Rich people are not over-taxed - they just have all the money

The tax burden on high-earning individuals has gone up not because politicians have been taking them for all that they’ve got, but because they’re the ones earning all the money in the first place.

I think I've identified a new logical fallacy. It's quite a specific fallacy, admittedly, so best I can tell no one’s bothered to give it a name – but it's popping up with infuriating frequency nonetheless.

You can spot this fallacy in action whenever the thorny topic of rich people and their taxes rears its head. This piece of obvious trolling, for example, comes from the beloved mayor of London who is, as ever, concerned for the welfare of the forgotten and disenfranchised:

The top 1% of earners now pay 29.8% of all the income tax and National Insurance received by the Treasury. In 1979 – when Labour had a top marginal rate of 83% tax after Denis Healey had earlier vowed to squeeze the rich until the pips squeaked – the top 1% paid only 11% of income tax. Now, the top 0.1% – about 29,000 people – pay an amazing 14.1% of all taxes.

In other words, even though tax rates have fallen, the tax burden borne by the rich has grown. Ergo, we should stop being so beastly to the poor lambs.

Can you spot the hole in the logic there? I don't think it's particularly subtle, but it seems to have evaded Boris "he was an Eton scholar, you know" Johnson.

Tell you what, here's another example of Elledge's Fallacy at work. (Hmmm. The name needs some work.) This time it's from the Mail's This Is Money website, and dates from February 2012, but the quote concerns a similar set of numbers to those outlined by Boris:

Michael Spencer, chief executive of the City broker Icap and former treasurer of the Conservative party, said: “The debate about tax in this country has sadly become more and more about politics and less and less about what is good for the economy and for growth. All we hear about is ‘the rich must pay more; soak the rich’. Well the facts are clear; the rich are paying much more."

Actually, the facts are not clear. The facts are very, very unclear.

That’s because there are two numbers that could explain the rise in the share of income tax paid by the ultra-rich. One is the tax rate they pay; the other is their taxable income. Their share of the tax burden has gone up not because those latter day sans-culottes Gordon Brown or George Osborne have been taking them for all that they’ve got, but because they’re the ones earning all the money in the first place.

All those figures quoted by Johnson and Spencer show is that inequality has gone through the roof. According to the Resolution Foundation, the share of national income going to the top 1 per cent of earners has, over the last 30 years, risen by a half (from 2 per cent in the late 1970s to around 3.1 per cent in 2010). Over the same time period, the share going to the bottom 50 per cent shrank by a quarter, from 16 per cent down to 12 per cent. Include bonus payments, which are mostly earned by those at the top, and the share of income going to the bottom half of the UK workforce stood at just 10 per cent.

Let me say that again: half of British workers, put together, take home just one pound in every ten earned in Britain.

Now there are all sorts of reasons for this (lower top tax rates, the rise of the City, globalisation, spiraling executive pay). Some of these are down to government action; some of them aren’t.

But the ultimate result is the same. Britain could have been paying flat taxes for the last 30 years, and the share of tax paid by the rich would still appear to have soared. That's because – I can't believe it's even necessary to spell this out, but there it is – they're the ones with all the money.

The upshot of all this is that figures showing the total share of income tax paid by the rich tell us nothing about whether they’re over-taxed or not. There may be good reasons to lower taxes on the rich – to stop the City decamping en masse to Zurich, say, or to prop up Britain's all-important luxury yacht business. (I doubt it, but what do I know.) But there is nothing in the figures quoted by Boris and his ilk to back up this point.

All those figures tell us is that the biggest earners are taking home the biggest chunk of the money. That, oddly enough, we already knew.


The City of London. Photo: Getty

Jonn Elledge is the editor of the New Statesman's sister site CityMetric. He is on Twitter, far too much, as @JonnElledge.

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The Tories are the zombie party: with an ageing, falling membership, still they stagger on to victory

One Labour MP in Brighton spotted a baby in a red Babygro and said to me: “There’s our next [Labour] prime minister.”

All football clubs have “ultras” – and, increasingly, political parties do, too: although, in the case of political parties, their loudest and angriest supporters are mostly found on the internet. The SNP got there first: in the early days of email, journalists at the Scotsman used to receive bilious missives complaining about its coverage – or, on occasion, lack of coverage – of what the Scottish National Party was up to. The rest soon followed, with Ukip, the Labour Party and even the crushed Liberal Democrats now boasting a furious electronic horde.

