Jesus said that the poor are always with us, but the rich are almost always with us too. We may often admire them and want to live like they do, but at times (human nature being what it is) we don’t much like them, particularly if we think they are responsible for our own misfortune. Something like that is going on in Britain right now. Bankers who got rich through peddling sub-prime mortgages and other dodgy investments or hedge-fund managers who have made a killing on the stock market by shorting shares are blamed for plunging the country into deep recession and the mood has been to “make them pay.” Faced with the mind-boggling hole1 in Britain’s public finances (caused partly by the recession, but also by a decade of appalling governmental financial mismanagement),2 which will anyway necessitate widespread tax raises, Gordon Brown’s government has pandered to public resentment by initially singling out the rich for what will be the first of the inevitable hikes in income tax. As of April 2010 a new income tax rate band will be introduced so that those earning more than £150,000 (roughly $244,000)3 a year will have to pay a top rate of 50%, rather than the 40% that has prevailed ever since 1988/1989. This move may be politically astute and understandable, but this envy of bank bonuses is un-Christian and unwise.

The UK treasury expects this new tax rate to raise an extra £2.4 billion a year by 2012-2013,4 but tax experts have questioned this. They point out that taxpayers adjust their behavior in response to tax increases in a variety of ways. When national insurance contributions (essentially another form of income tax) are added in, Britain’s richest will be paying over half of every extra pound they earn in tax.5 Faced with this, some may decide to work less, retire earlier, or emigrate. Indeed, emigration may be a particularly attractive option since this hike in higher rates will make Britain one of the most fiscally unattractive places to live in the developed world. Figures from international accountants KPMG show that, of the 27 EU countries, Britain will be fourth in the high-tax league behind Denmark, Sweden, and the Netherlands, compared with 12th when the top rate was 40%.6 And the UK rate is way above the U.S. top federal income tax rate of 35%, starting on the much higher income of $372,951 or roughly £230,000.7

The exorbitant British tax rates of the 1970s led many UK actors and musicians to quit British shores for the U.S.8 and the same could happen again—the actor Michael Caine, for instance, has indicated he might go back into tax exile.9 But more significant are the businesses that might go.10 According to the Wall Street Journal, 23 hedge funds managing close to $15 billion had quit London for Switzerland in the 15 months prior to April 2009, and many more were considering leaving: one lawyer is reported as saying that “40% of my work involves advising people on ways to leave the country. We have reached a tipping point, in terms of hostility to the UK tax system.”11 This helps to explain the alarming outlook from the Centre for Economics and Business Research (CEBR) whose model predicts that about 25,000 “high end” taxpayers would be likely to shift tax regimes, with the low tax cantons in Switzerland the likely largest gainers. Because of this they reckon the tax hike could lead to a “a loss in U.K. jobs building up to 140,000; a loss in GDP in the City of London of 3 per cent and a loss in tax revenues for the government of £800 million a year.”12

The Economist magazine has summed up the conclusions succinctly as “Squeeze the rich until the pips squeak, and the juice goes out of the economy.”13 It turns out that envy is not just bad for us spiritually; it is bad for our pockets as well.
 
Footnotes:
 
1  At the end of June 2009, UK public sector net debt (that is, the total amount of money the British government owes to the private sector) was £798.8 billion (or 56.6% of national GDP). See “UK National Debt,” Economics Help Website, July 22, 2009, http://www.economicshelp.org/blog/uk-economy/uk-national-debt/ (accessed September 8, 2009). The UK treasury expects this to rise to about 80% over the next 5 years, but many outside commentators (including the IMF) believe it could be much higher.
 
2  This has largely taken the form of a massive increase in public spending. When Labour took office in 1997, public spending was 38.2% of GDP; by the financial year 2010/2011 this is expected to have risen to 48.1% of GDP. See Tim Congdon, “Taxing Times,” Standpoint Website, July/August 2009, http://www.standpointmag.co.uk/node/1714/full (accessed September 8, 2009). Moreover, despite the long period of economic expansion, this spending was not fully funded through taxation and so even before the present financial crisis national debt as a percentage of GDP increased from 30% in 2002 to 37% in 2007. See “UK National Debt.”
 
3  Exchange rate as of August 31, 2009.
 
4  Patrick Hennessy, Mark Kleinman, and Melissa Kite, “Revealed: The Real Motivation behind the 50p Tax Rate,” Sunday Telegraph, April 26, 2009.
 
5  Employees’ national insurance contributions for 2009/2010 are 11% of earnings up to £844 per week and an extra 1% of earnings above this.
 
6  Karl West, “Tax for Rich Is Tougher in UK than Europe,” Daily Mail, August 21, 2009. Available at This Is Money Website, http://www.thisismoney.co.uk/tax/income/article.html?in_article_id=489915&in_page_id=77 (accessed September 8, 2009).
 
7  And higher too than other locations attractive to financial businesses, such as Singapore or Dubai.
 
8  See Kairos Journal article, “When Britain’s Taxes Were the Worst in the World”.
 
9  James Chapman, “Stars Warn of Exodus from Britain over 50p Tax Rate as Treasury Admits 69% of the Wealthy Will Evade It,” Daily Mail Website, April 27, 2009, http://www.dailymail.co.uk/news/article-1173792/Stars-warn-exodus-Britain-50p-tax-rate-Treasury-admits-69-wealthy-evade-it.html (accessed September 8, 2009).
 
10  The other contributing factor widely quoted is the increased cost of doing business in the UK because of the burden of new EU regulations.
 
11  David Walker and Mike Foster, “New UK Tax Sends Hedge Funds Fleeing,” The Wall Street Journal Website, August 25, 2009, http://online.wsj.com/article/SB125115257255854987.html (accessed September 8, 2009).
 
12  “Another Blow for Top Earners as Budget Small Print Reveals Tax on Employer Pension Contributions,” Daily Mail Website, April 24, 2009, http://www.dailymail.co.uk/news/article-1173115/Another-blow-earners-Budget-small-print-reveals-tax-employer-pension-contributions.html (accessed September 8, 2009). In a much more detailed paper, looking at a new 45% tax rate on the rich (which was the original proposal in the budget statement of autumn 2008, rather than the 50% in the budget of April 2009) the prestigious Institute for Fiscal Studies comes to a broadly similar conclusion to that of the CEBR. See Mike Brewer and James Browne, “Can More Revenue be Raised by Increasing Income Tax Rates for the Very Rich?” Institute for Fiscal Studies Website, www.ifs.org.uk/bns/bn84.pdf (accessed September 8, 2009).
 
13  “The Rich under Attack,” The Economist Website, April 2, 2009, http://www.economist.com/displayStory.cfm?story_id=13405314&source=most_commented (accessed September 8, 2009).
 

 article from Kairos Journal

First Baptist church of Perryville is in Cecil County, MD