material assets held by America’s richest 1%. Even that filthy pig Oprah acknowledged that it was at about 50% in 2006. Naturally, she put her own ‘humanitarian’ spin on it. Calling attention to her own ‘good will’. WHAT A DISGUSTING HYPOCRITE SLOB. THE RICHEST 1% HAVE LITERALLY MADE WORLD PROSPERITY ABSOLUTELY IMPOSSIBLE. Don’t fall for any of their ‘humanitarian’ CRAP. ITS A SHAM. THESE PEOPLE ARE CAUSING THE SAME PROBLEMS THEY PRETEND TO CARE ABOUT. Ask any professor of economics. Money does not grow on trees. The government can’t just print up more on a whim. At any given time, there is a relative limit to the wealth within ANY economy of ANY size. So when too much wealth accumulates at the top, the middle class slip further into debt and the lower class further into poverty. A similar rule applies worldwide. The world’s richest 1% now own over 40% of ALL WORLD WEALTH. This is EVEN AFTER you account for all of this ‘good will’ ‘humanitarian’ BS from celebrities and executives. ITS A SHAM. As they get richer and richer, less wealth is left circulating beneath them. This is the single greatest underlying cause for the current US recession. The middle class can no longer afford to sustain their share of the economy….. Their wealth has been gradually transfered to the richest 1%. One way or another, we suffer because of their incredible greed. We are talking about TRILLIONS of dollars. Transfered FROM US TO THEM. Over a period of about 27 years. Thats Reaganomics for you. The wealth does not ‘trickle down’ as we were told it would. It just accumulates at the top. Shrinking the middle class and expanding the lower class. Causing a domino effect of socio-economic problems. But the rich will never stop. They will never settle for a reasonable share of ANYTHING. They will do whatever it takes to get even richer. Leaving even less of the pie for the other 99% of us to share. At the same time, they throw back a few tax deductible crumbs and call themselves ‘humanitarians’. Cashing in on the PR and getting even richer the following year. IT CAN’T WORK THIS WAY. Their bogus efforts to make the world a better place can not possibly succeed. Any ‘humanitarian’ progress made in one area will be lost in another. EVERY SINGLE TIME. IT ABSOLUTELY CAN NOT WORK THIS WAY. This is going to end just like a game of Monopoly. The current US recession will drag on for years and lead into the worst US depression of all time. The richest 1% will live like royalty while the rest of us fight over jobs, food, and gasoline. Crime, poverty, and suicide will skyrocket. So don’t fall for all of this PR CRAP from Hollywood, Pro Sports, and Wall Street PIGS. ITS A SHAM. Remember: They are filthy rich EVEN AFTER their tax deductible contributions. Greedy pigs. Now, we are headed for the worst economic and cultural crisis of all time. SEND A “THANK YOU” NOTE TO YOUR FAVORITE MILLIONAIRE. ITS THEIR FAULT. I’m not discounting other factors like China, sub-prime, or gas prices. But all of those factors combined still pale in comparison to that HUGE transfer of wealth to the rich. Anyway, those other factors are all related and further aggrivated because of GREED. If it weren’t for the OBSCENE distribution of wealth within our country, there never would have been such a market for sub-prime to begin with. Which by the way, was another trick whipped up by greedy bankers and executives. IT MAKES THEM RICHER. The credit industry has been ENDORSED by people like Oprah, Ellen, Dr Phil, and many other celebrities. IT MAKES THEM RICHER. Now, there are commercial ties between nearly every industry and every public figure. IT MAKES THEM RICHER. So don’t fall for their ‘good will’ BS. ITS A LIE. If you fall for it, then you’re a fool.. If you see any real difference between the moral character of a celebrity, politician, attorney, or executive, then you’re a fool. WAKE UP PEOPLE. THEIR GOAL IS TO WIN THE GAME. The 1% club will always say or do whatever it takes to get as rich as possible. Without the slightest regard for anything or anyone but themselves. Reaganomics. Their idea. Loans from China.. Their idea. NAFTA. Their idea. Outsourcing. Their idea. Sub-prime. Their idea. The commercial lobbyist. Their idea. The multi-million dollar lawsuit.. Their idea. $200 cell phone bills. Their idea. $200 basketball shoes. Their idea. $30 late fees. Their idea. $30 NSF fees. Their idea. $20 DVDs. Their idea. Subliminal advertising. Their idea. Brainwash plots on TV. Their idea… Prozac, Zanex, Vioxx, and Celebrex. Their idea. The MASSIVE campaign to turn every American into a brainwashed, credit card, pharmaceutical, love-sick, couch potatoe, celebrity junkie. Their idea. All of the above shrink the middle class, concentrate the world’s wealth and resources, and wreak havok on society. All of which have been CREATED AND ENDORSED by celebrities, athletes, executives, entrepreneurs, attorneys, and politicians. IT MAKES THEM RICHER. So don’t fall for any of their ‘good will’ ‘humanitarian’ BS. ITS A SHAM. NOTHING BUT TAX DEDUCTIBLE PR CRAP.. In many cases, the ‘charitable’ contribution is almost entirely offset.. Not to mention the opportunity to plug their name, image, product, and ‘good will’ all at once. IT MAKES THEM RICHER. These filthy pigs even have the nerve to throw a fit and spin up a misleading defense with regard to ‘tax revenue’. ITS A SHAM. THEY SCREWED UP THE EQUATION TO BEGIN WITH. ITS THEIR OWN DAMN FAULT. If the middle and lower classes had a greater share of the pie, they could easily cover a greater share of the federal tax revenue. They are held down in many ways because of greed. Wages remain stagnant for millions because the executives, celebrities, athletes, attorneys, and entrepreneurs, are paid millions. They over-sell, over-charge, under-pay, outsource, cut jobs, and benefits to increase their bottom line. As their profits rise, so do the stock values. Which are owned primarily by the richest 5%. As more United States wealth rises to the top, the middle and lower classes inevitably suffer. This reduces the potential tax reveue drawn from those brackets. At the same time, it wreaks havok on middle and lower class communities and increases the need for financial aid.. Not to mention the spike in crime because of it. There is a dominoe effect to consider. So when people forgive the rich for all of the above and then praise them for paying a greater share of the FEDERAL income taxes, its like nails on a chalk board. If these filthy pigs want to be over-paid, then they should be over-taxed as well. Remember: The richest 1% STILL own 1/2 of all United States wealth EVEN AFTER taxes, charity, and PR CRAP. A similar rule applies worldwide. There is nothing anyone can say to justify that. Anyway, there is usually a higher state and local burden on the middle class. They get little or nothing without a local tax increase. Otherwise, the red inks flows like a waterfall. Service cuts and lay-offs follow. Again, because of the OBSCENE distribution of bottom line wealth in this country. I can not accept any theory that our economy would suffer in any way with a more reasonable distribution of wealth. Afterall, it was more reasonable 30 years ago. Before Reaganomics came along. Before GREED became such an epidemic. Before we had an army of over-paid executives, celebrities, athletes, attorneys, investors, entrepreneurs, developers, and sold-out politicians to kiss their asses. As a nation, we were in much better shape. Lower crime rate, more widespread prosperity, stable job market, free and clear assets, lower deficit, ect. Our economy as a whole was much more stable and prosperous for the majority. WITHOUT LOANS FROM CHINA. Now, we have a more obscene distribution of bottom line wealth than ever before. We have a sold-out government, crumbling infrastructure, energy crisis, home forclosure epidemic, 13 figure national deficit, and 12 figure annual shortfall. ALL BECAUSE OF GREED. I really don’t blame the 2nd -5th percentiles. No economy could ever function without some reasonable scale of personal wealth and income. But it can’t be allowed to run wild like a mad dog. GREED KILLS. Bottom line: The richest 1% will soon tank the largest economy in the world. It will be like nothing we’ve ever seen before. and thats just the beginning. Greed will eventually tank every major economy in the world. Causing millions to suffer and die. Oprah, Angelina, Brad, Bono, and Bill are not part of the solution.. They are part of the problem. THERE IS NO SUCH THING AS A MULTI-MILLIONAIRE HUMANITARIAN. EXTREME WEALTH HAS MADE WORLD PROSPERITY ABSOLUTELY IMPOSSIBLE. WITHOUT WORLD PROSPERITY, THERE WILL NEVER BE WORLD PEACE OR ANYTHING EVEN CLOSE. GREED KILLS. IT WILL BE OUR DOWNFALL. Of course, the rich will throw a fit and call me a madman. Of course, their ignorant fans will do the same. You have to expect that. But I speak the truth. If you don’t believe me, then copy this entry and run it by any professor of economics or socio-economics. Then tell a friend. Call the local radio station. Re-post this entry or put it in your own words. Be one of the first to predict the worst economic and cultural crisis of all time and explain its cause. WE ARE IN BIG TROUBLE.

