From the TUC

Directors savage higher rate tax: what would they have said to a minimum tax?

29 Apr 2009, by in Economics, Politics

Alistair Darling has robustly defended the new 50 per cent tax rate to the Institute of Directors this morning. He didn’t get a very warm reception for this. I doubt whether he will be surprised. Their Director-General Miles Templeman has made the predictable criticisms that it will not yield very much and drive people out of the country – the “vain drain” as it has been described.

As we know, the fairly mild increases in tax for the very rich were among the most popular bits of the budget and, as Adam points out, almost exactly pay the costs of providing the job or training guarantee for the young unemployed. The IoD has also called for a freeze on public sector pay. This is a curious juxtaposition which has caused the TUC’s Brendan Barber to say:

“Making the very rich pay a little more was the most popular part of the Budget. The country now faces a big bill for paying the costs of the financial crisis largely caused by top bankers. Britain’s directors run the risk of looking pretty selfish if they are saying that those who did best out of the bubble should pay no more, while thousands of low-paid public servants should have their pay frozen.”

But what if the Chancellor had been defending new minimum rates of tax as the TUC has urged? You find out more and can vote for this here at Labourspace.

Our proposal for a new minimum tax rate of, say, 32 per cent for those earning over £100,000 and 40 per cent for those on more than £200,000 would be much harder to attack (though that probably wouldn’t stop the IoD).

This is because rather than raise any tax rates, it simply limits the allowances that can be claimed. Many earning more than £100,000 – particularly those on PAYE – would pay no more as it would only hit those maximising their use of allowances and dodges to get out of paying tax.

It would massively simplify the tax system – indeed you can almost see this as a progressive variant of the flat tax beloved by ne0-liberals.

And it would be much harder to make 32%, or even 40% for the £200,000+, sound penal.

Best of all it would almost certainly raise a lot more as it would severely limit tax avoidance rather than encourage it – particularly if coupled with similar moves to stop people using tricks to get their income taxed as a capital gain.