Stereotypical images of ‘the taxpayer’ often loom large during discussions about public spending with questions routinely posed about whether or not ‘the taxpayer’ is receiving value for money from the taxes they pay. This image of ‘the taxpayer’ is typically of someone who is working, or more precisely in paid employment, because we tend to think of tax in relation to income tax on earnings. We then contrast these ‘hard-working (income) tax payers’ with those ‘others’ on social security benefits who are typically seen as out of work and therefore not paying taxes. Indeed, some stereotypes portray and stigmatise such people as ‘scrounging’ directly off those ‘hard-working tax-payers’. In other words, dividing people into ‘skivers and strivers’.
In reality, these stereotypes are incredibly misleading and stigmatising, and quite deliberately so, to support cuts to taxation and the welfare state. Let’s take the stereotype of the ‘hard-working (income) taxpayer’ first. This is very misleading as a representation of taxpayers because income tax only accounts for a quarter of all tax revenue in the UK. There are many other taxes: National Insurance, corporation tax, council tax, VAT, duties on petrol, alcohol, tobacco and so on. And this means that it is not just workers who pay tax. Almost everyone is actually a taxpayer, including those who are not in paid work. Indeed, a 5 year-old child that uses pocket money to buy a packet of crisps is a taxpayer.
It is also, completely inaccurate to suggest that ‘taxpayers’ are a separate group of people, distinct from those who receive social security benefits. People on social security benefits will be paying VAT and other taxes. Indeed, many people in paid jobs also receive Child Benefit or Universal Credit or other benefits and so will be paying income tax and National Insurance while, at the same time, receiving social security. And some pensioners who are fully retired from paid work and receiving their state pension will also be paying many different taxes including income tax if their income from private pensions is sufficiently high. People also benefit from many other forms of public spending beyond social security, including public spending on health and education.
So the stereotype of the taxpayer is clearly misleading but, some might still argue that those who are on the highest incomes will be much less likely to benefit from public spending compared to others while, at the same time, they will be paying higher tax rates. This sounds very plausible on a superficial level but the reality here is much more complex.
For example, if we think about public spending more broadly to include education, health and social security, and if we look at people’s contributions and payment over a whole lifetime perspective, John Hills’ book: ‘Good Times, bad times: the welfare myth of them and us’ clearly evidences the fact that “most of us get back at least close to what we pay in over our lives towards the welfare state”.
And we can also question the extent to which those with more capacity to pay tax are actually contributing their fair share. For example, the British Prime Minister, Rishi Sunak, revealed in March 2023 that he paid £432,000 tax in 2021/22 on his income of £2 million. In total, this made the PM’s effective tax rate 22% which Tax Justice UK have pointed out is the same tax rate as the average nurse making £37,000 a year.
This might seem very surprising but the explanation for this is that those on the very highest levels of income and wealth (the ‘super rich’) take most of their income from their wealth, not their work. And taxes on income from wealth, like Capital Gains Tax, are much lower than taxes on work, like Income Tax. Unearned wealth therefore pays much more than hard-earned work – a point that Thomas Piketty demonstrates very clearly in his major study of ‘Capital in the Twenty-First Century’. So the majority of Rishi Sunak’s tax is levied on dividends on the shares he owns and capital gains on wealth he had accumulated, rather than on his wages as Prime Minister. Thus, overall, his effective tax rate is the same as an average nurse.
We could reform our tax system so that income from wealth is taxed at the same rate as income from wages which would mean that those receiving £2 million from dividend income would pay the same as those receiving £2 million from wages. It has been estimated that such reform of Capital Gains Tax could raise an extra £15 billion pounds every year for the public purse – and ensure that the super rich pay a higher effective tax rate than the average nurse.
But Capital Gains Tax is not the only wealth-related tax that we might reform, however. We tax wealth very lightly in other ways in the UK including very light transfers of inherited wealth or lifetime gifts. We also tax wealth-holding very lightly indeed, which leads to not just wealth-holding but wealth-hoarding including land-hoarding and property-hoarding – with land left idle and properties left empty while people are homeless or roofless or paying extortionate rents.