  6. Amazing. Even by the standards of this blog’s most insane comments, that one might top the lot. I somehow doubt that ‘Worried American’ will be returning, but I would say that as much as I would like to show this prejudiced diatribe to any professors of economics or socio-economics, they would probably cross the road every time they saw me in the street subsequently.

  7. It’s the CAPITALS which got me.
    And the repetition.
    Say it once, eh? And don’t shout.

  8. Indeed.

    I agree that high earners should pay more in income tax, although you have to be careful not to demonise them for having a lot of money (not saying you’re doing that) – most have worked extremely hard to get to where they have, and contributed a lot to society in terms of jobs, innovation, inspiration, philanthropy etc. For that they should be applauded. And then there are the new rich; celebs and their ilk who – if it weren’t for the general public’s insatiable appetite for Heat magazine and shite like that wouldn’t have two brass farthings to rub together. They earn their crust, right enough.

    You’re absolutely right in that the issue lies with the ‘inherited’ rich; those who benefit from the hard work of their forefathers and don’t actually contribute anything to society themselves – although presumably some philanthropists fall into this category, but not as many as the ‘working wealthy’ – and these people should be the ones to bear the brunt of taxation. Perhaps it’s rather simplistic to say ‘increase inheritance tax’, given that many of this group will have clever offshore means to avoid this, but maybe that’s the way to go.