Tax For The Rich, Naps For The Poor Top of the Charts 11 October 2019 Torsten Bell Afternoon all, The pressure has been building for years. Frustration has been mounting. But now it’s DECISION TIME, people. Which side are you on? Not on Brexit, or Extinction Rebellion vs the cops (which was all very friendly in the camp outside RF towers). No, on the real question facing 21st Century Britain: Coleen vs Rebekah. Apparently it’s dividing families/friends/football teams up and down the country – which is odd given that its blindingly obvious that Coleen the super sleuth is this tale’s hero. Her cunning Instagram tactics will also now be part of the RF researcher induction process – the purest case study that however hard the question, creative research design can find the answer. Now that you’ve picked sides on that state of the nation issue, this week’s reads will help you take sides on some of the big political economy issues we face, such as do the rich pay enough tax – and do we all deserve an afternoon nap? Have a great weekend, Torsten Bell, Chief Executive, Resolution Foundation Taxing the rich. Not to be outdone by our explosive WAGs row, US policy wonks stepped up this week with a grade 1 barney about whether the rich are paying enough tax. The prosecution case came via a very snazzy graphic from the poster boys of data-heavy, policy-engaged, left-leaning academia: Emmanuel Saez and Gabriel Zucman. Their key argument (summary) is that following Trump’s large, regressive corporation tax cuts the richest 400 households now pay less than a quarter of their incomes in tax – less than everyone else, and down from 70 per cent in 1950. The defence case is that almost all evaluations of the US tax system show that it is progressive, and that the Saez/Zucman result is driven by how we calculate the incomes of the very rich, or ignores transfer payments to poorer families that some view as negative tax. It’s complex but we do know the US tax system has got less progressive over time, recent changes have particularly benefitted the very top, and US income inequality is VERY high – so a less progressive system matters a lot. Of course taxes are only part of the picture – social security matters if anything more when it comes to inequality, and the US is very different here to Europe. Beautiful homes. You may well have seen them, but if not take a look at the new council homes in Goldsmith Street in Norwich that this week won the Stirling Prize for architecture. They are proof that you can build desirable, environmentally-friendly social housing in modern Britain… Living Wages. The main attraction of this summary of minimum wage and living wage developments across Europe is the names of its authors. Getting a Torsten and a Thorsten on one article is about as good as life gets. But you’ll also get some satisfaction reading it to see that 1) that the UK has led the way with the real Living Wage campaign 2) we’re the leading edge of the wider move towards higher minimum wages across Europe. The authors argue for a more integrated (but pragmatic) EU approach: not an EU minimum wage but a European minimum wage target in which all national minimum wages increased to at least 60 per cent of their typical national wage. This is essentially spreading George Osborne’s policy across the continent, which the UK is now heading well beyond. Nap it. Everyone’s obsessed by sleep these days and a huge industry has grown up to tell the rich in rich countries to get more of it. Much less attention gets paid to the sleep patterns of poorer workers in the rest of the world – which is why a fascinating new paper stands out for its focus on sleep among the urban poor in India. It documents widespread sleep deprivation – but surprisingly finds that while you can encourage workers to sleep 30 minutes more a night, it doesn’t affect their decision-making or well-being. Turns out that offering naps did – which the authors think might help explain why afternoon naps are common in many developing countries…. Either way, here’s to more afternoon naps. Good hobbies. Get windsurfing, rock climbing or knitting. That’s one interpretation of a paper this summer (summary) suggesting that pursuing hobbies in an intense or serious way actually helps you do better at work, in part by boosting your confidence (so long as you don’t burn yourself out on a hobby too similar to your day job). So get gardening this weekend. Unless you’re a gardener. Chart of the Week Not to be outdone by the US shenanigans, this week’s chart focuses on who pays what rate of tax and how that’s changed since the 70s. To keep things simple we’re focusing on taxes on earnings (income tax and employee National insurance). If we took a broader approach the overall rate of tax paid (including VAT etc and comparing to household income) the system is much LESS progressive and even close to being a flat rate. And the really rich also benefit from the fact that you generally pay less tax if you get your cash any way other than wages: through self-employment, capital gains, dividends or plain old inheritance. But all that said these personal tax rates do matter a lot. The big takeaway is that we’re all paying lower taxes on our earnings than our predecessors (while paying more other, generally less progressive, forms of tax). The initial phase of cuts in the 80s were very top heavy (the highest income tax rate fell from 83 per cent to 40 per cent), while tax cuts in the pre-crisis 90s and 2000s focused more on middle earners (basic rate income tax went down more than national insurance went up). The big post-crisis trends have been further income tax cuts for middle (but not low) earners and a big change – the first increase in taxes on the top for a generation. So what happens next? The chart below show how current Labour and Tory plans would change things – there’s a clear difference in direction with tax rises for the top under Labour vs tax cuts (largely) for the top under the Conservatives.