The PJ Tatler

Obama's 50% Tax Lesson from the Brits



Today’s Sunday Telegraph in London has an instructive article that all tax-and-spend Democrats—and that includes you, Mr. President—might find educational, if only they’d read it.  It’s an interview with Britain’s equivalent of our Treasury Secretary (but evidently a far wiser chap than our actual Treasury Secretary, the feckless Timothy Geithner,) Chancellor of the Exchequer George Osborne. It’s highly relevant for our own moribund economy.  The report begins:

The Chancellor said there was “not much point” in having taxes that raised little money and drove businesses out of Britain. He added that he did not see the levy, introduced under Labour, as a “lasting rate.”

His remarks in a radio interview echoed comments by Lord Lamont, the former Conservative chancellor, in an article for The Sunday Telegraph last month.

The peer branded taxes in Britain “too high and too uncompetitive” and said the 50% rate could probably be abolished “without any effect on revenue.”

Mr Osborne is under pressure to do more to encourage growth in the economy – a point he acknowledged in his interview yesterday. He told Radio 4’s Today programme: “Sadly growth in Britain is not what all of us would have hoped.”

Business leaders are among those calling for the 50p rate, which affects earnings over £150,000, to be abolished to encourage enterprise. Doing so, however, would potentially open up a serious split between the Conservatives and their Liberal Democrat coalition partners.

Sound familiar?  One of the many points being made in Great Britain is that when even a high-earning individual pays 50% of his or her earnings to his government, he or she will often conclude that his or her work could be just as easily performed in another country, one in which it feels good to go to work everyday, knowing that one’s efforts will not be evenly split with the government for—you guessed it—“redistribution.”  This is the reason that the article quotes “business leaders” as urging the abolition of the present 50% rate: “to encourage enterprise.”  That’s British English for business.

Having barely worked in the private sector (a very short stay in a law firm whose services to corporate America he found incompatible with his politics of “sharing the wealth”) our president, and many of his Big Government allies in Congress are ignorant of the twin impacts of high taxation on high earners: (1) it drives the high earners out of the country to make their money elsewhere; but (2) even if they were all to stay right here, their high tax payments would barely make a noticeable dent in the overall tax revenues of the nation.  So, the tax revenues would barely feel the difference, while the tax-payers would feel it so severely that they’d move offshore and take their businesses and their jobs elsewhere.

The Republicans who stood on the stage Thursday night and said that even if offered a legislative package that included $10 of spending cuts for every $1 of tax increases, they would all turn it down.  One doesn’t have to agree with them to see that Chancellor Osborne has a point that’s directly applicable to the Democrats’ dreams of massively-funded federal government programs on the backs of those earning $250,000 and above.  Even if such earners do not leave the country, as has taken place in Britain, they may choose to work at lower-paying jobs—say, $200,000—to avoid the penalty of losing a good part of what they earn for the privilege of supporting those who sit idly by, waiting for food stamps and welfare checks.  I’m not referring to the temporarily unemployed who are doing all they possibly can to find new jobs after being laid off; I refer to those who live outside the world of work and plan to continue to do so.

As The Sunday Telegraph predicts, by challenging the 50% tax rate, “[d]oing so, however, would potentially open up a serious split between the Conservatives and their Liberal Democrat coalition partners.”  Yes, that is one of the problems with making decisions that encourage business and hard work.

Unfortunately, our current president seeks to become a 21st century Robin Hood, without thinking through what his grand illusions will mean in reality.  He might want to look across the ocean at the debate in England—oh, righthe doesn’t cotton to the Brits.