The Guardian is getting very het up about the fact that we don’t seem to have a very progressive tax system:
These last two charts suggest that while redistribution of income does happen, it’s mainly due to receipt of benefits by the poor instead of progressive taxation.
There’s a reason why we don’t have a more progressive system too. Which is that there’s a limit to how much you can tax incomes and capital returns before you manage to completely cease all economic growth (or, in the extreme, all economic activity). Which means that if you then still want to stuff ever more gelt and pilf into the maw of the State then you’ve got to tax consumption, sins and other things, those consumption taxes inevitably being regressive taxes.
And we’re around and about at those limits of income and capital taxation. The Treasury certainly believes we are: they’ve said that income tax at 45% (plus employers’ NI etc) is the peak of the Laffer Curve, capital gains tax at 28% is similarly at that peak.
At which point we find that we thoroughly agree with The Guardian: we too believe that the UK tax system should be made more progressive. And given that we cannot increase taxes on incomes any further and that consumption taxes are regressive, this means that the only way to do so is to reduce the income taxes on the poor. So, as we’ve said around here before, the personal allowance for both income tax and NI (yes, employees’ and employers’) should be raised to, at the very minimum, the equivalent of the full time full year minimum wage. Or around £12,500 at present.
This would make The Guardian happy as it would make the tax system more progressive. It would also mean having to shrink the size of the State which would make us doubly happy. What’s not to like?