John Stokdyk
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Fate of the 50p income tax rate

Fate of the 50p income tax rate

During the past week or so, the AccountingWEB editors' in-box has been swamped with messages and press statements putting forward arguments for and against the 50% tax rate band.

Is this all an artificial bit of political froth generated to fill the silly season vacuum, or is it a vital debate in which the views of AccountingWEB's members need to be brought to the Chancellor and business secretary's attention?

I'm concerned that in this instance my habitual cynicism may have clouded my news judgement and I've ignored the comments from the likes of Ernst & Young, UK200Group and Richard Murphy to concentrate on other issues. Do many people here feel strongly about the issue and want to go into it in more detail?

As a quick overview, here are some of the points pro & con:

Srap the 50% band

  • "There’s not much point in having taxes that are very economically inefficient." Chancellor George Osborne, Radio 4 Today programme, 16 August. The chancellor has reportedly asked HMRC to evaluate the impact of the rate on Self Assesment takings after its first year. The findings should be ready in time for the Budget.
  • "It punishes wealth creation by imposing on entrepreneurs and business people a marginal tax rate in excess of 50% once national insurance contributions are added in... This is particularly damaging when the UK needs to create new businesses in new industries and promote growth by small companies, which can grow fast. It applies to just 1% of taxpayers, who already pay 24% of all income taxes."
  • "A significant disincentive to doing business in the UK, providing a barrier to new business owners and executives from coming here, whilst also driving existing higher earners to foreign shores." Patrick Stevens, Ernst & Young
  • "If something is not bringing in a profit and it cannot be made to do so, there is no point in continuing... In business and economic terms, if the 50% tax rate is not covering its costs then it should be scrapped but politically that's a totally different question!" Jonathan Russell, UK200Group
  • "With National Insurance, top taxpayers pay over 50 per cent which means they are working more for the taxman than themselves... These high earners are often the creators of businesses and therefore jobs for those who do not have the same talent, management skills or qualifications. Do we really want to punish them for their successes and risk losing this hot-bed of talent?" John Kelly, Square One Financial Planning

Keep the 50% band

  • "By definition most small businesses aren’t going to get in the top 1% of income earners – there are about 4m small businesses in the UK right now, at least (over 1m companies and 3m or so self employed). All small businesses that will grow fast will be limited companies – enjoying effective tax rates of around 20% or so, utterly undermining this argument." Richard Murphy, TaxResearch blog.
  • "According to recent articles, a 1% cut in income tax would cost the Exchequer £4.5bn. So these economists think that putting £10bn into the hands of 300,000 already-very-wealthy people is a better recipe for the well-being of the country than (say) cutting EVERYONE’s income tax rates by 2p…" ChrisM, on Murphy's blog.
  • "The government is committed to a competitive tax system, but in reducing the deficit, we have always been clear that those with the broadest shoulders should carry the greatest burden." A Treasury spokesman reaffirming the government's commitment to the 50p tax rate on Tuesday 7 September.

Let me know if you're interested in this topic and what you think. If I've been mistaken about the significance, I'll make amends with a more detailed study of the arguments, and perhaps put it to a community poll. As always, your guidance is appreciated.

Replies

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09th Sep 2011 14:24

High income = high spend

If people (not just high earners) were left with more of their own money, they would spend more, and 20% of that would end up in the government's coffers anyway. Alternatively, if they save it, they will not be such a burden on the public purse in old age ore times of hardship.  If I was left with more money in my pay packet, I would hire people to mow my lawn, paint the house etc., giving them more money to spend in their turn.  If the government spends our money instead, it is mostly wasted.  As it is not their own money, they have no incentive to purchase wisely.  It has also been proven that a low, flat-rate income tax increases the actual tax take, which is surely what every government wants.  The politics of envy gets no-one anywhere.

 

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By chatman
paul.gloverstanbury
09th Sep 2011 14:30

Trickle-down Economics and the Politics of Name-calling

rochabrava wrote:
If people (not just high earners) were left with more of their own money, they would spend more, and 20% of that would end up in the government's coffers anyway. Alternatively, if they save it, they will not be such a burden on the public purse in old age ore times of hardship.  If I was left with more money in my pay packet, I would hire people to mow my lawn, paint the house etc., giving them more money to spend in their turn.  If the government spends our money instead, it is mostly wasted.  As it is not their own money, they have no incentive to purchase wisely.  It has also been proven that a low, flat-rate income tax increases the actual tax take, which is surely what every government wants.  The politics of envy gets no-one anywhere.

