In praise of merit, talent – and a juicy inheritance
(Cross-posted to Liberal Conspiracy)
The TaxPayers' Alliance's latest report, "Tax and entrepreneurship: How the tax system impedes the creation of new firms and decreases employment", contains four familiar ingredients:
1) A foreword by someone well-known (or at least not completely unknown)
2) A generous handful of footnotes (whether relevant or not)
3) Some elaborate formulae (to add a scientific veneer)
4) A hard-hitting press release (however flimsy the research).
In this case, (1) is provided by Julie Meyer, "the well known founder & CEO of Ariadne Capital, founder of Entrepreneur Country, co-founder of First Tuesday, dragon on BBC's Online Dragons Den and weekly columnist in London's City AM".
That's how the TPA describes her, though it may have been equally attracted by her recent article, "Call me one of Thatcher's children any day", in which she said of the great matriarch:
"She wanted the children of Britain to be strong and grow tall, and some would grow taller than others depending on their merit and talent... Thatcher obviously couldn't make life perfect for every single British citizen. But she raised the bar very high indeed in terms of executing a vision of 'Great' Britain."
Meyer's foreword for the TPA report continues in a similar vein - a queasy mix of motivational speak and market fundamentalism. Thus we have:
"We are fortunate that there exists that class of people - who have been there throughout history – the Michaelangelos, the Gutenbergs, the Christopher Columbuses – who are the artists, adventurers, architects, inventors and business people of their day - who are prepared to live abnormal lives in the bringing to life of their vision of the world, their products and services. Greatness drove them, not work life balance. They sought excellence, profits and transparency, and made the impossible inevitable."
"No one under 30 that I know wants to work for anyone anymore... We are all slowly becoming Individual Capitalists. Not only can the government not shoulder the burden of the bloated welfare state which it has created. The balance sheet creaks enough already. But far more importantly, we - the little guys of the world - know what to do with our lives."
To help pad out ingredient (2), the footnotes, the report substantiates its own conjecture by citing the conjecture of others - like James Manzi of the right-wing Manhattan Institute:
“Some people start companies because they’re driven by a dream that transcends rational economic calculation. But most successful entrepreneurs are pretty serious about comparing risks with opportunities. Higher tax burdens raise the price of entrepreneurship. When you raise the price of something, then, all else held equal, you usually get less of it.”
Ingredient (3), the formulae, includes the likes of:
T(E) x P > T(E)
The latter is used to calculate "the marginal tax rate on income that is earned, saved and invested in a company and then passed on as an inheritance", where "t1 is the income tax rate, t2 is the corporate tax rate and t3 is the capital gains tax rate and t4 is the inheritance tax rate and r is the pre-tax return on an investment in a company".
We'll come back to that in a moment, but here at the Other TaxPayers' Alliance, we have our own formula:
Finally, add ingredient (4), the press release, which begins:
New research attacks 50p tax rate that will mean fewer entrepreneurs and fewer jobs
- New report argues that government tax changes will reduce the incentives to become an entrepreneur.
- The top marginal tax rate on income earned, saved, invested in a company and then passed on to children is currently 90 per cent.
- With the forthcoming 50 per cent top tax rate, that will rise to 92 per cent. That means the measure will take 20 per cent of the money entrepreneurs are left with the current 40 per cent top tax rate.
Note the contrived formulation, borrowed from (3) above: "The top marginal tax rate on income earned, saved, invested in a company and then passed on to children." Although this report is ostensibly an attack on the new 50p tax rate, the TPA can't resist bashing its other bête noire, inheritance tax (liability to which is naturally taken as given - despite the fact that 94% of estates are below the threshold). Loss of compound interest has been chucked in the mix too, to inflate the figures further.
Now, I suppose it is conceivable that some of the buccaneering twentysomething entrepreneurs that Julie Meyer eulogises - "the Michaelangelos, the Gutenbergs, the Christopher Columbuses" - will sit down and calculate that because they may one day be fortunate enough to find themselves among the top 1% of income earners and 6% of estates, and because they may not be able to pass every penny of their enormous wealth tax-free to their children, they'll think sod it - let's go down the pub instead. But this research doesn't prove or refute that - it simply speculates.
And, more to the point, isn't there something ridiculous about a report that invokes the entrepreneurial spirit to make the case for untaxed inherited wealth? I hope you have a strong stomach, because we must turn once again to Meyer's foreword:
"The trouble in the UK is – and I can say this as an American who loves this country, and plans to become a British citizen – that effortlessness is considered a virtue. No one likes to talk about how hard they have worked. I first realised this at INSEAD, where I went to business school, where without exception, all of my British classmates suggested that they hadn't prepared for the entrance exam at all.
"So British society doesn't educate itself about the work that went behind the fortunes as the whole goal is to make it look easy."
If your fortune comes to you in the form of a huge inheritance, it doesn't just look easy – it is easy.
Posted by Other TPA at 02:29pm on 28 July 2009
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