Stealth tax

A stealth tax is a tax levied in a way that is largely unnoticed, or not recognized as a traditional tax.[1] The phrase was generally used in the United Kingdom by Conservatives against the New Labour government's behaviour and has been used in British politics since the 1990s.

Not to be confused with Double taxation or Privatization.

Origins

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

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

Anne Segall of 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 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 Francis Maude, then Shadow Chancellor (the opposition finance minister) claimed the Chancellor Gordon Brown was imposing "stealth taxes ... designed to conceal their effect".[5]

Former Prime Minister Tony 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]

On 22 May 2001, the expression increasing taxes by stealth was extensively used by former Prime Minister Margaret Thatcher on her address to the Conservative Party's rally in Plymouth.

Examples

One 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).

Stealth taxes might be recognized as taxation but remain largely unnoticed, as with Value Added Tax (VAT)[9] in the UK between 1979 and 1991, during which period it rose from 8% to 15% (compensating for a large reduction in the higher and basic rates of income tax) and then to 17.5% (when the Poll Tax was replaced by a council tax), shifting the burden of taxation away from income onto consumption.[10]

Taxation policy

Regressive stealth taxation

Stealth taxes can be viewed as regressive, as more affluent people are less affected by VAT, for example.[11] State lotteries may also be viewed as a form of taxation,[12] and there is evidence that they are played more by poor people than by the affluent.[13]

In January 1999 Conservative culture spokesman Peter Ainsworth described the National Lottery's New Opportunities fund as a "stealth tax".[14] and Conservative leader William Hague claimed "The Labour stealth tax amounts to £1,500 for every working person".[15] In Parliament on 3 November 1999 William Hague accused the government of levying a £500 million 'stealth tax' that would hit IT companies.[16]

References
  1. Oxford English Dictionary online
  2. Pension funds urge Clarke to scrap dividend tax Richard Northedge, The Daily Telegraph 16 September 1996
  3. The Labour Party's Manifesto 1997 Archived 2007-12-22 at the Wayback Machine BBC News Election 1997
  4. Middle class faces £7bn tax hit Anne Segall The Daily Telegraph 17 January 1998
  5. Maude warns of spending 'black hole' BBC News 19 October 1998
  6. "LOBBY BRIEFING: 11.30AM THURSDAY 1 NOVEMBER 2001". 1 November 2001.
  7. "Press Briefing: 11am Thursday 9 November 2000". 9 November 2000.
  8. "Press Briefing: 11am Monday 21 October 2002". 21 October 2002.
  9. Going Independent: The 'fiscal theme park' of VAT Archived 2007-10-01 at the Wayback Machine, Patrick Walker The Independent 26 February 2002
  10. Value Added Tax on politics.co.uk 29 June 2005
  11. Tax Policy: Ripe for Reform? Washington Post 28 April 1998.
  12. State-Run Lotteries as a Form of Taxation, Alicia Hansen: Tax Foundation 8 October 2005
  13. Does The State Lottery Exploit The Underclass?, Greg Blankenship: Illinois Review 9 February 2006
  14. New lottery fund 'not a stealth tax' Jamie Wilson The Guardian 30 January 1999
  15. He's dead in the water The Guardian 7 May 1999
  16. Wednesday in Parliament Ros Taylor The Guardian 3 November 1999
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