The trickle down economics theory outlined above has largely been discredited. It is an argument to abolish tax altogether.

"The politics of envy" is merely a (very old) label which claims that people who argue for redistribution of the wealth are motivated purely be envy. To make this sort of allegation (or, in fact, any allegation) you need fact and arguments to back it up. We eagerly await.

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09th Sep 2011 14:32

I think some of you are naive

'My making someone richer you automatically make everyone else poorer' - total nonsense I'm afraid. In your prehistoric village, perhaps the richest person was the best hunter. By keeping him fat and happy does the whole village not prosper through using his hunting skills? Move forward a couple of thousand years. Where would you like Richard Branson to work .. here  or the USA with his 400 companies? So, if rich and successful people aren't to run companies and employ people who is? The government? Were you here in the 50's - 70's? Maybe we should have communes where everyone's skills are recognised equally. Oops, tried that one too ... not a great success.

I also get very annoyed about this social mobility thing. Mobility doesn't just happen .. you have to work at it. Bright parents want their kids to do well as hopefully they have seen the benefits that 'doing well' brings. So they research stuff .. best schools, best uni, where job opportunities might arise. They give their kids a push ... how is that wrong? Is it their fault that other parents can't be arsed to find out and don't care if their kids do their homework or not?

 

 

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By chatman
petersaxton
09th Sep 2011 14:48

@Steve Holloway

Steve Holloway wrote:

Some of you are naiive.

'My making someone richer you automatically make everyone else poorer' - total nonsense I'm afraid. In your prehistoric village, perhaps the richest person was the best hunter. By keeping him fat and happy does the whole village not prosper through using his hunting skills? Move forward a couple of thousand years. Where would you like Richard Branson to work .. here  or the USA with his 400 companies? So, if rich and successful people aren't to run companies and employ people who is? The government? Were you here in the 50's - 70's? Maybe we should have communes where everyone's skills are recognised equally. Oops, tried that one too ... not a great success.

I also get very annoyed about this social mobility thing. Mobility doesn't just happen .. you have to work at it. Bright parents want their kids to do well as hopefully they have seen the benefits that 'doing well' brings. So they research stuff .. best schools, best uni, where job opportunities might arise. They give their kids a push ... how is that wrong? Is it their fault that other parents can't be arsed to find out and don't care if their kids do their homework or not?

Always good to get such an emotionally balanced response ("naiive", "nonsense"). Does wonders for your credibility.

You missed the point about the caveman. It was simply intended to illustrate the point that wealth is relative.

With regard to your point about the village benefiting from the rich guy's talents, I am not sure that it does, overall. The link in my previous post to the work of The Equality Trust explains it very well. http://www.equalitytrust.org.uk/why

The point about measures of social mobility is that they do take into account the effort put in, and where there is little equality of opportunity there is little social mobility. Your assumption about parents not being "arsed" is not supported by any research I have heard of. I would be willing to read any you can direct me to.

Finally, whilst I have no problem with the word "arsed", AWeb policy prohibits swearing, and assumes that if you swear you are unable to express yourself in any other way. To that I say "arse".

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petersaxton
09th Sep 2011 15:42

The hunter

Steve Holloway wrote:

'My making someone richer you automatically make everyone else poorer' - total nonsense I'm afraid. In your prehistoric village, perhaps the richest person was the best hunter. By keeping him fat and happy does the whole village not prosper through using his hunting skills? 

To the above quote .... I would say it depends ...

If the best hunter was so good that they took ALL the available hunting before anyone else got a chance at it ...

Dependent upon the mindset of the hunter, this could end up with two results .... the skilled hunter has more than he needs, so he freely distributes the excess and this would benefit the other villagers.

Or he could just be greedy and keep it all for himself, or he could sell the excess to the poorer villagers and make a nice fat profit. After all, he earned it :)

My thoughts: if people take more than they need, they should distribute the excess. If they take more than they need and keep it, while depriving others, then yes, they are benefitting at the expense of others.

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09th Sep 2011 14:42

Government Spending...

Isn't the real problem not the level of tax, but the level of government spending?

Probably, but even if government spending was 100% efficient, there is a psychological factor too. Regardless of the merits or otherwise of how the state spends the money that is taken from our pay packets, most people would start objecting to paying the state so much of their earnings that they are no longer working for themselves, but primarily the state.

It may not be an income tax rate of 62% (50% + 12% NI), but there is a limit and its possibly different for each person. Those with a more socially collective attitude will have a higher threshold than those who are less so.

