The notion of ‘unfunded tax cuts’ seems set to be a central theme in next year’s election. David Cameron’s promise last week to raise the income threshold for the 40 per cent tax rate has led the Liberal Democrats to accuse him of planning ‘unfunded tax cuts’ for the rich – which they, being the guardians of fairness, would put an end to.
Except there is no tax cut. Cameron is moving the top rate of tax at roughly the same pace as earnings. Were he moving it any more slowly, he would effectively be raising taxes by hauling more people into the 40 per cent bracket. The absence of a tax rise is not a tax cut, as Fraser argued the other day.
We can blame America for the phrase ‘unfunded tax cuts’. It was coined in the 1980s as a bludgeon against the Reagan Administration’s efforts to shrink the size of government by depriving it of tax revenue.
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