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As taxes assume a leading role in U.S. policy debate–with both President Barack Obama and GOP frontrunner Mitt Romney staking out positions on tax policy–the first receipts on a new wealth tax in the U.K. have brought disappointing results to British Treasury officials.
Romney on Wednesday announced his intention to cut personal income tax rates for all taxpayers by 20%, saying the move would boost economic growth, jobs and wages. In contrast, the same day, White House press secretary Jay Carney reiterated the president’s commitment to the so-called Buffett rule ensuring that “millionaires and billionaires don’t pay a lower effective rate than average Americans.”
Now some observers, political conservatives among them, are taking the recent experience in the U.K., which last year raised its top rate on high income earners from 40% to 50%, as a demonstration of the ineffectiveness of a tax-the-rich policy.
Britain’s Telegraph newspaper reported that the U.K. Treasury–in the first test of the wealth tax policy introduced last year–received 509 million pounds less for January than the same month in 2011. The Treasury had projected that monthly revenues would actually increase by more than 1 billion pounds.
The Telegraph quotes Grant Thornon tax chief Francesca Lagerberg offering a possible explanation: “My guess is that because the 50 per cent rate was flagged up in advance many taxpayers, particularly those with their own businesses, decided to extract dividends ahead of the change. It highlights the fact that high tax rates don’t always deliver high tax revenues.”
The disappointing results could move Chancellor of the Exchequer George Osborne to drop the tax after an official analysis is completed next month, but the Tory official’s Liberal Democrat coalition partners remain strongly committed to higher rates for Britain’s highest earners.
Taxes are assuming increasing prominence in the U.S. political debate. On Wednesday, the Obama administration unveiled a proposal for reducing the corporate tax rate while eliminating loopholes. The plan received a cold reception from Republicans and a coalition of U.S. multinational corporations. The plan seeks to lower the corporate tax rate from 35% to 28% and impose a minimum tax on foreign earnings. Critics said the proposal was unlikely to restore competitiveness with a tax rate that would remain higher than the 25% OECD average while raising taxes on earnings abroad.
More broadly, Democrats–like their Liberal Democrat counterparts in the U.K.–maintain that wealthy Americans should be shouldering the increased economic burdens of a weak economy through higher taxes, while Republicans argue that high taxes are counterproductive, inducing entrepreneurs to shelter rather than invest their income.
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