Going back to economics 101, we should remember that people are not automatons, they react positively to incentives and negatively to disincentives.

Having income tax at 62% (including NI) is a disincentive to work, regardless of all other factors. If we want that then fine, however the only thing that will REALLY dig us out of the debt trap that we are in is growth.

Without growth we are really ... stuck.

 

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09th Sep 2011 14:46

Dare I mention capitalism?

With the exception of chatman's analogy with cave men, there's much of the above on all sides of all fences that makes sense to me, from wasted resources in the civil service to, greed and social dysfunction.  What I keep coming back to however is that the driving force or even malignancy that keeps the whole thing bubbling and tipping over is, for want of a better word, capitalism.

If anyone is interested there is a great 10 minute "Point of View" on BBC Radio 4 from last week by John Gray in which he sets out that, whilst he was wrong about communism being the solution, Karl Marx was right about capitalism. There's also a link on the site to the written text of his talk.

Whether you agree or not with what he says, it is a debate that I think is well overdue and matches similar discussions over the way in which we hold onto practices that are unsustainable.

To return to chatman's anology, the rot of inequality really started less than 10,000 years ago when we stopped moving about and living with what we could carry or gather and started to accumulate crops and power.

Bring on the revolution

 

 

 

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By chatman
petersaxton
09th Sep 2011 14:53

@Paul Scholes

Paul Scholes wrote:

With the exception of chatman's analogy with cave men, there's much of the above on all sides of all fences that makes sense to me

Any reason?

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petersaxton
12th Sep 2011 09:46

@Paul

Paul Scholes wrote:

If anyone is interested there is a great 10 minute "Point of View" on BBC Radio 4 from last week by John Gray in which he sets out that, whilst he was wrong about communism being the solution, Karl Marx was right about capitalism. There's also a link on the site to the written text of his talk.

Whether you agree or not with what he says, it is a debate that I think is well overdue and matches similar discussions over the way in which we hold onto practices that are unsustainable.

Thanks for the link. I listened to it over the weekend. It was very interesting and did make me question the long term effect of capitalism.

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09th Sep 2011 16:09

Sorry, just don't agree Shirley ...

there has to be an incentive for talented people. If you are going to rely on that incentive being philanthropic then (a) You might have a long wait and (b) We will all be poorer as a result. It is not the sweaty effort of the masses that makes things better it is the work of the exceptionally gifted. 85 nobel prize winners have come from Cambridge Uni alone yet I think the natural extension of your argument is that such institutions suck in an unfair share of the collective resources.

@ chatman

"Your assumption about parents not being "xxxxx" is not supported by any research I have heard of. I would be willing to read any you can direct me to."

Writers such as Hyman, Sugarman , Douglas and Willis have argued that working class students are disadvantaged by their own culture.Hyman argued essentially that by comparison with the middle class, working class people tend to lack ambition because they feel that upward social mobility will take them away from their working class roots; they tend to be fatalistic; they are said to have a strong present time orientation and to be unwilling to defer gratification: they are seen as unwilling  to make present sacrifices in order to make future gains.

 

Enjoy your reading.

 

 

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By chatman
taxbakbristol
09th Sep 2011 18:59

Disadvantaged by one'sown culture.

Steve Holloway wrote:
Writers such as Hyman, Sugarman , Douglas and Willis

Steven - Can you be any more specific, or is this the only things these people have written?

I agree that, as you say, people can be disadvantaged by their own culture. For example, it can be easy to think "people like me never get to be doctors, why should I even try?", whereas the son of a doctor would never suffer that disadvantage. But however you look at it, it  is still a disadvantage.

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09th Sep 2011 16:40

@chatman

I know I'm a bit boring and repeat repeat myself but read last paragraph, bit of fun (sorry never learned how to do smiley face)

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By chatman
[email protected]
09th Sep 2011 19:03

Over my head

Paul Scholes wrote:

I know I'm a bit boring and repeat repeat myself but read last paragraph, bit of fun (sorry never learned how to do smiley face)

Still don't get it, but I'm not the sharpest knife in the drawer, so I will stop trying. Some truth to your paragraph about hunter gatherers though.

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09th Sep 2011 16:53

No problem, Steve :)

We all have our own opinions, and ours just happen to differ.

I don't agree that the lack of social mobility is due to people not bothering to make the effort, although it can be attributed to some people, and while I agree that people should be rewarded for their own efforts, some people just get too greedy and haven't really earned their wealth. When it comes to success, some people have just been very fortunate and happened to be in the right place at the right time, or know the 'right' people.

