[personal profile] twovectors
Some economists have written to the FT saying that the 50% tax rate harms the economy.

This has got me thinking - do you support the 50% tax rate:

a) In general
b) If it raised no net tax due to leakage, would you still support it?
c) If it did raise tax short term but by lowering growth in the long term meant that it did not reduce debt as a % of GDP

on b) and c) if you still support it, what is the reasoning?


I would personally like to see a crackdown on avoidance, on the basis that a 50% rate it useless if we do not enforce it on the rich. All we do is capture a small number of people who are rich enough to be caught (due to other changes anyone on £100k +) but not rich enough to avoid it.

Date: 2011-09-08 07:06 am (UTC)
emperor: (Default)
From: [personal profile] emperor
I support it in general; I don't know if with improved enforcement it would work better? In any case, ISTM that the rich aren't exactly suffering as much as the poor in this general belt-tightening. If ditching the 50% rate but cracking down on avoidance was a net raise in tax take, I think that'd be fine. Though I wonder if we shouldn't be treating things like dividends the same as income-you-are-paid for tax purposes...

Date: 2011-09-08 06:49 pm (UTC)
From: [identity profile] vectorious.livejournal.com
I think we probably should treat all income as earned income. I might make various concessions (such a rolling relief on re-invested venture funds on startups - i.e. you only pay when you actually take the money out for yourself).

Spreading suffering is not in itself an end for me - raising fund to reduce the deficit is.

Date: 2011-09-08 07:46 am (UTC)
From: [identity profile] quizcustodet.livejournal.com
In general I support it - given the general principle of a progressive tax system, it seems very odd to argue that the large number of people (though admittedly still a small fraction of the general population) between £35k and £50k should be paying the same marginal tax rate as those earning between £35m and £50m.

If it doesn't actually raise revenue, then I agree it shouldn't be pursued (although I'd still support a rearrangement of the tax bands to create a more tapered rise in marginal rate up to about £100k). I am suspicious of the argument that it doesn't raise money, though, as (with the possible exception of this morning's economists) it's only made by people who would personally benefit from the change. It's also made in quite a disingenuous way, in that they wax lyrical about entrepreneurship, whereas realistically the main people who would be moving/staying away because of this tax rate would be City executives. In general, British entrepreneurs will have established a business _in Britain_, and so will have lots of connections to Britain which tend to keep them here!

My instinct says that I wouldn't support it in case c) either, but it's early in the morning and I am not so up on economics as to have my reasoning ready.

Date: 2011-09-08 06:54 pm (UTC)
From: [identity profile] vectorious.livejournal.com
There is actually an effective 63% tax band from £100k to roughly £116k in the current system when your personal allowance is removed £1 for each £2 increase. It then drops to 41% again, then raises to 51% (including NI each time). I would just have started the 50% band clean at £100k.

I once tried to invent a system based on a smoothly progressive rate based on square or lower non-integer power of the earnings, but I could not get it to work.

What about attracting foreigners to the UK? Does your argument work here? Is it important or material?

Date: 2011-09-08 08:05 pm (UTC)
From: [identity profile] quizcustodet.livejournal.com
I'd agree that it would be desirable to avoid local maxima in the marginal tax rate.

In terms of attracting foreigners, there are a few different points for me:

First, I don't buy the proposition that people are making decisions about where to live based solely on tax rates. I think most of the people who want to come to Britain to work are attracted by culture, language, history, scenery, nightlife, time zone, family connections, geographical convenience, labour legislation, etc. Obviously this can be tempered by tax rates - if we had a marginal tax rate greater than 100%, clearly almost no one with the choice would move here! - but to claim that a 50% tax rate is too high to compensate for the rest of Britain's advantages is never going to be categorically true, and can't be shown to be true on average without more data than we have.

Second, I think the question of how many of the people paying this 50p tax rate are mobile (coming from abroad or not) is open - it's entirely possible that it raises enough from the high-earners who are not willing to move to make up for the loss of some who either do not move to Britain or move out of Britain to avoid the tax, even to make up for the loss of some companies which may move abroad.

Separately, my original point was not so much to claim that these very mobile people don't exist, but that they are not the "entrepreneurs" who are often invoked by those attacking this tax rate. An entrepreneur who moves country is likely to have to start a new business, so one would have thought that the business regulations which affect that would be much more germane to them than the tax rate which they might have to pay if their new business proves to be very successful!

Date: 2011-09-08 01:06 pm (UTC)
ext_3375: Banded Tussock (Default)
From: [identity profile] hairyears.livejournal.com
The reason this tax increase is 'needed' is the collapse in tax compliance among wealthy individuals and large companies, aided and abetted by regulatory capture in the Revenue and, worse, political favouritism towards tax evaders by the Cabinet - specifically, the recent legalisation-by-treaty of practices that were considered tax evasion and fraud.

I will support a higher rate if, and only if, those who should pay more tax than I do at current rates actually pay.

Date: 2011-09-08 06:55 pm (UTC)
From: [identity profile] vectorious.livejournal.com
I certainly agree we should not have done the recent Swiss deal - the US is being noticeably tougher for example. It would be nice if, at the very least, all UK earnings were taxed effectively.

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