This paper adds to the debate about taxation and lends substantial weight to the view that the rich should be taxed more. As Larry Elliott concludes in the Guardian, the answer to the question is an unequivocal “Yes they should”. The report focuses on the US and using a new measure called the Fiscal Inequality Coefficient shows that the highest income earners have contributed a lower proportion of their income to the fiscal coffers whilst lower income earners are contributing a much higher proportion. This shows how the tax system has become less progressive and more regressive in the past 35 years, since neo classical, supply side economics took hold in the US and UK in the 1980s. The results are likely to be very similar for the UK.

We know that the UK has a large public sector deficit following the financial crisis of 2007/8 and since 2010 we have been under a policy of austerity imposed by successive Governments to try to reduce the deficit. Fiscal deficits can be reduced by cutting public spending or by increasing taxes. Apart from the increase in VAT (a regressive tax) in 2010, the emphasis of the Government has been on reducing government spending. This has had many negative effects on the economy, including negative multiplier effects and reduced long run economic growth due to lower productive potential. It has also meant falling real incomes for public sector workers. So why not increase taxes on the rich instead to reduce the deficit? Coalition/Conservative Governments have resisted but this report suggests that at a time when government needs more money to fund public services it would seem only right that the rich should be asked to pay at least the same proportion of their income as they used to, otherwise it is the lower income groups and the less wealthy who are affected most by fiscal austerity.

 

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