Hike tax for the top one per cent to tackle inequality

New research from Queen Mary University of London, Cass Business School, and the Universitat Autònoma de Barcelona finds that a tax increase for the top one per cent is the best way to tackle inequality.

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The researchers developed a novel and holistic index which tracks the ratio of the effective income tax rate per income group divided by the percentage of total personal wealth (or the percentage of national income) owned by the same income group.

Using this metric, instead of focusing on the absolute income tax contribution, the researchers discovered that the bottom 99 per cent pays - in relative terms - at least 10 times (1,000 per cent) more tax than the top one per cent.

Polarised economy

Used together with other direct and indirect taxes, insurance contributions and government borrowing, the researchers argue that a progressive income tax rate should help balance the UK’s highly polarised and divided economy.

Dr Marika Karanassou, Reader in Economics, QMUL’s School of Economics and Finance said: “The standard economic paradigm focuses on the “holy trinity” of GDP growth, inflation and unemployment management. Still on the fringes of macroeconomic policy-making is the income / wealth distribution and the concentration of total personal wealth among the top one per cent or top 0.1 per cent.”

Professor John Hatgioannides, Cass Business School, said: “Vast income inequality, appropriation of huge chunks of wealth by the top one per cent and systematic public underinvestment due to relatively low direct income tax rates for the highest earners, have all contributed to the unequal UK economy.

Poorest citizens

He added that if the richest one per cent paid a higher and fairer income tax rate it would have a significant impact on quality of life for some of our poorest citizens. Professor Hatgioannides says it could mean that high-quality universal services, a guaranteed state pension; a thriving free health service, fee childcare, and elderly care would be within reach for all.

In the paper, the authors conclude: “The overarching policy question is the following: In the current era of fiscal consolidation should the rich be taxed more? Our evidence suggests unequivocally yes.”

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