“The top 10 per cent of earners are already set to pay 53.6 per cent of income tax in 2008-09; the top five per cent will pay 43 per cent and the top one per cent 23.9 per cent. Yes, that’s right, just one per cent of the population will pay close to a quarter of the total income tax take, funding a massive chunk of the welfare state – who ever said the rich don’t pay their “fair share”, whatever that means?”
As Will Straw convincingly argues, all the above describes is that people who earn a lot, earn a lot, and as a consequence are responsible for a large portion of our income tax receipts. In our unequal society the existence of the incredibly wealthy means that a large proportion of income tax receipts must be from this group.
Moreover, there is also a consensus that taxation should be progressive, those who earn lots should pay a larger share of their income in tax than those who earn very little. As Paul Sagar argues that even Adam Smith would probably be in favour of this sort of progressive taxation is something.
In his piece on Left Foot Forward, Will goes on to present a graph and argues that, despite Montgomorie’s protests, our tax system is not progressive enough.
Instead, because of the existence of regressive consumption taxes, which unite Left Foot Forward and Guido Fawkes in opposition, the poorest have the highest overall tax burden. The richest get away with paying a smaller share in tax of their overall income than everyone earning above median income.
The tax structure in this country unfairly penalises the poor, out of keeping with the consensus in favour of progressive taxation. There is widespread condemnation of this from the right and left but fixing this is harder than it would appear.
But. as Matt Sinclair of The Other Taxpayers Alliance points out VAT is not the only indirect tax which penalises the poor. Pigouvian taxes are designed to put a price on the negative spillovers of a given activity.
In economic parlance a spillover or externality is an effect which impacts on a party that is not directly involved in a transaction. For example, a factory polluting a river is a negative externality and in this case a pigou tax could be levied to cover the price of cleaning up the river.
We already levy a great number of pigouvian taxes. For example, we tax tobacco heavily to cover the cost of treating those falling ill as a result because we have a national health service, and tax alcohol heavily to staff A & E on a Friday night to cover the costs of the ensuing fights. 
Like Joseph Stiglitz, I am firmly in favour of a carbon tax to deal with climate change. At the moment we are effectively subsidised by the wider world because we are able to pollute the environment without picking up the tab for the damage caused.
A fair price for this externality would be something approaching $80 a tonne of carbon emitted. This would work to change behaviour so less carbon is emitted and the money could be used to ameliorate the negative effects of any continued warming.
However, this tax presents a big problem for those in favour of progressive taxation because this is by definition not a progressive tax. It will have to be borne equally and it will have to be reflect the true cost of carbon emissions. This means it will hit the poorest hardest.
There is the option of providing subsidies to the poorest so that they can continue to consume as before. The death toll from our current cold snap tells us why this may be a sensible move.
The revenues from this taxation can also be used to lessen the impact of other taxes, for example a reduction in VAT or a cut in the basic rate of income tax. This would involve taking from the poorest with one hand to take a little less with the other.
Of course, our present situation is even more perverse, although they are taxed heavily our poorest are still being subsidised by the suffering – both potential and current – by the poorest of entire the world to the tune of around $80 dollar per tonne of carbon.
Ultimately and unfortunately we are going to have to admit that there will be losers from the implementation carbon tax. We have to be honest and say that the tax is intended to produce losers, because if people don’t lose then that means they aren’t changing their behaviour and that is what we need.
 It should be noted both of these seem to be taxed out of proportion to what would be valid as a pigou tax. As well as a little social engineering both are nice little earners for HM Treasury.