When it comes to economics, the US and UK tend to find themselves on the same page. A recent example is their consolidated front over the need for banking transparency – both countries took a tough approach with respect to the banking secrecy laws of in Switzerland and Luxembourg.
But this weekend, the US and the UK took decidedly different views over a proposal to tax financial transactions to support future bank rescues.
UK Prime Minister (for now) Gordon Brown is in favor of such a tax, referred to as a so-called “Tobin Tax”, as a way to take the burden off taxpayers in the midst of financial crisis. The idea would be to implement a tax or levy, also characterized as an insurance fee, to be implemented across the board on financial institutions in all economic centers including the US, Europe, Asia, and the Middle East. Brown described it as a “just distribution of risks and rewards.”
But US Treasury secretary Timothy Geithner has said he would not support such a tax, adding that it should not be the position of those today to pay for future risks. He did not, however, rule out the idea of any responsibility by banks to pay for the economic crisis – he just apparently feels that it’s too soon to consider a tax in the face of other alternatives.
Interestingly, Russia appeared to be in agreement with the US with Russian finance minister, Alexei Kudrin, also voicing skepticism over the tax. Canadian Finance Minister Jim Flaherty also expressed concern over the tax.
However, Max Lawson, the senior policy adviser for Oxfam was enthusiastic about the UK proposal, saying:
Gordon Brown today signalled that payback time for banks could be just around the corner. A tax on banks would be a major step towards clearing up the mess caused by their greed.
While the two day G20 Summit has ended, the matter is far from over. The International Monetary Fund is already looking into this very issue with an eye towards what it’s calling a financial sector tax. One way or the other, we’ll see further discussion on this…
It seems that more and more countries are confirming what we know to be true: it’s really, really better to be wealthy.
First, the US. Then, the UK. And now? Ireland.
RTE is reporting that the top 80 earners in Ireland paid about a rate equivalent to about 15% tax. The 150 top earners paid tax at a rate of less than 30%. Both rates were due mainly to “capital allowance incentives.” You know what this means: tax breaks.
Revenue in Ireland is taking steps to curb this issue, which is causing discontent. Last year, they introduced measures to restrict the ability of high earners to offset income against incentives, a step which was seen as necessary in order to avoid political fall-out.
Apparently, it’s not just the US taxpayers who are complaining that those in lower tax brackets actually pay a higher percentage of tax overall. UK taxpayers are making a similar claim.
According to the Sunday Times, the UK’s richest people are paying 4p in the pound less in tax than any other section of the population. While the tax brackets for income tax are higher, when mixed in with other taxes such as VAT (similar, though a bit different to a national sales tax), the top 1% of households pay 31% of their income to tax, compared with an average of 35% for the remaining 99%.
There have also been complaints about the low tax burdens for private equity “tycoons”. This summer, there was controversy in Britain over the low rates of tax paid by these folks, when it became public that they may pay tax on as low as 10% on their earnings. This argument sounds a wee bit familiar, no? The US Congress is reviewing a similar issue this fall.
And finally, confirming what my colleague has previously written, t the other end of the spectrum, those in the middle bracket appear to be hit the most: households on the median income of £24,700 (@$50,000) pay 35.3% in tax.
I guess the “rich get richer” is a universal truth.
Who believes that the economic burden of being middle class in America is difficult.
TaxProf blog posted an interesting excerpt from Todd Zywicki’s op-ed piece in the Wall Street Journal about double income (at a middle class level) families and their struggle with an increased tax burden. The piece was derived from a review of The Two Income Trap: Why Middle Class Mothers and Fathers are Going Broke, by Harvard Law School Professor Elizabeth Warren and her daughter Amelia Tyagi.
I’ve previously explored this idea of working mothers – and increased expenses – on taxgirl here.
I’d love to hear your experiences. Do you have a two income family? Do you feel that both of you work because you want to, or because you have to? Do you find that increased income has lead to increased financial burdens?
