Friday, 30 November 2012

The myth of the millionaires' exodus over the 50p tax rate

Blog for HuffPost
The myth of the millionaires' exodus 

This week the Treasury spin machine went into overdrive in response to Labour's push to highlight the cut in the 50p top rate of tax.
The centrepiece of their case was that the 50p tax had reduced the number of millionaires paying tax in the UK by 10,000 from 16,000 to just 6,000. The Telegraph faithfully reported their argument, informing us that "two thirds of millionaires left the UK to avoid 50p tax". The Mail did likewise, publishing unquestioningly Harriet Baldwin's extrapolation that this cost the UK "£7 billion in lost tax revenue".
This narrative has been accepted by the right - of proof of the age-old maxim that taxing the rich proves counter-productive - and even by the left, as a cause for despair. It's also reached the other side of the Atlantic, giving succour to the Republican blogosphere in their argument against Obama's case on the 'fiscal cliff'.
The trouble is, it isn't true. Or at least there is no credible proof that it is.
The figures used have been worked up on the same basis as the HMRC's report on the 50p tax back in the Spring - and they're disingenuous for that same reason.
As I argued in a piece for LibCon back in March, this report was fatally - and probably intentionally - flawed, seemingly fixed to reach the conclusion George Osborne wanted it to. Primarily, this was done by isolating the top rate tax yield for tax year 2010/2011 - the year the 50p tax was introduced. The report showed a significant drop in top rate revenue for 2010/2011 from 2009/2010, and this was the main basis of the argument that the 50p tax 'raised no money' which justified it's abolition.
A gaping hole in this argument is that by the HMRC's own admission, a great deal of this drop was accounted for by (the non-PAYE paying) super-rich bringing bringing forward their income ('forestalling') and declaring it in 2009/2010 tax year instead, ahead of the pre-announced 50p tax rise. The key point is, by its nature forestalling can only happen once - those who did so could not have kept doing it in the years after; they would have had to have paid up. The 2010/2011 yield was thus artificially deflated; totally anomalous, and unreliable as a baseline. There may have been other more permanent forms of evasion in the mix, but the only way of knowing this - and the true effectiveness of the 50p tax - for sure would have been to wait for 2011/2012 returns. Which is presumably by Osborne avoided doing just that (given there was good evidence it raised a significant sum of money).
And so to yesterday's numbers. They too take 2010 figures, on the number of people declaring an income above £ 1 million, compare it to 2009 and note a drop - leaving the Telegraph and Mail to argue without evidence that they have all moved abroad. But just as with the tax yield, these figures are highly distorted and unreliable, given we know many top rate payers moved their income for 2010 forward to 2009 (this is especially likely to be the case with millionaires, as few would be on PAYE).
Treasury sources go on to state that the number of millionaires is now 10,000 - and shamelessly attribute this to Osborne's announcement of his intention to cut the 50p tax. In reality, it's much more likely that this increase is simply those who forestalled in 2010 returning, as they inevitably have to (a large part of the remaining gap between this figure and the mid-to-late 2000s numbers is likely explained by the financial crisis).
There remains little to no evidence that high earners have, or are planning to, move abroad in response to high tax regimes. For people on the right and left to take such blatantly skewed figures at face value does a real disservice to the level of debate an area as totemic as tax policy should demand. Sadly, I doubt the sleight of hand will stop here. My guess is the next trick will likely come a year before the election. Given the cut in the 50p tax has been pre-announced, it's possible that some income will be delayed being declared until after the cut - some chartered accountants are already advising the super-rich on just that. This will artificially inflate the 45p rate 2013/2014 revenue, allowing Osborne to compare it to 2010/2011 and announce the top rate cut a great success in getting the rich to pay more. If the debate on this issue so far is anything to go by, it's likely he will go unchallenged.
There are evidently parts of the Government intent on fighting a war on behalf of the richest 1% in our society. The first casualty of that war looks to be the truth about the 50p tax.