The arguments for increasing taxes on wealth seem clear and strong. So what are the barriers to doing this?
Many on the right, including the current British Conservative government, are ideologically opposed to increasing taxes, including wealth taxes, on the rich as they believe that low taxes stimulate economic growth which benefits everyone. Indeed, in the March 2023 budget, the government actually reduced wealth taxes in relation to private pensions, giving £4b away to some of the very richest over the next 5 years. But this view about taxation is now disputed by many highly-esteemed economists and organisations like the OECD.
What about those on the left, where we might expect less ideological opposition to increasing wealth taxes? The Labour party in the UK appears to be taking a very cautious approach at present, perhaps concerned that any plans to increase tax could lose votes. The research evidence, however, suggests that the majority of the public would support increased taxes on high levels of wealth and also high levels of income. This was very clear from a survey of over 2,000 members of the general public (‘tax payers’) which took place in the summer of 2020 right in the middle of the Covid pandemic. People said that the main reason they supported wealth taxes was not primarily to pay for public services, which we might have expected at that time, but because they felt that wealth inequality was too high and had been increasing too much.
The public do have some concerns about wealth taxes but the main one is that the rich would just find ways to avoid them. It is therefore very important (and would be very poplar) for every effort to be made to reduce tax avoidance and evasion.
Clamping down on tax loopholes could also yield a huge amount of money for the public purse as Prem Sikka has documented by pointing to over 1,000 tax reliefs in the system worth £480bn which could be seen as the equivalent of hand-outs to the better-off.
Political parties should therefore have confidence that there is popular support for taxes on high levels of income and wealth. But there is another barrier. The rich are a powerful group and can lobby politicians and influence popular discourse which then frightens the politicians. And we have certainly seen this globally as many countries have cut or removed their wealth taxes under pressure from powerful vested interests – as demonstrated by the research of Sarah Perret, from the OECD, and Elizabeth Clark and colleagues’ work for the Wealth Tax Commission.
Even more concerning, perhaps, is that the rich are precisely the people in the most powerful positions who make policy in this space. Rishi Sunak, the Prime Minister himself, is just one example given above from many in government positions. And it was recently revealed in the UK, in May 2023, that three High Court judges had been investigated in controversial tax avoidance schemes that were challenged by HM Revenue & Customs, including one judge who has ruled on tax avoidance cases personally.
Other evidence of the power of the rich is how they have managed to accumulate wealth in the first place – through processes of wealth extraction. Gurminder Bhambra’s work on the relations of extraction and distribution within the British Empire provides a powerful global and historical perspective on these processes. So too does the work of the Decolonising Economics group that have pointed to extractive colonial practices which, in colonial India alone, facilitated the extraction of $45 trillion from the continent to the British State. Other forms of extractive capitalist, patriarchal and racist practices also continue to facilitate high and growing levels of wealth inequality as highlighted in Runnymede’s ‘The Colour of Money’ report which indicated that the greatest wealth inequality in the UK is felt by families of Bangladeshi and Black African heritage, who have ten times less wealth than White British families.
In conclusion, a fairer tax system, involving higher rates of tax on high levels of income and wealth, would help to reduce wealth inequality and provide more money for essential public services. One of the steps that we can take to help secure this is to challenge the misleading ‘us and them’ stereotypes of the ‘hard-working’ taxpayer and the ‘scrounging’ benefit recipient. But we also need to challenge the more fundamental extractive structures and practices which support the unfair distribution of income and wealth in the first place.
Karen Rowlingson is Professor of Social Policy and Dean of the Faculty of Social Sciences at the University of York.
Header Image Credit: Craftivist Collective
TO CITE THIS ARTICLE:
Rowlingson, Karen 2023. ‘How stereotypes of ‘the taxpayer’ obscure the need for greater taxation of wealth’ Discover Society: New Series 3 (3): https://doi.org/10.51428/dsoc.2023.03.0005