Stealth tax

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Stealth Tax is a term used for a tax levied in such a way that is largely unnoticed, or not recognized as a tax.^[1] Generally used in the UK by Conservatives to attack the New Labour government's policies. The phrase Stealth Tax should not be confused with double taxation or Privatisation.

1 Origins
2 Examples
3 Taxation policy
4 References

[edit] Origins

On 16 September 1996 the National Association of Pension Funds demanded a reverse to a tax on UK pension funds' dividends. Anne Robinson, their director general said pension funds are being "taxed by stealth".^[2]

The exact phrasing stealth tax has been in British political use since 1998 and referred to tax rises that apparently circumvented the 1997 New Labour manifesto commitment that "over the five years of a Labour government ... there will be no increase in the basic or top rates of income tax".^[3]

Anne Segall of the The Daily Telegraph claimed on 17 January 1998 that, "taxes will rise by £7 billion this year ... as a result of a variety of measures introduced or extended by the previous chancellor Gordon Brown. Mr Brown's 'stealth' taxes are directed mainly at middle-class voters and in particular at middle-class professionals and those with savings".^[4]

On October 19, 1998 Frances Maude, then Shadow Chancellor (the opposition finance minister) claimed the Chancellor Gordon Brown was imposing "stealth taxes ... designed to conceal their effect".^[5]

Previous Prime Minister Blair only made occasional references to stealth taxes, such as on 1 November 2001 in relation to Company Car taxation,^[6] 9 November 2000 in relation to Fuel prices^[7] and on 21 October 2002 in reference to Pensions.^[8]

[edit] Examples

One example of a stealth tax is in the United Kingdom, where the British Government diverted revenue from the National Lottery to fund public spending.^[9]

Another form is the sale of licences for the use of blocks of transmission frequencies which were previously used for public services, such as April 2004 UK 3G auction,^[10] which costs 3, Vodafone, BT, One2One and Orange a total of £22,447,400,000 which they recover (by having to charge customers more than they otherwise would) over the 20 year contract period; if the license was free, these companies would not have the huge bill to pay, where their income comes from the rates they charge subscribers.

Economists have disputed this viewpoint and highlighted reasons why the cost of licences impacts on the mobile phone operators' profits and not consumers^[11], the main one being that price is determined by supply and demand and as the amount bid for a licence affects neither, the price of a licence cannot increase the price paid by the consumer.

Another form of stealth taxation occurs when deductions or exemptions are reduced based on income level resulting in more taxable income, but the same tax rate for a higher total tax. Under 2007 US tax law 1040 Schedule A itemized deductions and the $3,400 personal exemption are phased out (reduced) at higher income levels ($234,600 for married filers).^{[citation needed]}

Stealth taxes might be recognised as taxation but remain largely unnoticed, as with Value Added Tax (VAT)^[12] in the UK between 1979 and 1991, during which period it rose from 8% first to 15% (compensating for a large reduction in the higher and basic rates of income tax) then to 17.5% (when the Poll Tax was replaced by a council tax), somewhat shifting the burden of taxation away from income onto consumption.^[13]

[edit] Taxation policy

[edit] Regressive stealth taxation

Stealth taxes can be viewed as regressive, as more affluent people are less affected by VAT, for example.^[14] State lotteries may also be viewed as a form of taxation,^[15] and there is evidence that they are played more by poor people than by the affluent.^[16]

In January 1999 Conservative culture spokesman Peter Ainsworth described the National Lottery's New Opportunities fund as a "stealth tax".^[17] and Conservative leader William Hague claimed The Labour stealth tax amounts to £1,500 for every working person.^[18] In Parliament on 3 November 1999 William Hague accused the government of levying a £500 million 'stealth tax' that would hit IT companies.^[19]

Increasing the stamp duty tax paid on house sales in the UK was also described as a stealth tax.^[20] Michael Portillo claimed that the children's tax credit was a 'stealth tax on marriage'.^[21] Conservative Archie Norman claimed that increasing the Council tax was This is the ultimate stealth tax hike - local residents foot the bill and local councillors take the blame.^[22]

On 8 June 2005, revaluation of houses for council tax was put forward as a steath tax, Anne Milton MP asked Will the Minister guarantee that the average council tax bill will remain the same for my residents in Guildford, or will he come clean and admit that the revaluation is simply another opportunity to impose a stealth tax on hard-working families and pensioners?^[23]

[edit] Progressive stealth taxation

Another view of stealth taxes is that they are progressive, as when Tony Blair and Gordon Brown "diverted money to the poor[,] the transfer must be managed stealthily and with stealth taxes" so not to upset the middle class voters.^[24]

[edit] Inflation as stealth taxation

A graphical demonstration of inflation. However, inflation is not limited to physical currency, but also includes increases in credit and account balances available for electronic transfer.

Main article: Inflation tax

Any person living in a country using fiat currency (vis-à-vis a hard currency) is prone to the stealth tax of inflation. Inflation is typically resorted to by governments using fiat currencies because, in small increments, most people will never notice the effects of the policy.^{[citation needed]}