Friday, 13 April 2012

Tax and Charity.

I'm not sure sure that I support the backlash against George Osborne's proposals to cap the amount an individual can give tax free to charity at £50 000 or 25% of income. "Charity" in the UK covers a very wide range and includes public (ie private fee-paying) schools, including Eton et al, posh opera at Glyndebourne, as well as the Oxfam, Save the Children and other more obviously worthy causes (although, incidentally, Oxfam's campaigning arm is not regarded as being charitable.)

It is a government's duty to spend money on what economists call public (eg street lighting, defence, public order) and merit (eg health and education) goods and services and the political process is designed to apportion the money according to the will of the people. Ideally politicians should take a long term and dispassionate view in determining the distribution of tax income, since some of these goods and services (sewage systems, offender rehabilitation) do not necessarily have much immediate popular appeal.

To allow the very rich to opt out of the public weal with very large proportions of their incomes in order to finance their own pet projects is not necessarily in the wider public interest. Many of us who are not rich would like to have more choice, such as not spending money on Trident or its replacement, but we have to abide by "the will of the people" however imperfectly it may be expressed. To allow the rich to have free range on 25% of their incomes, but require them to spend the taxed part of the other 75% as the political process determines, seems about right.

Of course there would be less painful opportunity cost in financing the less popular public projects if the rich paid all the tax to which they are liable.

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