is likely that employees lose out.
A study by economists at Oxford University’s Centre for Business Taxation looked at data from more than 50,000 businesses across the continent, and found that 49p out of every £1 increase in corporation tax ultimately falls on employees.
What about Capital Gains Tax? Firstly, a lot of ‘working people’ also have capital gains. Secondly, taxing capital has disastrous economic consequences. It reduces investment, which reduces productivity, which in the long-run results in lower wages. When taxes on capital gains, dividends, or savings interest are increased, it discourages investment.
By making it more expensive to invest in capital, the Government is ensuring that less investment occurs. When less capital is available for businesses to expand, innovate, and create jobs, the consequences are a slower economy, fewer opportunities for
wealth creation, and ultimately, a smaller tax base. Paradoxically, this could result in the government actually collecting less revenue than anticipated, defeating the very purpose of the tax increase.
The notion that tax increases can be implemented without affecting ‘working people’ is, quite frankly, for the birds. In the end, it is the ‘working people’ who bear the brunt of these decisions, through reduced income, higher prices, or both. As we get closer to the
October budget, it is crucial that we recognise the long-term consequences of tax hikes.
The focus should be on policies that promote economic growth, not stunt it. Without this focus, the upcoming tax increases may do more harm than good for the very people the Government claims to wish to protect.
The idea that significant tax increases can be implemented without affecting "working people" is, quite frankly, a fantasy. Every tax increase has a ripple effect that eventually makes its way back to the average citizen, whether through reduced job opportunities,
lower wages, or higher prices. The notion that the government can raise significant revenue without impacting the general populace is an illusion.
Reem Ibrahim is Acting Director of Communications at the Institute of Economic Affairs and a Linda Whetstone Scholar
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