Lesson From UK: Tax Hike on Wealthy Lowers Revenue

One side wants to rein in entitlements to deal with the budget deficit. The other side insists that any such moves be accompanied by higher taxes on the wealthy.

That may sound like the ongoing fiscal battle in Washington, but actually describes the situation in Britain.

The difference is that Britain has already raised taxes on the wealthy, with a telling result: The government actually lost revenue.

In the 2009-2010 tax year in Britain, more than 16,000 people reported annual income of more than 1 million pounds (equal to about $1.6 million today). Then in 2010, Prime Minister Gordon Brown, a member of the Labour Party, introduced a new 50 percent top income tax rate for high-income earners. After that, the number of people reporting income of at least 1 million pounds fell to 6,000.

“It is believed that rich Britons moved abroad or took steps to avoid paying the new levy by reducing their taxable incomes,” The Telegraph reported.

Harriet Baldwin, a Conservative member of Parliament, said: “Labour’s ideological tax hike led to a tax cull of millionaires.”

Instead of raising revenue, the tax hike cost the U.K. 7 billion pounds ($11.2 billion) in lost revenue — and that in an economy one-quarter the size of America’s.

Now the government of Conservative Party Prime Minister David Cameron has announced that it will lower the top rate from 50 percent to 45 percent, a move the Labour Party officials have called a “tax cut for millionaires.”

In ongoing budget talks, Conservatives want to freeze out-of-work benefits, which are set to rise with inflation, while liberals in the government “will only allow the benefits freeze if taxes on the rich are increased,” according to The Telegraph.

Democrats in the United States might note that since Cameron’s government announced the lower top rate, the number of Britons reporting income of at least 1 million pounds has risen to 10,000.

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