Sunday, March 11, 2012

"A Minimum Fair Share"

Nick Clegg's 'tycoon tax' plans

"Speaking as the Liberal Democrats meet in Gateshead for their spring conference, Mr Clegg said he believes thousands of millionaires pay tax at a rate of less than 30 per cent. 
It comes after prospective US Republican presidential candidate Mitt Romney admitted he was paying just 13.9 per cent tax on his earnings. 
Nick Clegg said: "You hope that kind of thing doesn't go on in this country. So I looked into it. There are hundreds of people earning millions per year who are barely paying 20 per cent tax, forget 40 per cent, forget 50 per cent, forget 30 per cent. They are not even paying 20 per cent. Therefore, I think it's time that we look at what I call a tycoon tax. 
The deputy prime minister told Channel 4 News it is "completely unacceptable". 
"If you're earning millions per year, if you're able to pay an army of lawyers and accountants to basically pick and choose what tax you are paying, if you are paying as low as 25, 20 per cent or even less in tax, there should be a minimum fair share that you should pay to society."


  1. "there should be a minimum fair share that you should pay to society." - Would you describe this "minimum fair share" as an alternative tax?

  2. No, i think an alternative minimum tax is a symptom of political malfunction. Social expression of sentiment about what fairness requires is a sign that political malfunction is occurring, but AMT is a symptom and not a cure for this malfunction. Notice that an alternative minimum tax arises in the context of a very broken tax system, where (a) many taxpayers, especially with high incomes, start out with a positive amount of gross income but end up with little or no taxable income due to numerous and generous deductions, exemptions, and credits; and (b) society's members perceive this result as unfair and communicate this through social expression (which includes but does not necessarily mean solely through political agitation) but (c) legislators cannot agree on how to reform the law to prevent the result and so they (d) come up with a bandaid to patch over the result where it occurs without fixing the rules that create the result. That is done to assuage the immediate perceptions of unfairness. But notice what the AMT does: it simply disallows some of those deductions taken for the sole purpose of coming up with a positive number against which to apply a tax rate that is arbitrarily chosen as the one to yield a number people can live with as "fair." Choosing a tax base and setting a rate structure is supposed to do just that, so the continuing presence of the AMT demonstrates the basic malfunction.

  3. On the other hand, you could say that the AMT was a solution to a problem of the overly sophisticated taxpayer. Only those taxpayers who had enough resources and enough knowledge could take full advantage of deductions and tax planning (most probably those with high incomes) create a problem. These taxpayers essentially warp the system by using deductions in unforeseen methods. Instead of changing the deductions, which may work for the majority of taxpayers, the AMT pools this group of taxpayers as its own separate base, and applies a different rate to them.

    I suspect you are closer to the mark - but I don't see the AMT as necessarily being wrong. I think it may only be an acknowledgment that taxpayers who may be subject to the AMT will more likely adapt to a Code overhaul. I.e. they will be able to keep up with a sweeping overhaul, while most wouldn't.

  4. So that AMT's backstop position is really to make it less lucrative for aggressive taxpayers to warp the system. That's a nice point.