Monday, 5 March 2012

A simple fact on taxation.

“The art of taxation consists in so plucking the goose as to get the most feathers with the least hissing.”
-Jean Baptiste Colbert

To some it may be a surprise that treasury sources state that the cut in child tax benefit for higher rate taxpayers is actually a very popular move.

"The source said only 15% of taxpayers would be hit, and polling suggested 77% of voters backed the move."

Now there are various issues with the proposed tax cut which are rather dull but worth a moment. The main issue (Labour have to argue against it somehow!) is that it penalises families with one income where the parent is just over the higher rate tax threshold vis-a-vis families with two incomes where both parents are just under the higher rate tax threshold. Now clearly any BBC researcher can find somebody who is negatively impacted by this.

The reason is not to be arbitrarily unfair it is just to cut the costs of administering the benefit by aligning the means testing element with easily obtained tax data. Britain already has a hugely complicated tax regime which is becoming more complex and costly to administer with every perfectly inclusionary exception, tapering and relief.

But how to account for the wild popularity of the new benefit cut (implicitly its the removal of a tax linked allowance)? I think this is very obvious;

Everybody universally believes that those who are just a bit richer than themselves should pay more tax.

This is supported by the figures. 77% support the tax. 85% of people are not HRB tax payers. Deduct a small % of the 85% for people whose partners are HRB tax payers (and stand to lose) plus some die hard fanatics and you arrive at 77% popular support.

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