There is a lot of fuss in the UK about the fact that private equity masters-of-the-universe pay a lower tax rate than their cleaners, who, it is implied are paid around the level of the minimum wage. There are similar concerns in the USA that very rich people, again private equity managing partners and hedge fund equivalents are paying very low tax rates.
In the UK many anomalies of taxation have been carefully preserved by Gordon Brown, for example:
- variable but low tax rates on trusts,
- very low tax rate on capital gains,
- very high payroll taxes (employer's and employee's national insurance contributions) resulting in earned income being taxed at a much higher rate than unearned income,
- special low rates for income from odd activities indulged in by the very rich, such as owning forests,
- the notorious non-domiciliary rule that allows those with some pretext to argue they may not be permanently resident to escape all tax on their un-remitted income,
- an inheritance tax law with threshold so low that most home owners in London are likely to pay it, but is so full of loopholes that anyone who is prepared to pay a decent tax lawyer can avoid it entirely,
- very high marginal rates of tax with a very narrow tax base.
There are many press articles on the unfairness of these laws, but nobody seems to point to the reasons behind the existence of such blatantly unfair laws. Politicians want to win elections. If we assume they are rational and with to win elections, how could it be that laws such as these which are unpopular, and economically damaging remain on the statute book. Could it perhaps have anything to do with the fact that the rich people who the senior politicians depend on to keep their parties solvent like these laws very much indeed?
