Tax—an obligation for the poor, but not the rich

Ordinary people have to pay tax while the rich can avoid it (pic: maisa_nyc on Flickr)

We are told by those in power that paying taxes is how everyone gets looked after. We’re told that because it’s used to pay for roads being paved and streets being cleaned it’s fine that ordinary people foot the bill. 

Most of us contribute through income tax, national insurance and VAT when buying items. This money is used to fund public services—but also bail out banks, fund wars and pay for contracts to our rulers’ friends.

The state needs cash for the cops, the soldiers, money to boost business, health and education services to produce a new workforce. Big companies also want such services, so they accept there must be a tax system. But they don’t want to pay themselves.   

Taxes hit poorer people more than the rich. The poorest 10 percent of households pay 47.6 percent of their income in direct and indirect taxes, compared to 33.5 percent by the richest 10 percent of households.

Earned income is taxed at marginal rates of 20-45 percent while unearned income in the form of capital gains is taxed at rates in the range of 10 percent to 28 percent .  Workers pay national insurance at the rate of 13.25 percent on annual incomes above £12,570, but recipients of capital gains do not make any national insurance contributions.

It would seem logical to tax the people with more money. But capitalism’s reliance on profit and competition doesn’t compute with handing over money taken from the rich.

The Tories’ recent U-turn on the 45 pence tax cut and slashing higher National Insurance contributions aren’t because of concerns for overburdened workers.  Sometimes rolling back plans are a necessary sacrifice to stay in power.

Wealth is not distributed equally, and neither are the rules that govern it. If you’re rich enough you can duck tax by shifting, hiding or changing your taxable wealth. Side-stepping tax is the basis of a whole global industry of accountants and financial advisers.

A progressive tax system would see the rich pay more, and less squeezed from the pockets of workers.  But this is impossible without addressing questions of avoidance and evasion—and why they are allowed to happen.

Large companies move around or split themselves across different countries to get away with paying the minimum—or nothing. Shell and BP did not pay any corporation tax on oil and gas production in the North Sea for the three years 2019-21. Meanwhile, offshore financial centres—often British territories—defend private wealth. 

Billionaires in charge of multinational corporations can be assisted to pay less tax than those who clean their offices, or migrants billed for using the NHS. They benefit from having one foot onshore in Britain and another other overseas while paying nothing back. 

‘Tax the rich’ is just the start of what’s needed

  Read More

It’s not just about avoiding tax, but also regulations, questions of ownership and transparency. Governments and banks deliberately look away and claim there’s nothing they can do to hold back this murky world.

They could, but it’s not in their interests to go against the drive for profit, especially when they have their own tax-free trusts set up overseas. Instead they let ordinary people foot the bill.

While public services suffer shattering cuts, corporation tax is being cut at the same time. So, it’s not as easy as simply demanding, “Tax the rich”. Real change means dismantling an entire web of ownership and financial controls. 

The goal has to be to dismantle the system that produces the rich and keeps them that way and prioritises profits while the rest of us suffer.

• This is the first in a series of columns about economics.