It was a scene of domestic bliss. Nick Clegg eating his cornflakes whilst the children got ready for school. Then the news came on Breakfast TV that American presidential hopeful and über-rich multimillionaire Mitt Romney only pays 13.9% in tax. Choking on his cornflakes Cleggy wondered if the same thing could be happening here. Two minutes of hardcore Googling later and the Tycoon Tax was born.
The reaction to Cleggy’s new baby wasn’t great. Fellow Lib Dem Big Wig Lord Oakeshott said, not unreasonably, it was a “superficially attractive measure that falls apart under scrutiny” before someone pointed out that he was an über-rich multimillionaire so his opinion didn’t really count.
The Tycoon Tax doesn’t need much scrutiny to see the flaw. The problem isn’t the rate of tax that the tycoons targeted are paying – it’s how you calculate the income it’s based on.
There’s been a tax planning scheme in the last few years that, with a bit of jiggery pokery in the Isle of Man turned your taxable income into a non-taxable loan.
That’s the essence of some types of tax planning. The reason you’re not paying tax on the income is you’ve done something clever so it isn’t income any more.
Introducing a tycoon tax on income is therefore rather pointless. Harmless but pointless – rather like promising to arrest every criminal who turns up at a police station with a full written confession.
So it looked like the Tycoon Tax was for the dustbin until, with a flash of bright light, it became the perfect political balancing act for reducing the 50% rate of income tax – previously unthinkable given the austerity measures in place.
Champagne all round at the Treasury then – “To Nick!”
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