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Thursday, September 08, 2005 

UN spells it out: tax the rich to help the poor.

The United Nations warned Gordon Brown last night that he will have to levy taxes on the better-off in Labour's third term if the government is to meet its ambitious goal of halving child poverty by 2010.

In its flagship annual study charting progress in tackling poverty, the UN highlights Britain as a country where inequality has put a brake on development, and says there would need to be a complete reversal of the pro-rich bias of the 1980s to eradicate the legacy of Margaret Thatcher.

Its human development report (HDR) praises Labour for its efforts to tackle child poverty since 1997, but says a cash-strapped Mr Brown needs to go further in his coming budgets and contemplate politically sensitive tax rises to maintain the progress made in the past eight years.

"If the next 10 years did for the poor what the 1980s did for the rich, that would bring the UK within touching distance of the child poverty goals," the UN says.

In the UK the incomes of the richest 10% rose by 3.7% a year on average from 1979 to 1990 compared with a 0.4% average increase for the poorest 10%. Taxes on top earners were cut from 83p to 60p in the first Conservative budget in 1979 and from 60p to 40p in 1988.

If the incomes of the poor rose by 3.7% and those of the rich rose by 0.4% until 2010, child poverty would be cut from 23% to 17%, the UN says.

It says Labour's untrumpeted tax and benefit changes since 1997 have resulted in the incomes of the poorest fifth of the population rising by 20%. However, the report says the government needs to do more to load the tax and benefits system in favour of the less well-off, make it easier for poor parents to find work, and make "fundamental changes to the underlying distribution of earnings and income".

It's what many socialists have known for years and have begged for. Tax the rich that little bit extra, and the poor then have the chance to become part of the meritocracy which only exists in the middle classes. Instead, as above, the consensus has been to bring taxes constantly down. In America, President Bush has given the ultra-rich huge tax cuts as part of a misguided trickle-down philosophy. The problem is that such a policy simply means the rich stashing away even more of their money instead of spending, meaning there is nothing to "trickle down".

Even worse, it seems the Conservatives are now not only calling for tax cuts, but also for a "flat tax" system.

The Conservative party today held out the possibility of an east European style flat tax, with the shadow chancellor, George Osborne, commissioning an investigation of the system pioneered in some former Soviet states.

Mr Osborne today called for "a flatter and simpler tax economy" and announced he would hire a senior business figure to report back next year on whether a completely flat tax regime would be viable in the UK.

The introduction of such a system, which scraps progressively higher tax bands in favour of a uniform (and usually low) percentage, would be controversial, with opponents claiming it is little more than a tax cut for the rich. Flat taxes have so far only been introduced in developing economies seeking to attract foreign investors.

Such a move would be disastrous. It would destroy any of Labour's efforts to eventually eradicate child poverty and its undercover efforts to redistribute wealth.
The flat tax in full is debunked in this article. Another worthy example is this letter:
Flat taxes would be even more unfair to low-income recipients than Heather Long supposes (Briefing, August 15). The latest figures from the Office for National Statistics showed that people in the lowest fifth of incomes paid on average 38% of their gross incomes in taxes in 2003-04, while the richest fifth paid only 35.5%.

The reason is the burden of indirect taxation, which bears much more heavily on low incomes than high ones, and flat income taxes would make things worse. The justification for progressive taxation was first made by Adam Smith himself, because, as he wrote in The Wealth of Nations, inequality should be reduced "as much as possible by relieving the poor and burdening the rich".

Working out how to achieve that would be far more productive for society and the eco
nomy than treating rich people's self-interested panaceas like flat taxes as serious proposals for the UK.

Prof John Veit-Wilson
University of Newcastle upon Tyne

Proponents of a flat tax say it would reduce tax evasion and companies using offshore havens. That tax evasion is not a national disgrace is itself a scandal. If all the companies that use such evasions were properly taxed (individuals and others that have bases in tax havens and certainly do not pay their full share of tax include BP, Rupert Murdoch, Virgin to mention just three) then the there is the possibility that taxes on the rich would not have to further rise to help prevent child poverty. Just remember, greed is good.

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