Director Dr Eamonn Butler's letter to the Independent on poverty and tax:
How tax and benefits affect the poor
Your graph showing that the poorest fifth of the population pay the highest proportion of their income in tax (30 June) is no reason to oppose cutting the top rate of income tax.
The fact is – as Geoffrey Howe and Nigel Lawson found when they cut the top rate from 83 per cent to 40 per cent – that rates above 40 per cent bring in less revenue, and encourage tax avoidance.
Rather, your graph is one of several good reasons why the Chancellor is right to take people on minimum wages out of tax completely, and why he must now take them out of National Insurance completely too.
Scrapping NI on low wages would more than offset the planned reduction in tax credits, and would be far simpler than paying people with one hand and taxing them with the other. It would also raise the incentives for people to get themselves off benefits and into work – which is by far the best form of welfare and independence.
Dr Eamonn Butler
Director, Adam Smith Institute, London SW1