‘Sin taxing’ and redistribution…
The Spectator’s Coffee House blog has figures which show the poor pay more in taxation than the rich after 12 years of Labour government. So much for ‘Things can only get better’ then; they base their figures on research by Allister Heath which shows:
“Allister reports that “the bottom fifth of earners pay 38.7 of their gross income in total tax, the next fifth 32.7 per cent, then 34.6 per cent, 35.4 per cent, falling to 34.9 per cent for the top fifth of higher-earning households.
The reason that the poor pay more in tax than the rich is that indirect taxes, especially sin-taxes, have been so jacked up under Labour. When only direct taxes are taken into account, the bottom fifth only pay 10.8 percent and the top fifth pay 24.9 percent of their gross income in tax.”
It is widely known that the taxation burden falls disproportionally on lower income brackets hence our proposal to cut the lowest out of income tax altogether was a sound redistributive one at the time. However, switching to a regime of green taxation did and does carry the implicit risk of robbing Peter to pay Paul since it falls into exactly the category that hits lower brackets the hardest in this research; they would invariably be indirect or ‘sin taxes’.
The ‘green tax switch’ was one of the most questionable elements of the ‘Green Road out of Recession’ and one aspect that would imperial the redistributive effect of the income tax cuts. Part of a redistributive taxation programme has to be a change in government culture; a change in the idea that it is acceptable for governments to use taxation as a blunt instrument to change social behaviour of individuals. Realistically, a redistributive taxation switch would move the ethos from this to contributory taxation and the notion that taxation is actually there to ensure people contribute their fair share or else it is used to change the behaviour not of individuals but of companies who only understand the language of the pocket book.