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The tax debate continues

Gerry Reilly, Senior Teaching Fellow

Faculty Blog

Income tax was introduced by William Pitt to the United Kingdom in 1799 to help meet the huge costs of fighting a war against Napoleon Bonaparte’s France. A later Prime Minister – William Gladstone – described income tax as ‘an engine of gigantic power for great national purposes’ despite his attempts to abolish it.

Rates of income tax have since fluctuated around the world. Supporters of higher income tax view it as a ‘necessary evil’ for providing the funds for public goods and services. Opponents believe that government intervention, and tax rates, should be kept to a minimum and the individual should have the right to decide what to do with their own money.

In the US, the government is proposing a huge change to their tax regime. This will eliminate many taxes, simplify the system, make businesses more competitive, and create economic growth.

The response came from a most unlikely source, the International Monetary Fund (IMF). The IMF was concerned that it could lead to businesses taking risks that could take us back to the crash of 2007. More surprisingly, the IMF also argued against the tax cuts, arguing that higher income tax rates for the rich would help reduce inequality without having an adverse impact on growth.

The US government hit back immediately at the IMF interference in their tax proposals.

What do you think? Should tax rates for the top 1% earners in your country be higher or lower?