Across the Western world austerity has been rejected by every populace which has had it forced on them by their Governments. But taxes, the deal-breaker of economic policy, are entering a new age. Are we seeing a return to a staunch belief in progressive taxation? No – just a change of mood.
Franklin D. Roosevelt, the United States of America’s longest-serving President in its history, once declared that ‘the only American principle’ is that taxes should be levied according to the ability to pay them. Labour has promised to reinstate the 10 percent tax rate were it to be reinstated into office, whilst the Liberal Democrats have arguably gone one better and said that they would raise the starting income at which one would pay tax at all to £13,000 – effectively barring all those on minimum wage from paying taxes. FDR’s phrase, which showed American Government at its most socially and economically aware, has been taken up as the mantle of progressive politics in Britain.
Not that the idea of a progressive tax system hasn’t always been something which has been strived for in Britain, and most certainly in Europe, but not since the end of the 1970s has the debate on taxes been so much at the forefront of politics. This is partly, at least, because it is not since the end of the 1970s that taxes in Britain have been so skewed towards one contingent of the population. The slide from its bolstering the poorer, to bolstering the wealthier, has happened gradually, first at the top, and then at the bottom of the rating system.
Between 1979 and 1990 the top rate of tax went from 83% to 40%; slashed by the Thatcher Government. It would remain unchanged until the onset of the financial crisis and it’s rise to 50% by a Labour Party split on whether it was permanent or temporary. The basic rate of tax has a slightly more peculiar story. Steadily decreasing over the Thatcher and Major years, under the Chancellorship of Gordon Brown it reached its lowest rate in history; 10% in 1999. In 2007, bizarrely, Brown as Prime Minister scrapped the bottom rate and returned it to 20% as it had been at the time of Labour’s election in 1997. Whether or not this constituted an attempt to court the so called ‘middle classes’, whether it was an attempt to collect more money from tax, or whether Brown was by that point so torn by his party and the country that he could not think straight it will never be quite certain. Needless to say, the public were outraged. Here began the beginning of the end for progressive taxation at the bottom of society. At the top, this process had basically been completed by the end of the 1980s.
The taxation debate now though has been reignited by something quite different. Bankers’ bonuses, exploitation of tax loopholes, and an increasingly tangible gap between the rich and the poor have brought tax storming back to the front of the agenda. Labour, perhaps trying to strike a chord of atoning for past sins, has promised to reinstate the 10% tax rate – some of the most progressive legislation of its last Government. But the Liberal Democrats have thrown their lot in with the statisticians who are certain that a more helpful solution would be to raise the threshold on which no tax is paid.
Nobody has raised the possibility of doing both, nor has anybody raised the possibility of a complete overhaul of the tax system; of creating more tiers than the rather arbitrary four the UK has now, which means that everybody who earns over £150,000 a year pays the same percentage of tax. Why nobody has floated the idea of more brackets, to both benefit the middle classes and to draw more money from the higher earners, which can only happen if the money they might save from avoiding the tax becomes negligible, is uncertain. Although one reason might be that no party wants to seem as if they actively want to create more ‘red tape’, nor do they want to be seen as ‘anti-business’. A 42% bracket for those earning over £75,000, say, and perhaps even a 44% bracket for those earning over £90,000, with a 47% top rate for those over £150,000 has not been discussed.
France’s Socialist Government with its implementation of a top rate of 75% has drawn censure from both the business community and Berlin who have branded it uncompetitive. The argument that France is the nation which is holding Europe back from growth, however, is ludicrous. Angela Merkel’s Coalition Government, centre-right and pro-austerity, sees Monsieur Hollande’s stance as anathema to the type of Europe which they want to create, but with Spain, Portugal, Greece and Italy railing against unprecedented austerity, and with the Eurozone as a whole set to contract again next quarter, the argument that their policies bring about better outcomes than those of the French is unfounded.
This can only be good. The debate about taxation, and the wider debate about everyone in society paying their fair share based on their income is a stalwart of social democracy. Even in the U.S.A, wherein Roosevelt’s statement probably spoke a minority viewpoint then as much as it does now, the Obama administration has done much to further a progressive system of taxation (we only need remember Hermann Cain’s ‘999’ tax rate from less than a year ago…) Elections in Europe are once again being fought on what is considered to be ‘fair’, and the next election in Britain will undoubtedly be fought on those issues.
But this does not mean a massive game change. Tax has always been, and always will be, about what people can keep in their pockets for themselves. What is happening, in fact, is not a change of heart, but a change of mood – people have less in their pockets, so they are determined to keep what they have, and squeeze those who have more.
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