“Cut taxes to close the deficit”

John Rentoul

fraser 300x148 Cut taxes to close the deficitYes, Fraser Nelson, editor of The Spectator, still peddles this tosh. “How do you get more tax from the rich?” he asks at Coffee House. “Cut their tax rates.”

He and I go back some way in this argument (my reply, rescued from the entropy of the internet, is here).

To summarise:

1. The main reason that the top 5% and 10% paid a greater share of income tax by 1999-2000 is that more of them paid the higher rate of 40p in the pound.

2. The main reason that the top 1% paid a greater share of income tax is because they had more income (the Growth of Inequality in the 1980s), which was more to do with the opening up of the British economy to global capital markets than with tax policy.

Point 2 also applies to point 1. In addition, there were presumably small tax effects, in that some rich people can choose whether to take their money in the form of income or capital gain.

But to imply, as Fraser consistently does, that lower tax rates on the better off always and in every case produce higher revenues is daft. If it were true, then the solution to the problem of the deficit would be to abolish the 45p and 40p rates and have a 20p flat tax.

There are some people who believe this, but they are not members of the reality-based community and I am sure that Fraser is not one of them.

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