From Tax Evasion to Tax Persuasion

Summary:

We need to change the psychology around taxation, moving it from something hated by all to a high-status, aspirational activity akin to philanthropy, which will enable governments to consistently raise revenue without harming the economy or losing public support.

Proposal:

Tax has been hated for centuries, leading to famous quotes such as ‘The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing’ from Jean Baptiste Colbert in the 17th century and more recently former Labour Chancellor Roy Jenkins describing Inheritance Tax as ‘a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue.’

Despite this long-standing hatred, little has been done to change the perception of taxation, leading to widespread avoidance and evasion.

For example, we have seen how British people voluntarily donated millions of pounds to support NHS workers, yet tax is still seen by many as something to avoid more vehemently than Covid-19 itself.

The time has come to change that.

I propose a combination of policies to change the perception of taxation and enhance the prestige of being a higher-rate taxpayer, to bring it into line with philanthropy.

The first policy is designed to engender a massive enhancement of social status associated with taxpaying, by creating an annual red-carpet ball at Buckingham Palace for the UK’s 100 largest taxpayers. Such an event does not celebrate wealth, per se, it celebrates only those who have succeeded in life AND shared that success with society. It opens the way for a wider shift in the perception of success, away from just wealth to instead judging how much someone gives back to society.

In a similar vein, I would also organise an annual summer party at Buckingham Palace for the 1,000 largest UK taxpayers, creating another aspirational event that can reach a larger segment of the population. It could even create a situation where people competed to pay more into the exchequer to ensure they received an invite each year.

To reach an even larger sector of the population and help overcome the complaint by many taxpayers that they pay a lot of tax and get nothing back in return, I would create a higher-rate taxpayer membership card, issued to all higher-rate taxpayers annually.

There would be a bronze, silver, gold and platinum version, dependent on how much tax people paid, and each card would have the year the individual become a higher rate taxpayer printed on it, to incentivise keeping a long run of tax payments. These cards would entitle their holders to ‘eat out to help out’ style discounts on ‘Taxpayer Tuesdays’ (the last Tuesday of every month), providing small discounts on theatre tickets, meals out, and similar spending.

I also propose changing the way inheritance tax (IHT) is levied. Instead of simply charging the tax and the money going into the exchequer, people should be able to visit a website with a list of government projects that need funding and choose which project to support.

To further enhance the perception of the tax, they would gain recognition for their support, just like philanthropists do. For example, if a new hospital wing needed to be built, people could choose to allocate their IHT to it and have their names added to the plaque at the entrance thanking funders of the hospital.

Very few people will ever be able to give a one-off donation of tens or hundreds of thousands of pounds and feel the immense joy of what it means to be a philanthropist on that scale; the one chance they have to do this is with IHT, so the government should make the most of this opportunity to create a feel-good feeling from taxation.

In addition to changes to mandatory taxation, government should also offer greater voluntary contribution options; this is particularly relevant given the size of our public debt.

Instead of levying an unpopular wealth tax, we should seek inspiration from the donations to key workers through the pandemic and set up public funds people can pay into to support specific causes. For example, instead of using public funds to bail out the theatre industry, create a theatre fund; anyone who contributes receives a certificate thanking them, and anyone who contributes £100,000 receives a special badge with a unique serial number on it.

Any theatre lover can chip-in, but it also offers an opportunity to push wealthy actors to support the theatres that gave them their career breaks; getting a few famous actors to donate £100,000 and wear the badge would then create a social expectation among others to do the same. Similarly, there should be a free school meals fund with a badge for donations; getting a few footballers to contribute and wear their badge would create a similar social expectation as the theatre fund.

The final piece of the puzzle is to recognise that even as taxation becomes more popular, there should always be a limit to how much of people’s income governments take in mandatory taxation.

We need a balanced relationship between fair levels of taxation and fair levels of income retention for those who fund our public services. Government should not view the wealthy as an ATM, but equally the wealthy should pay their share to help society.

As such, government should pass a law limiting the rates of mandatory taxation, requiring a two thirds majority to overturn it; these rates should be placed relatively high, such as 50% of income tax, 30% corporation tax, 40% IHT, etc, to allow some flexibility while still ensuring sensible and fair caps.

To date, the inland revenue has been the North Wind in Aesop’s famous fable, trying to blow the man’s coat off. It is time to pivot that approach and become the Sun; everyone will be better off as a result.

 

 

1320-11

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