Soaking the rich might not be a panacea for politicians The super rich are under fire across much of the developed world. Barack Obama is on the road this week promoting the "Buffett rule," a minimum tax on millionaires. In France, François Hollande, the Socialist presidential challenger, is proposing a 75 per cent rate on the rich. In Britain, George Osborne, chancellor, who has just unveiled new curbs on tax reliefs, has expressed shock at evidence showing the scale of tax planning by some of the wealthiest people in the country. Proponents of more progressive taxation - the higher the income, the higher the rate - believe this is a turning point. After 25 years in which top rates have fallen for the wealthiest, a growing number of countries are looking to push them up. In a political debate dominated by austerity, widening income gaps and the plight of the "squeezed middle," politicians are under pressure to ensure that the rich pay their dues - by closing loopholes or pushing up rates. For the moment, the significance of recent and proposed changes is largely symbolic. A European Commission assessment of taxation trends found last year that, while increases in top personal rates represent "an important political signal," their revenue-raising effects were limited. Certainly by historic standards, top tax rates are not high. After the second world war, US citizens earning more than $200,000 a year faced a top rate of more than 90 per cent. In 1967, a UK investment surcharge created a top rate of more than 136 per cent. So are the changes under discussion just a taste of more dramatic increases to come? There are many reasons for scepticism. A large amount of empirical research suggests that higher income taxes are bad for growth. The OECD says that tax reform designed to promote growth would shift part of the tax burden away from income taxes. Governments have good reasons to worry about the risks of taxing the wealthiest sector too highly. The rich are disproportionately important contributors to tax revenues. In the US, for example, the top 1 per cent of US taxpayers paid 40 per cent of income tax revenues in 2007, up from 28 per cent in 1988. These concerns have been loudly aired in countries where tax increases are being discussed. When Mr Obama first proposed the "Buffett rule" under which no household making more than $1m a year would pay a smaller share of income in taxes than middle-class families pay, he was branded a class warrior. In France, Maurice Lévy, the country's leading adman, has been a vocal critic of Mr Hollande's proposal. He warns it would drive top taxpayers abroad. In Britain, one of the first countries to raise taxes on the rich, the risks of overtaxing them were laid bare in last month's Budget. Research by tax authorities showed that a 50 per cent top tax rate that took effect in 2010 was raising much less money - probably less than £1bn - than expected. In passing, tax authorities noted that 1,379 Britons were given permission to work long term in banking, insurance and consulting in low-tax Switzerland in 2010, a 29 per cent rise on the figure for 2009. Proponents of lower taxes for the rich say the British experience chimes with that of the past 30 years when cuts in top tax rates across the world were associated with a big rise in the share of income paid by the rich. The explanation is usually pinned on the tax cuts inspiring people to work harder and put less effort into avoiding tax. Yet there is another possible explanation, which could spell trouble for high earners. A theory that the cuts in rates exacerbate inequality by increasing the incentive for top earners to push for higher compensation packages is gaining ground. This explanation emerged as a big theme in recent analysis led by Thomas Piketty of the Paris School of Economics using data from 18 OECD countries. Its conclusion - that "socially optimal top tax rates might possibly be much higher than what is commonly assumed" - can only add to the clamour by some politicians to soak the rich.