Luck, as much as skill, plays a big part in how successful we are.

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09th Sep 2011 17:42

As the golfer Gary Player once said ...

the harder I practice the luckier I get!!

 

Have a good weekend Shirley.

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By chatman
RussellD
09th Sep 2011 19:01

Luck

Steve Holloway wrote:

the harder I practice the luckier I get!!

 

Have a good weekend Shirley.

Just because he said it doesn't make it true. In fact, his comment is clearly nonsense as luck is, by definition, independent of any efforts made by the recipient. 

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By alan159
09th Sep 2011 17:59

My view

I have a growing business and this year have employed an extra 15 staff, and we are currently recruiting for an extra 6.

If the next Budget does not indicate when the 50% rate will be abolished, we will seriously look at our future growth plans.  If the 50% rate is to stay then we will simply stop expanding. 

We work very hard to grow our business and I will not continue to work as hard if the extra money I earn is taxed as highly.

I refuse to pay 50% tax, so in 2010/11 I ensured that my income was no more than £150K - so in effect I paid less tax in cash terms in 2010/11 than I did in 2009/10.

So I think I am a real example of how this tax can hurt the UK's growth prospects. 

As the tax has been described as temporary, many people will not do very much to avoid paying it, but if it is hear to stay people will start taking longer term decisions regarding their tax affairs, so even if the 50% rate has collected some extra cash, in the longer term I believe the cash take will be negative.

Just my view.

 

 

 

 

 

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09th Sep 2011 18:12

Temporary ?

 

Income Tax was introduced in 1799 to pay for the war against the French. It was a TEMPORARY measure :)

 

It seems that parliament has rather s _t_r_e_t_c_h_e_d the meaning of the word temporary.

 

 

 

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09th Sep 2011 21:06

DRACONIAN

I recall the days of 60% IT and 30% CGT and can also remember the days of 83% plus 15% IIS. That said equalisation at 40% for both removed a huge amount of the avoidance industry when clients said that 40% seemed reasonable,

 

The 50% rate has spawned IMHO a huge amount of avoidance through EBTs which HMRC do not seem to want/be able to tackle and I have no doubt that many mobile businesses have gone offshore.

 

The Treasury's own forecasts on the issue pointed to a reduction of tax as businesses left the UK or didn't want to come here but politics  (Lib Dems) has got in the way of common/economic sense.

 

At the end of the day this is an econmoic decision. Will the tax take go up by aboliton of the 50% rate or will it go down. I believe the former by a long margin

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ShirleyM
10th Sep 2011 08:29

Economic versus Political decision making

geofflusk wrote:

At the end of the day this is an economic decision. Will the tax take go up by aboliton of the 50% rate or will it go down. I believe the former by a long margin

Unfortunately, I don't think it is done for an economic reason. If the reason had been 'lets increase the overall amount of tax collected', then any decent economist would have told you that increasing the tax rate at this point would generate little additional revenue and may reduce the overall tax taken due to avoidance actions by 50% taxpayers.

This was and still is primarily a political decision as will be its repeal. If it was an economic decision, the Chancellor would have already repealed it.

As I said before, this is nothing more than a political booby trap left by the outgoing Labour government for the Conservatives.

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10th Sep 2011 14:50

I have come to this debate a bit later than everyone else.  Towards the beginning someone asked for an example of how high taxes discourage earning.  Let me give you an example...

I work for myself from home.  My clients are mainly private individuals and cannot recover VAT.  Each year I earn just under the VAT threshold.  If I were to become VAT registered, the amount I could charge my clients would remain the same but I would have to pay 16.67% of it to HMRC.  I have to turn work away because I don't have the capacity to bill for it.  Instead I take a day off now and then. 

So I don't pay for any staff (which otherwise I would do), and I now no longer employ a child minder, gardener or cleaner. 

If I were earning at around £149,000 a year and was offered a promotion with a pay rise but with extra responsbilities, I would turn it down.  I would prefer a quieter, easier life rather than the extra money which would be minimal once tax and NI was taken into account.

I appreciate that I am only one person but there must be many others out there like me.

Also, all of my clients who would have paid the 50% tax rate bar one have taken measures to ensure that they don't.  Most of these have involved reducing their income and thus reducing their total tax bill.  

I would be amazed if the 50% band has raised any tax.

