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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Cabinet audit: what does the appointment of Andrea Leadsom as Environment Secretary mean for policy?

The political and policy-based implications of the new Secretary of State for Environment, Food and Rural Affairs.

A little over a week into Andrea Leadsom’s new role as Secretary of State for Environment, Food and Rural Affairs (Defra), and senior industry figures are already questioning her credentials. A growing list of campaigners have called for her resignation, and even the Cabinet Office implied that her department's responsibilities will be downgraded.

So far, so bad.

The appointment would appear to be something of a consolation prize, coming just days after Leadsom pulled out of the Conservative leadership race and allowed Theresa May to enter No 10 unopposed.

Yet while Leadsom may have been able to twist the truth on her CV in the City, no amount of tampering will improve the agriculture-related side to her record: one barely exists. In fact, recent statements made on the subject have only added to her reputation for vacuous opinion: “It would make so much more sense if those with the big fields do the sheep, and those with the hill farms do the butterflies,” she told an audience assembled for a referendum debate. No matter the livelihoods of thousands of the UK’s hilltop sheep farmers, then? No need for butterflies outside of national parks?

Normally such a lack of experience is unsurprising. The department has gained a reputation as something of a ministerial backwater; a useful place to send problematic colleagues for some sobering time-out.

But these are not normal times.

As Brexit negotiations unfold, Defra will be central to establishing new, domestic policies for UK food and farming; sectors worth around £108bn to the economy and responsible for employing one in eight of the population.

In this context, Leadsom’s appointment seems, at best, a misguided attempt to make the architects of Brexit either live up to their promises or be seen to fail in the attempt.

At worst, May might actually think she is a good fit for the job. Leadsom’s one, water-tight credential – her commitment to opposing restraints on industry – certainly has its upsides for a Prime Minister in need of an alternative to the EU’s Common Agricultural Policy (CAP); a policy responsible for around 40 per cent the entire EU budget.

Why not leave such a daunting task in the hands of someone with an instinct for “abolishing” subsidies  thus freeing up money to spend elsewhere?

As with most things to do with the EU, CAP has some major cons and some equally compelling pros. Take the fact that 80 per cent of CAP aid is paid out to the richest 25 per cent of farmers (most of whom are either landed gentry or vast, industrialised, mega-farmers). But then offset this against the provision of vital lifelines for some of the UK’s most conscientious, local and insecure of food producers.

The NFU told the New Statesman that there are many issues in need of urgent attention; from an improved Basic Payment Scheme, to guarantees for agri-environment funding, and a commitment to the 25-year TB eradication strategy. But that they also hope, above all, “that Mrs Leadsom will champion British food and farming. Our industry has a great story to tell”.

The construction of a new domestic agricultural policy is a once-in-a-generation opportunity for Britain to truly decide where its priorities for food and environment lie, as well as to which kind of farmers (as well as which countries) it wants to delegate their delivery.

In the context of so much uncertainty and such great opportunity, Leadsom has a tough job ahead of her. And no amount of “speaking as a mother” will change that.

India Bourke is the New Statesman's editorial assistant.