Top earners pay more, and so they should

Tim Montgomerie quotes Allister Heath in City AM:

“The top 10 per cent of earners are already set to pay 53.6 per cent of income tax in 2008-09; the top five per cent will pay 43 per cent and the top one per cent 23.9 per cent. Yes, that’s right, just one per cent of the population will pay close to a quarter of the total income tax take, funding a massive chunk of the welfare state – who ever said the rich don’t pay their “fair share”, whatever that means?”

It’s not clear where the figures come from but they sound right. The inference, however, is wrong.

First, take a look at this graph compiled by Left Foot Forward using data from Manifest and the Office of National Statistics’ Annual Survey of Hours and Earnings, which shows how the salaries of those at the very top have spiralled out of control in recent years.

Many readers will be familiar with the increases in inequality over the last 30 years. But the recent Compass report ‘In place of cuts‘ (p.15) detailed how the richest 10 per cent now earn more than 10 times the bottom decile. The 9th decile earn four times the 2nd decile. So the high proportion of income tax paid by the richest represents the extraordinary increases in earnings that they have enjoyed in recent years.

Tax by decileBut take a look at this other graph from the same report which shows the percentage distribution of taxation by decile group. Depressingly this shows that as a proportion of income, the rich do not bear the highest tax burden.

Instead, because of the existence of regressive consumption taxes, which unite Left Foot Forward and Guido Fawkes in opposition, the poorest have the highest overall tax burden.

The richest get away with paying a smaller share in tax of their overall income than everyone earning above median income.

This doesn’t look very fair to Left Foot Forward.

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