 

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10th Sep 2011 15:58

Maybe I am the odd one out

And I don't expect anyone to agree with me, but when I was asking about 'wealth creation' I was asking why high tax rate was bad.

A very simplistic example, but if you are a baker and sell 100 loaves per day, but could (if you worked hard) sell 200, but decide the extra income after tax doesn't make it worth while, then the additional 100 that you do not sell will be sold by someone else, who may think it is worthwhile because their tax rate isn't as high (or they are not close to the VAT threshhold).

I would have thought that one benefit of high tax is the fact that wealth becomes more evenly distributed?  This is where I struggle to understand the claims that high taxes stunt 'wealth creation'. It just discourages people from taking more than they need and allows others to benefit.

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By chatman
Goatacre
10th Sep 2011 17:54

@ShirleyM

ShirleyM wrote:
Maybe I am the odd one out

You're not.

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By Old Greying Accountant
11th Sep 2011 00:00

The sentiments are all well and good ...

... but if we were all content with what we needed our race would have died out years ago.

However, many of the best "wealth generators" do it for the love of the game, not for the score.

There is a book "who moved my cheese". Although not specifically aimed at this, the allegory holds true in my view.

Personally, I don't have a problem paying tax to educate people to give them the skills to earn more money, I do have a problem paying it so they can sit at home drinking and smoking whist watching Sky movies and sport on their 60" 3D HD televisons.

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By chatman
ShirleyM
11th Sep 2011 00:20

@Old Greying Accountant

Old Greying Accountant wrote:

... but if we were all content with what we needed our race would have died out years ago.

Really?  Why? Surely by "need" we mean what is necessary to continue in existence.

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By Old Greying Accountant
11th Sep 2011 22:12

may be not died out ...

... but would not have advanced, it is the pursuit of wealth that has done that. Sure, the inventors probably do it for "fun", to stretch themselves, but if someone didn't come along with a way to make wealth from the thing design it would not have permeated society.

I use wealth in a loose sense, not just money, but whatever may be so deemed at the time.

Surely though, it is only by creating gluts that we can sustain through famine, or at lkeast sustain the population we have. It is because we are sentient and can plan ahead for the day the rains don't come and the crops fail that we can sustain a population of our species. Ther is a lot more to it that that but it is late and I can't be bothered to write more (and MOTD2 has just started!).

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By chatman
david_terrar
12th Sep 2011 12:52

Trading in Food

Old Greying Accountant wrote:
Surely though, it is only by creating gluts that we can sustain through famine

Isn't it the trade in food commodities that causes much famine these days?

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12th Sep 2011 07:35

'Need'

Need was the wrong word :(

I know I am not very good at explaining my thoughts, and often choose the wrong words, but I'll try again.

A sole trader can invest in their business, or employ more people, to keep them below the 50% threshhold. A Director/employee can leave excess profits in the company, until such time that the personal tax situation is more favourable, or again, use the profits to invest in the business or employ more people.

If someone could earn more and chooses not to, because they would pay extra tax on that part (not all) of their income, then it's good odds that they wanted the extra income for personal purposes, and not for business purposes. If they choose not to earn extra (because of the 50% tax), then it isn't vital for them to earn it, otherwise the choice would not be available to them.

This is the part I struggle with ... so why does higher personal tax stunt the growth of business? I would have thought the opposite, in that it would encourage investment in business, or allow other businesses to take up the business that was turned away. I am not saying people do, or don't, deserve high reward for their efforts, I am trying to find out why high rate personal tax is said to deter business growth & investment. Is it true, or is it just more 'spin'?

On a more controversial note: I do agree that the decision for the 50% tax rate was politically motivated. The banking fiasco has put the world economy at risk and big business (especially a bank) is so powerful that virtually all governments are afraid to rock the boat. Recent news (if correct) indicates that the banks still haven't learned the lesson, and it could happen again. 

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12th Sep 2011 09:10

@ chatman - its called irony.

Just because he said it doesn't make it true. In fact, his comment is clearly nonsense as luck is, by definition, independent of any efforts made by the recipient. 

His comment was in response to a journalist saying that he had a bit of luck in a particular round of golf. His comment was not nonsense but actually quite profound in many ways as what others see as luck he know was earned through years of practice and hard work. This equates to all aspects of life.

You are so lucky to have got good grades at school.

You were so lucky to get that great job.

You are so luck to have paid off your mortgage early.

Wow, you've saved money for your retirement you are so lucky.

.. and in your analogy about the doctors son ... is he lucky or did his dad just work really hard to provide a future for his family?  

