Replace high income tax rates with a wealth tax

In the UK and France high income tax rates have reduced the tax take

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I was outraged when chancellor George Osborne cut the highest rate of tax for the wealthiest in the country in 2012, arguing that lower rates bring in more money. Now France has done the same, is it time I have to admit that huge tax rates don't work?

In 2012, as everyone was struggling to get by, chancellor George Osborne cut the rate of income tax for those earning £150,000 or more from 50% to 45%. It was heralded as confirmation that the Tories always had and always would stand for the richest.

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Osborne argued that the higher the tax, the more likely people were to use clever schemes to avoid paying it and therefore result in less money in the coffers.

Likely story, I scoffed but maybe I scoffed too soon.

Now the socialist government in France has quietly scrapped its 75% super-tax on income over 1 million. The tax was introduced just as Osborne was cutting the 50p rate and it brought huge controversy (actor Gerard Depardieu obtained Russian citizenship and moved to Belgium in protest) but unfortunately it didn't bring in a lot of money.

People just found ways to avoid the country, mostly by leaving. Instead of the super-tax digging France out of the economic doldrums as hoped, it did the opposite.

Maybe huge great big rates of income tax are good for making the man on the street feel the rich are being squeezed as hard as him but it's not so good for the Treasury balance.

Wealth tax

Last April, figures from HM Revenue & Customs revealed the 50p tax cut had resulted in £9 billion extra revenue in 2013/14 compared to the year before. Some have argued it is a one-off as wealthy individuals deferred tax from 2012/13 to avoid a 50% hit so we will have to wait until this April to find out if the trend continues.

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In the mean time maybe we should find other ways to ensure the wealthy pay. A wealth tax has been mooted a number of time although how it would work is still unclear although we could target 'unearned' income, as Karl Marx put it. This includes money made from rent, interest, dividends and capital gains.

Of course money held in a pension or ISA would remain protected as it is now, but landlords and shareholders would be hit.

Unfortunately targeting earned income hasn't helped us raise more tax, so surely unearned income is the only way to go?

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