Stealth tax

A stealth tax is a tax levied in such a way that is largely unnoticed, or not recognized as a tax.[1] The phrase was generally used in the United Kingdom by Conservatives to attack the New Labour government's behaviour. It should not be confused with double taxation or privatisation.

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 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 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 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 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)[10] 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.[11]

Another example of a stealth tax is in South Australia, where Australian Government cut down budget for SA state households, South Australia state government increases the rate of Emergency Services Levy (ESL), so that get more tax from households.[12]

Taxation policy

Regressive stealth taxation

Stealth taxes can be viewed as regressive, as more affluent people are less affected by VAT, for example.[13] State lotteries may also be viewed as a form of taxation,[14] and there is evidence that they are played more by poor people than by the affluent.[15]

In January 1999 Conservative culture spokesman Peter Ainsworth described the National Lottery's New Opportunities fund as a "stealth tax".[16] and Conservative leader William Hague claimed The Labour stealth tax amounts to £1,500 for every working person.[17] In Parliament on 3 November 1999 William Hague accused the government of levying a £500 million 'stealth tax' that would hit IT companies.[18]

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. The overwhelming case for paying stealth taxes Archived 2006-12-29 at the Wayback Machine Samuel Brittan, Financial Times 25 October 1999.
  10. Going Independent: The 'fiscal theme park' of VAT Archived 2007-10-01 at the Wayback Machine, Patrick Walker The Independent 26 February 2002
  11. Value Added Tax on politics.co.uk 29 June 2005
  12. McLoughlin, Chris (2014-06-19). "SA budget hits pensioner concessions, emergency levy rises sharply". ABC News. Retrieved 2019-05-10.
  13. Tax Policy: Ripe for Reform? Washington Post 28 April 1998.
  14. State-Run Lotteries as a Form of Taxation, Alicia Hansen: Tax Foundation 8 October 2005
  15. Does The State Lottery Exploit The Underclass?, Greg Blankenship: Illinois Review 9 February 2006
  16. New lottery fund 'not a stealth tax' Jamie Wilson The Guardian 30 January 1999
  17. He's dead in the water The Guardian 7 May 1999
  18. Wednesday in Parliament Ros Taylor The Guardian 3 November 1999
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