 

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By chatman
lisimano
12th Sep 2011 15:04

@Steve Holloway

 

 

Steve Holloway wrote:

Just because he said it doesn't make it true. In fact, his comment is clearly nonsense as luck is, by definition, independent of any efforts made by the recipient. 

His comment was in response to a journalist saying that he had a bit of luck in a particular round of golf. His comment was not nonsense but actually quite profound in many ways as what others see as luck he know was earned through years of practice and hard work. 

.. and in your analogy about the doctors son ... is he lucky or did his dad just work really hard to provide a future for his family?  

Thanks for the vocabulary lesson Steve (your heading, "Chatman- it's called irony"). Again, the displays of emotion add nothing to your argument.

It was quite clear from the quote that someone had accused him of being lucky and he was claiming that it was all down to his skill and hard work, as many rich people do. I would hardly call that profound. However, obviously he felt that he could make his claim sound more feasible by confusing the issue with a statement that is, semantically speaking nonsensical, i.e. by claiming that he was able to affect his own luck. It is the same as when people say "I make my own luck". It simply means "I have not been lucky, I have gained it all through my own hard work and/or skill", and as I said before, just because someone said it doesn't make it true.

Regarding the doctor's son, if his dad worked really hard to get him the start in life that resulted in him being a doctor, he is lucky. Your question therefore seems to be asking “is he lucky or is he lucky?” Perhaps you meant to say something else..

By the way, I am still waiting for a specific reference to support your earlier claims.

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12th Sep 2011 10:08

Less inequality & "need" for growth

Firstly thanks to chatman for the link to the Equality Trust, it is a sad indictment of our society that, compared to the rabid wealth accumulators, this and similar organisations get nowhere near their fair share of publicity for what they are trying to achieve.

Human society existed for the best part of 200,000 years as hunter gatherers, following food & water and taking only what they need or could carry, but also with a built in "greed" to, whenever possible, gather more than they needed to see them through hard times.  In such a society, it makes sense to work together, especially when hunting large animals, plus, even the best hunters have their off days or sprain an ankle.  In such societies therefore the good hunters and those who were skilled (wise) at keeping the tribe as one made it to the top but more in influence and esteem than material wealth.

It was also the case that because of their lifestyle and the practical difficulties of carrying more than 2 children, population growth was never able to run away with itself.

Then, less than 10,000 years ago we discovered agriculture which meant we didn't have to move about and that we could grow what we needed, where we were, the problem was (and still is) that the greed for accumulating more than we need on the day is still built into us and so, within maybe 2,000 years we had cities governed by a small elite who, merely because their greed was more than others, built bigger & better grain stores and who could influence, bribe or bully others to work for them or be their slaves....ring any bells?

OGA said above: "if we were all content with what we needed our race would have died out years ago " whereas, from the evidence of history and a population that took approx 199,800 years to hit 1Bn and another 200 to reachneary 7Bn my own feeling is that taking more than we need will kill us.

Someone above mentioned limiting themselves to under £150K pa?  Jeez, what a bummer....think I'll stop there.

 

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12th Sep 2011 11:05

But Paul .... we only 'survived' for 200,000 years

in very small numbers and always on the brink of extinction. If you cannot accumulate in good times then you will always risk starving in the bad times. It is also only when people have time and and the comfort of a store cupboard that they start to think about higher things ... think of the Minoens, Greeks, Inca etc etc.

 

By all means live in the dark but I am quite happy that the lights work!

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12th Sep 2011 12:03

Surely It's a question of degree?

Steve, I wasn't clear enough or you misunderstand me.  Although hundreds of millions are on the brink of doing so, I'm not promoting a return to hunter/gathering I'm merely pointing out that our greed for MORE is no longer needed or even viable.

As I alluded to above the capitalism that's been running for 200 years is based upon limitless potential and the belief that it was bound to alievate poverty & insecurity by raising everone's standard of living.  Had the architects known however that the world's population would increase so dramatically and that resources are not limitless, they may have done things differently. We are in the know but carry on with the same practices.

Also, whilst we are all (in the West) generally far better off than we were 200 years ago, ie the middle-class is the norm, the inequality gaps are huge and I doubt many would regard themselves as secure. 

The double whammy of this this insecurity (whether it be financial, food, resources, physical well being) feeds on itself and makes us more determined to go out there and clear the supermarket shelves or petrol station tanks, for our selfish needs.

The bottom line is "when is enough enough"?

