How not to soak the rich

THE Royal Mail is not what it was, so perhaps that joint letter from British billionaires, volunteering to pay more tax, is stuck in the post. The absence of such a letter has certainly been noted. British politicians and commentators have pointed to America, where the investor Warren Buffett has fretted about being “coddled” with low tax rates; and to France, where plutocrats last month wrote an open letter offering to pay more to the state. In a challenge to Anglo-Saxon sniffiness about tax-shy southerners, the British press even carried news of civic sacrifice from Italy, where the chairman of Ferrari, a carmaker, said those earning several million euros a year should pay a supertax. It was almost a relief when British newspapers reported that Italy's star footballers were threatening to strike rather than pay a wealth tax.

In contrast, a deep, velvet-and-mahogany silence envelops the British plutocracy. There is a debate about taxing the rich, but it involves political leaders from the Conservative-Liberal Democrat coalition, not corporate chieftains, and turns on whether some taxes should be lower, not just higher. Coalition ministers have sparred about whether the country's 50% top rate of income tax is a brake on economic dynamism and—if so—whether it should be scrapped outright (the goal of many Tories), or replaced with taxes on land, mansions or other “unproductive” forms of wealth (as Lib Dems demand).

Greed without God?

Why are the British such outliers? For those who already dislike modern Britain, the tycoons' silence offers fresh evidence that—three decades after Margaret Thatcher's free-market revolution—her homeland is morally adrift somewhere in the mid-Atlantic: shunning the faith-driven philanthropy that accompanies great American wealth, but also the notions of social solidarity that keep Europe's richest in check. That is overdoing it. There are better, less highfalutin explanations.

For starters, many Britons already feel pretty highly taxed. Under the previous, Labour government, the proportion of wealth taken in taxes rose steadily, at a time when the general trend in the euro zone was downwards. Even France made its wealth tax less swingeing; its top income-tax rate is 41%. The 50% rate of income tax, introduced in Labour's last days as a “temporary” measure, is paid only by the 300,000 people earning more than £150,000 ($245,000) a year. But a much larger number of affluent Britons feel hard hit by tweaks to tax allowances, as well as higher taxes on pension contributions, capital gains and house sales.

In public George Osborne, the Conservative chancellor of the exchequer, keen to buttress his austerity-era promise that “we are all in this together”, has made much of efforts to plug tax loopholes. He recently described tax evaders as “leeches”. In private, ministers are desperate to promote growth, and fret about complaints that Britain is unwelcoming to business. A Tory recounts how a director of a “very large bank” complained that not only did Britain have a 50% top rate, but—after ending Labour-era loopholes—“you actually expect people to pay it.”

For another thing, many of Britain's richest residents are either foreign nationals or members of a restless, rootless global elite. In Paris or Milan, boardrooms are filled by the same few, politically connected grandees: the sort of people now writing letters offering to pay more tax. The glass towers of the City of London have more in common with the multinational benches of a top-flight football club, with all the footloose selfishness that implies (albeit with fewer tattoos).

Finally, though the British tell pollsters that they long to soak the undeserving rich, choosing how—even defining who is rich—is “hazardous territory”, says a government source.

Officially, the 50% rate is being reviewed, as ministers wait for a tax inspectors' report in early 2012 on whether it raises much money (while expecting the answer, no). But a recent YouGov poll showed strong support for the rate, with even a narrow majority of Conservative voters opposed to its scrapping. Though Mr Osborne has called the tax rate “very uncompetitive”, he is the last man to ignore the political risks of ditching it, at least before a public-sector pay freeze ends in 2013.

Ask Lib Dems about property and land taxes, and they talk up a storm about “fiscal liberalism”. Citing John Stuart Mill, they advocate rebalancing taxation away from earned income towards unproductive assets, notably the wealth generated by the long property boom. And, indeed, the same YouGov poll showed nearly two-thirds support for a tax on homes worth over £1m.

Yet Lib Dems should beware. British voters loved it when Mr Osborne proposed raising the inheritance-tax threshold in 2007, explicitly in order to spare family homes (a move so successful that a spooked Gordon Brown cancelled the snap election he had been contemplating). This suggests that many voters believe they have a right to any windfall earned by their parents' bricks and mortar, whatever Mill said. They just think a “mansion tax” set at £1m would not catch them.

Deep down, Lib Dem advocates of property taxes, led by the business secretary, Vince Cable, know that it is soak-the-very-rich populism, not economic efficiency, that makes the cause popular: hence Mr Cable's battle-cry of “Mansions can't run away to Switzerland”. Yet not every mansion-dweller feels rich (or has a Swiss bank account). In the inner circle around Nick Clegg, the deputy prime minister, there is said to be “no appetite” for a debate about whether someone with a house worth £1m is unacceptably rich; some, for instance, are widows living in London family homes bought decades ago. Conservatives are still less keen.

For the moment, then, political muddle reigns. Small wonder that Britain's rich are keeping their heads down.

Economist.com/blogs/bagehot