The exception is the Conservative Party. Britain’s table-topping team might have its first majority in 18 years and is widely expected in Westminster to remain in power for another decade. But it doesn’t have any fans. The party’s conference in Manchester, like Labour’s in Brighton, will be full to bursting. But where the Labour shindig is chock-full of members, trade unionists and hangers-on from the charitable sector, the Conservative gathering is a more corporate affair: at the fringes I attended last year, lobbyists outnumbered members by four to one. At one, the journalist Peter Oborne demanded to know how many people in the room were party members. It was standing room only – but just four people put their hands up.

During Grant Shapps’s stint at Conservative headquarters, serious attempts were made to revive membership. Shapps, a figure who is underrated because of his online blunders, and his co-chair Andrew Feldman were able to reverse some of the decline, but they were running just to stand still. Some of the biggest increases in membership came in urban centres where the Tories are not in contention to win a seat.

All this made the 2015 election win the triumph of a husk. A party with a membership in long-term and perhaps irreversible decline, which in many seats had no activists at all, delivered crushing defeats to its opponents across England and Wales.

Like José Mourinho’s sides, which, he once boasted, won “without the ball”, the Conservatives won without members. In Cumbria the party had no ground campaign and two paper candidates. But letters written by the Defence Secretary, Michael Fallon, were posted to every household where someone was employed making Trident submarines, warning that their jobs would be under threat under a Labour government. This helped the Tories come close to taking out both Labour MPs, John Woodcock in Barrow and Furness and Jamie Reed in Copeland. It was no small feat: Labour has held Barrow since 1992 and has won Copeland at every election it has fought.

The Tories have become the zombies of British politics: still moving though dead from the neck down. And not only moving, but thriving. One Labour MP in Brighton spotted a baby in a red Babygro and said to me: “There’s our next [Labour] prime minister.” His Conservative counterparts also believe that their rivals are out of power for at least a decade.

Yet there are more threats to the zombie Tories than commonly believed. The European referendum will cause endless trouble for their whips over the coming years. And for all there’s a spring in the Conservative step at the moment, the party has a majority of only 12 in the Commons. Parliamentary defeats could easily become commonplace. But now that Labour has elected Jeremy Corbyn – either a more consensual or a more chaotic leader than his predecessors, depending on your perspective – division within parties will become a feature, rather than a quirk, at Westminster. There will be “splits” aplenty on both sides of the House.

The bigger threat to Tory hegemony is the spending cuts to come, and the still vulnerable state of the British economy. In the last parliament, George Osborne’s cuts fell predominantly on the poorest and those working in the public sector. They were accompanied by an extravagant outlay to affluent retirees. As my colleague Helen Lewis wrote last week, over the next five years, cuts will fall on the sharp-elbowed middle classes, not just the vulnerable. Reductions in tax credits, so popular among voters in the abstract, may prove just as toxic as the poll tax and the abolition of the 10p bottom income-tax rate – both of which were popular until they were actually implemented.

Added to that, the British economy has what the economist Stephen King calls “the Titanic problem”: a surplus of icebergs, a deficit of lifeboats. Many of the levers used by Gordon Brown and Mervyn King in the last recession are not available to David Cameron and the chief of the Bank of England, Mark Carney: debt-funded fiscal stimulus is off the table because the public finances are already in the red. Interest rates are already at rock bottom.

Yet against that grim backdrop, the Conservatives retain the two trump cards that allowed them to win in May: questions about Labour’s economic competence, and the personal allure of David Cameron. The public is still convinced that the cuts are the result of “the mess” left by Labour, however unfair that charge may be. If a second crisis strikes, it could still be the Tories who feel the benefit, if they can convince voters that the poor state of the finances is still the result of New Labour excess rather than Cameroon failure.

As for Cameron, in 2015 it was his lead over Ed Miliband as Britons’ preferred prime minister that helped the Conservatives over the line. This time, it is his withdrawal from politics which could hand the Tories a victory even if the economy tanks or cuts become widely unpopular. He could absorb the hatred for the failures and the U-turns, and then hand over to a fresher face. Nicky Morgan or a Sajid Javid, say, could yet repeat John Major’s trick in 1992, breathing life into a seemingly doomed Conservative project. For Labour, the Tory zombie remains frustratingly lively. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.

This article first appeared in the 01 October 2015 issue of the New Statesman, The Tory tide