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ShirleyM
12th Sep 2011 12:29

Not always hard work

People are born with varying degrees of intelligence. I know of many people who don't work very hard at all, but still earn enough to pay the 50% Tax.

Alan159's view that once he hits the 50% tax rate he will cease to grow his business is flawed and cannot be true. Why did he continue growing his business when he went from the 20% tax rate to the 40% tax rate?

 

 

 

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By alan159
hazeljohnson
14th Sep 2011 10:58

Reasonable rate?

colinhigginson wrote:
Alan159's view that once he hits the 50% tax rate he will cease to grow his business is flawed and cannot be true. Why did he continue growing his business when he went from the 20% tax rate to the 40% tax rate?

 

Simple - my own view is that 40% is reasonable - 50% is not.  If the forthcoming Budget does not announce the timetable for the abolition of the 50% rate - we will cease expanding, no question.

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johnjenkins
14th Sep 2011 11:10

50% (+NI) income tax rate is not an incentive to growth.

alan159 wrote:

Simple - my own view is that 40% is reasonable - 50% is not.  If the forthcoming Budget does not announce the timetable for the abolition of the 50% rate - we will cease expanding, no question.

I don't know what you mean about 'cease expanding' our growth figures for Q4 2010 and Q1 2011 were effectively flat (-0.5 / +0.5) and at such a meagre rate that stagnation seems to be the best word for it. I'm not sure how the government can assist the economy to grow, but a 50% (+NI) income tax rate is not an incentive to growth.

We don't have the final figures for Q2 2011, but it looks like somewhere between 0.2 and 0.3 which can best be described as anaemic.

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johnjenkins
14th Sep 2011 16:38

Odd view

alan159 wrote:

colinhigginson wrote:
Alan159's view that once he hits the 50% tax rate he will cease to grow his business is flawed and cannot be true. Why did he continue growing his business when he went from the 20% tax rate to the 40% tax rate?

 

Simple - my own view is that 40% is reasonable - 50% is not.  If the forthcoming Budget does not announce the timetable for the abolition of the 50% rate - we will cease expanding, no question.

 

That makes perfect sense that does. (Scratches head)

 

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12th Sep 2011 12:22

It depends...

Pretty good round up here: http://timharford.com/2011/09/laffer-curves-and-the-logic-of-the-50p-rate/

It's a political issue, there isn;t enough evidence either way to make a definitive economic case.

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By mwngiol
12th Sep 2011 12:55

Tax

My logic is that those who are in a position to earn high amounts of money are there because our society and it's structures have enabled them to do so and they should therefore make a higher contribution than those on low incomes, who are also in that position for the same reason (I acknowledge that hard work and ambition plays a part but without the way our society is formed even hard work and ambition would get people nowhere).

A flat rate with a very large personal allowance would be one way to achieve this (say 15k P.A. and maybe 60% flat rate income tax with national insurance scrapped). But even this way, the wealthy would pursue avoidance schemes and would therefore not be paying their share.

What it comes down to is greed. Now greed exists just as much within the working classes as it does within the middle/upper classes but the working classes generally don't have the money to pay for the advice to go down the avoidance route. If the government came down harder on avoidance then the 50% rate wouldn't even be neccessary.

So I propose a different question - Would a General Anti Avoidance Rule be more effective than having a 50% rate?

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12th Sep 2011 13:02

@whichtyler - Another good article

Any self-employed person paying 50% tax is in a minority. Surely they would incorporate, if possible, and take dividends (which are not taxed at 50%). Also, larger companies are seeing the business tax rate reduce quicker than it is for small companies, leaving more after tax profit for the shareholders.

The only people the 50% tax affects in large numbers are employees, and I doubt many of those will be business entrepreneurs, unless they are Director/shareholders and then they can influence how/when they are paid.

I still don't understand how this is detrimental to business growth and investment, and haven't seen a really good explanation, so I think I can safely put it down to 'spin'.

The comments from people saying they wouldn't bother working harder, or take more responsibility because of the tax rate is no different to anyone else. The only difference between all of us is the level of income that satisfies us, ie. some people are satisfied with less, some want a bit more, some want a lot more, but most of have an invisible line where our chosen lifestyle is satisfied, and we see no need to go beyond it, if it means we lose our chosen lifestyle in the process.

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12th Sep 2011 13:13

Pecking order

Pauls views seem to demonstrate "socialist" tendancies - ie, a more even distribution of wealth. However, this model has been repeatedly shown to be deeply flawed as demonstrated in the USSR and China and again today in numerous countries such as North Korea.

