ONE of the words which you are not allowed to regard as anything other than A Good Thing is “Progressive”.
Progressive social policies such as trans rights are simply not to be questioned – you must agree they are a good thing or vilification will follow. Resistance is not just futile but dangerous to those who try it.
This love of progression very much extends to taxation. Firmly embedded in our tax policy is that those with higher incomes should not only pay more income tax because they pay it at the same percentage on a larger amount, they must pay a higher percentage too.
How can you argue with this? The broadest shoulders bearing the greater burden, fairness, and social cohesion are all deployed as arguments in favour of progressive taxation.
The difficulty arises when a morally sound concept is stretched too far.
In England, somebody who earns £125,000 pays fifteen times as much income tax as somebody who earns £25,000. In Scotland the multiple is sixteen. By any judgement that is a very progressive result indeed.
Where progression becomes dangerous is when it is pursued to such an extent that the tax base becomes too narrow. It is not good policy to have a very large proportion of the tax collected being paid by only a few people who are both geographically mobile and can spend time and effort, which is wasted time as far as the economy is concerned, trying to pay less.
At the other end of the scale, once too many of the population pay little or no tax they want more and more spending and have no economic or political interest in how efficient that spending is. Too few paying too much of a tax and too many paying none of it is a recipe for trouble.
In Scotland, over 40% of the population over sixteen years old pays no income tax. Of the 4.2 million Scots over sixteen, roughly 10% pay tax at the Higher Rate of 41% and well under 1% – around 30,000 people – pay the Additional Rate of 46%. Over 60% of all income tax in Scotland is paid by those who are Higher or Additional Rate Taxpayers. The proportion of income tax payers in the rest of the UK who pay the Additional Rate is roughly double that in Scotland.
There are three important points which the Scottish Government should take from this analysis.
First, the position is not stable. Relying on only a few tens of thousands of people to pay so much of the biggest tax is already unwise. To push income tax rates higher, as so many within the nationalist movement would clearly like to do, is dumb and likely to lead to less rather than more revenue being raised to pay for public services as people reduce their taxable income or opt to base themselves elsewhere.
Second, there is a fantastic opportunity here for Scotland, if only we had the political courage to take it. If Scotland really wants to increase entrepreneurial activity, the number of businesses based here and reduce the fiscal deficit we have relative to the rest of the UK there is a simple way to do it: that is to abolish the Higher and Additional Rates of income tax and have one income tax rate of 20%.
In the rest of the UK, there are roughly twenty times as many Additional Rate income tax payers as there are in Scotland due to the far larger population. If we could attract only one tenth of them here we would triple the number of people who have incomes over £150,000. Despite the lower percentage rate Scotland’s tax take would go up not down. The rest of the UK could not respond by doing the same thing because they have too much to lose and too little to gain.
Not only would Scotland raise more income tax but most people who earn over £150,000 do so because they are good at a skilled job, having more of such people would be a benefit to Scots society in many ways. The Scottish Government has the power right now to do this, it cannot blame Westminster for its inaction, only itself and its own dogma.
Third, we must recognise both in Scotland and in the UK as a whole that the progressive element within our income tax system is already stretching its sensible limit. We have to look elsewhere – housing, carbon, road tolls, sugar, alcohol are examples – to raise the tax we need to fund the services we want.
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