Any offer to use a 50% tax rate to help fund schools should be seen as hollow. There is little chance of such a burden raising any real revenue in Scotland and in the longer term it would undoubtedly reduce total revenue.
Figures vary from there being eight to eighteen thousand top rate taxpayers in Scotland. On a static calculation, Revenue Scotland could raise £180million from the tax (to help supplement a £4.6 billion education budget) but let’s take away a few realities.
These high earners have pensions, service companies with ambiguous domicile, talented minds and feet to walk with. The first would cut the revenue by about a third and the second another third.
Other avoidances like employing wives and children, leasing bigger foreign cars, investing in tax-free instruments would eat up much of the rest.
The greatest danger is their feet; the economist Professor John Kay has estimated that if 1,000 of them move residency the tax becomes pointless, if 2,000 move less revenue is collected.
Even more important than these static calculations is the crushing potential of dynamic effects. That means people deciding not to start business, graduates deciding not to stay in Scotland, business expanding their operations outside of Scotland, and yet more seeking help from highly paid professionals in the defocussing business of trying to avoid tax when they should be concentrating on increasing production.
A European Bank study suggests that on average in the EU for every hundred pound gain in tax foreseen from a wage tax increase the state will only get eight pounds due to these dynamic effects.
In Sweden and Denmark, the same study says that outcomes are actually negative.
A greater horror is that politicians hate to be seen to fail. This tax rate will fail, and when it does, the response will not be to scrap it, but to turn to the only place revenue might be available – everyone else in Scotland.
That will be done surreptitiously, letting thresholds devalue through inflation, introducing new complexity through rules aimed at tightening up on “avoidance”, and simply increasing everyone’s tax rates because that would be “fair”.
The focus of our political parties is totally backward.
Scotland needs to rebuild itself, rid itself of debt and create quality companies, traders and artisans doing quality business and work at home and internationally, attracting our home-grown talent to stay and thrive. Higher taxes are precisely the wrong way to achieve these goals. Governments do not build economies, enthusiastic minds and talented working people do.
Eben Wilson is Director of Taxpayer Scotland. This article was first submitted to the Press & Journal, Aberdeen.