Man is a pack animal, and as such there must always be leaders and followers. Nature shows us that in any pack the Alpha male leads the pack, and gets the best parts of the prey. It's natural to have a pecking order, and capitalism merely imposes such an order on society.

 

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By chatman
AlwaysonBooks
12th Sep 2011 13:36

Communism and Socialism v Capitalism

Owain_Glyndwr wrote:
Pauls views seem to demonstrate "socialist" tendancies - ie, a more even distribution of wealth. However, this model has been repeatedly shown to be deeply flawed as demonstrated in the USSR and China and again today in numerous countries such as North Korea.

It seems to have  worked OK in Cuba, which has survived an economic blockade by the most biggest military power the world has ever seen. And Capitalism, with all its poverty and wars? I think we can safely say it has failed. And Capitalism has been tried in a lot more places and over a longer period of time than Communism.

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JC
12th Sep 2011 14:31

It seems to have worked OK in Cuba...?

chatman wrote:

It seems to have  worked OK in Cuba

A joke, surely? The only people doing 'okay' in Cuba are those who were part of the original 1959 revolution and therefore part of the elite. Everyone else remains at subsistence level, which is pretty much what you expect from Communism / Socialism. I don't think there is a difference when you are only just surviving. Yes, sure the US embargo certainly hasn't helped, but there seems to be no fundamental difference between Moscow 1984 and Havana 2011 other than the weather is a lot better. Misery in sunshine is still, to a greater or lesser extent misery.

Equally, when comparing us to a pack of wild animals, I am not saying that there doesn't need to be a certain amount of state involvement (and therefore compulsory taxation) to keep the inner wolf under control, but it doesn't take forced extractions of 63% (50% + NI) to achieve this. Admittedly the vast majority should and must go towards vital parts of the NHS and education as well as a safety net in the form of welfare for those temporarily out of work or those who are genuinely unable to.

When we start talking about state employment being close to 40% in areas of the North East, this is clearly excessive and probably just robbing Peter to pay Paul. You can't tell me that we're spending an incredible £710 billion a year on the core services that the people of this country require? That would imply that all police cars should be covered in gold leaf, it's a phenomenal sum and still contains a massive shortfall between income and outgoings to the tune of £122 billion pounds worth of deficit.

http://img.thisismoney.co.uk/i/pix/2011/03/glance_469x592.jpg

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By chatman
dbowleracca
12th Sep 2011 15:07

" the US embargo certainly hasn't helped"

frustratedwithhmrc wrote:
sure the US embargo certainly hasn't helped

In the same way the Holocaust didn't "help" the Jews. Surely rather an understatement here.

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By mwngiol
12th Sep 2011 13:19

Distinction

"However, this model has been repeatedly shown to be deeply flawed as demonstrated in the USSR and China and again today in numerous countries such as North Korea. "

I think it's important to distinguish  between 'socialism' and 'communism'.

I could also point out that Humankind has evolved to such a point where we should now be able to decide for ourselves as a species what our 'natural' behaviour is and to be free to no longer live like dogs or even like the primates which we undeniably are.

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12th Sep 2011 14:09

What difference

mwngiol

I think it's important to distinguish between 'socialism' and 'communism'.

 

 

But there is no difference. Both are the same - one is merely a more dictatorial version of the other.

 

 

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By chatman
ShirleyM
12th Sep 2011 14:18

The difference between Socialism and Communism

Owain_Glyndwr wrote:

mwngiol

I think it's important to distinguish between 'socialism' and 'communism'.

But there is no difference. Both are the same - one is merely a more dictatorial version of the other.

This is incorrect. You need to look up the definitions. Try Wikipedia or an online dictionary.

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12th Sep 2011 14:13

O_G

Of course a pecking order is natural and is best typified by the wisest amongst us influncing and guiding others but, with regard to your animal tendancies, as mwngiol points out, we are fortunate enough to have self will and the way you describe capitalism imposing a social order is akin to the way in which Gadhafi or Communist leaders impose social order, it's just another form of power, by the few at the top.

I can't believe that you are comfortable living life as a pack animal, with no inhibitions or judgment, if you do then perhaps last month's rioting & looting was just natural social interaction?

 

eckin as as  

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12th Sep 2011 14:14

PS

Don't quote me on the last bit - don't know where it came from?

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By mwngiol
12th Sep 2011 14:21

O_G

"But there is no difference. Both are the same - one is merely a more dictatorial version of the other "

So I can describe all right wing politicians as Fascists?

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