Friday, 9 November 2012

Post for ShiftingGrounds--

The rise of resentment in America

Three days on from the re-election of President Obama, the hangovers that followed a night of celebration for Democrats have receded. As a nice bonus, the Republicans, by contrast seem to be facing a four-year long headache. The inquisitions and post-mortems have already began. Demographic shifts have altered the political landscape to leave them with a challenge on par in scale with that faced by the UK left in the late 70s and early 80s.
As it turns out, the GOP didn’t understand (or even want to) the nature of the country they so often profess to love. But if the emphatic defeat of Mitt Romney is provoking head-scratching from the US right about America 2012, it should also cause pause for thought among their bedfellows in Britain who – judging from coverage before and in the run up to the election – don’t seem to have updated their view of the country in twenty-odd years.
As Dan Hodges noted of his Telegraph colleague Tim Stanley back in September, these days “the problem isn’t actually with Lefty idealists transposing their dreams on to Obama. It’s Right-wing idealists who transpose their ideological romanticism on to the United States in general.”
In particular, a cornerstone of this is the notion that Americans have no patience for ‘European-style’ attacks on wealth. The story goes that broadsides on those at the top, calls for them to pay more in tax or curb profit-seeking, are resented by ordinary Joe’s who one day think they could be that millionaire chief executive or investor. Money men are always respected, success never resented, we are told. If we “don’t do God”, the Americans don’t do class politics. For years the British right – aghast at their countrymen’s growing resentment of the top 1% – have gazed longingly over the pond and repeated these mantras.
The plutocrats in the US have long spun the same yarn: bashing a billionaire isn’t only just wrong, it’s un-American. One of the stories of this election campaign, though, has been the total unravelling of this narrative.
For those of you raising a sceptical eye-brow, consider this. Romney ran for President on the basis of being a rich man – a successful businessman – and he lost on that same basis. His entire pitch was that as someone who had made it in the private sector, he knew how to create jobs and get the economy going. In times gone by this would have gone largely unquestioned and unparsed.
However, the Obama campaign (in a move straight out of the Rove playbook) turned this supposed strength into a weakness. Those in the Obama camp arguing for an attack on Romney’s record at Bain Capital won out over those preferring to hit the Governor on the safer ground of being a ‘flip flopper’. From early on the campaign sought relentlessly to define Romney in terms of what he actually did to make his money: outsourcing, asset stripping, firing at will, tax dodging. In doing so, they peeled Romney’s supposed ‘experience’ away from ideas of enterprise or wealth creation. And it worked. His reputation never fully recovered. In the home of free-market fundamentalism, Obama’s team were able to pick and win a fight about predatory verses productive capitalism.
This approach was replicated in the furthest reaches of the campaign. Again and again the Obama campaign counter-posed their candidate’s platform “For All”, as the campaign sticker blared, with that of Romney’s. Over and over, the phrase “millionaires and billionaires” tripped from the tongue of Democrats with scorn any time GOP plans were discussed (so much so it upset those poor dears on Wall Street). Tax rises on the very wealthiest also formed a key policy plank for Obama, as he separated the top 1% out from the broader ‘middle class’ in his tax plans.
All this is no small feat, and took some degree of courage when you consider Fox News has spent the past half-a-decade screaming that the President is some sort of Bolshevik. But the space for it was only made possible by a growing anger among swathes of American society at the country’s wealthiest business and financial elites. This comes not just from the financial crisis, but years of declining wages and living standards, as well as Wall Street excess and the saturation – ratcheted up since Citizens United – of US public life with money, SuperPACs and special interests. Romney’s categorical defeat at a time when all the economic indicators suggested he should have won will be remembered as the time that the groundswell of anger at the super-rich that has built up in Europe over recent years reached American shores, and swept the Republican candidate away.
Quite obviously, the US has not suddenly become a socialist nirvana. American society is still beset by huge disparities in wealth and power, and little basis for its transformation exists in a politics where the most progressive US president in forty years has governed as a pretty conventional liberal by UK standards. If taxes on the wealthy do go up as planned, it will only be to where they were under Clinton – far from levels as recent as the 1970s.
But the way in which Romney was defeated is nevertheless important. Fundamentally, it chips away at a notion that has proven vital to the maintenance of the status quo: that the behaviour of the wealthiest is somehow inexorably linked to the public good, and that anyone who is good at money-making must automatically be good at governing or economics, and afforded special status.
It also means that insufferable sirens of the Thatcherite right have one fewer place to point to in the world where their brand of rapacious economic sadism enjoys broad public support. That once-vaunted bond between free-market capitalism and liberal democracy just got weaker still.