Mohammed Amin is Vice Chairman of the Conservative Muslim Forum. He is writing in a personal capacity.
Over a decade ago I had an epiphany.
As a partner in PricewaterhouseCoopers, once a year I received a statement informing me how much I had earned in the previous accounting year. (Partners do not know their income until the firm has calculated its profits and then calculated the division of the profits amongst the partners.) That statement also told me how much income tax I was paying on my profit share.
At that time my late brother-in-law was living on social security. I did not know how much the DHSS was paying him but could guess. It dawned on me that my income tax bill represented several times the amount of his social security payments; say a multiple of five.
Both common humanity and my Muslim religious belief lead me to care about social solidarity. I might fall on hard times for many reasons, and also understand in the case of every unfortunate citizen “There but for the grace of God go I.” Accordingly I support our social security safety net, while wholeheartedly backing Iain Duncan Smith’s improvements to the system.
However the question I asked myself when looking at my PwC income and tax statement was “When have I done enough for social solidarity?” How many people's total social security do I need to finance before I have done enough for my fellow citizens? In other words “How much tax is enough?”
As far as I can tell, this question is rarely raised.
The socialist answer
The answer from our socialist friends is simple. There should be no limit on the amount that the state takes away from you in tax as your income rises. Furthermore, the greater your income the higher the marginal tax rate that the state should take. At one time they legislated for 98% tax on investment income.
When they are being frank, socialists deny that your income really belongs to you. I recall that Chancellor Gordon Brown would often talk about the amount of income that he had “allowed you to keep” rather than talking about the amount of your money that the state had taken away.
Conservatives appear to have accepted this socialist position. Some may really believe it, while others may regard taking any alternative position as political suicide. In my view there would be major benefits to the Exchequer, and to the country, from adopting the alternative approach below.
The alternative approach
Your income belongs to you, and once you have paid a large amount of tax, say £4 million for illustration, you have done enough for your fellow citizens.
Under this approach, the income tax system would start with a generous personal tax allowance/zero tax band of say £10,000. The next £40,000 of your income would be taxed at 20%. After that your income tax rate would be 40%. (I would prefer to abolish the 40% rate as it raises relatively little tax, but that is an argument for another day.)
Crucially, once your income exceeded £10 million in a year, your tax rate would fall to zero. By then you would have paid £4 million (approximately) of income tax for that year, which in my view represents more than enough social solidarity with your fellow citizens.
There would be anti-avoidance rules to prevent people artificially bunching income into one year, but discussing them now overcomplicates things.
Why this is better for the Exchequer and the country
People do not become tax exiles while their income is low; they only leave when their income becomes high. We can all think of sports stars or entertainers who become tax exiles once they become very successful. Driving successful people away from Britain has several damaging consequences:
- We lose the taxes that they would have paid if Britain had not tried to over-tax them.
- The economy loses spending those individuals would have done if they had stayed. That spending would have meant VAT revenue, and also income tax from the people selling the goods and services involved.
- We lose their entrepreneurial talent which would have inspired others in Britain.
Furthermore, by becoming a particularly friendly country for high earning individuals, we would attract them into Britain.
Is this moral?
I share Andrew Carnegie’s view that to die rich is to die disgraced, because wealthy people should give very generously to charity. I believe that the wealthy individual above earning over £10 million (with a marginal income tax rate of zero) has a moral duty to give much of his income to charity. However, the moral aspects of charity and the need to make good tax law never be muddled together.
Tax law needs to be made in the best interests of the country. We are hurting our country’s poorer citizens by over-taxing the rich and driving them out of our country, thereby reducing our total tax revenues and weakening our economy. After a short time, I believe my proposal would dramatically increase total tax revenues, as wealthy Britons stayed and more wealthy foreigners came.