The 50p tax rate

How do these distinguished people at and from the top get to make the statement of:

QUOTE The [50p marginal rate] tax, which is in effect a 58p tax after national insurance is taken into account ... ENDQUOTE   ?

IF top marginal IT rate is 50%, and

IF employee NI rate is      2%, which

TOTALS to .................. 52%, doesn't it? 

IF their tax sums are wrong, THEN how can we trust the veracity of their opinions?

Is the answer just: "Special Pleading" ??

BTW, the BBC reported today that: Poor numeracy is blighting Britain's economic performance and ruining lives, says a new charity [The group, National Numeracy] launched to champion better maths skills. 

Perhaps the DT letter just confirms how BAD the comprehensive education system is at teaching numeracy to children!

Over the past 30 years the only group who has seen a significant increase in the standard of living are the top 1%.  The bottom 2/3 have seen no real increase in their pay.  ~The argument that this tax is doing harm to the economy would be comic but for the danger that people in power believe it to be true.

A major reason for the current depression is due to this injustice.  Many people were borrowing money to maintain there a higher standard of living.  If we had a more equitable distribution of income this would not have happened.  Moreover a more equal society has better outcomes in terms of health, happiness and stress.

The tax receipts overall are considerably up as a result of this tax - rightly so given the cuts that are being made to those at the bottom.

The idea that this is punishing the successful is to suggest that people in positions of earning large sums of money are doings so because they work harder or are cleverer than lower paid individuals.  This concept does not hold water.  Are today's football players better than those who won the world cup for Britain?  Are the today's leaders of industry any more effective than those of previous generations?  How come economic growth in the late 30s, 40s, 50s and 60s was better than that of the last 30 years despite much higher tax top rates of tax?

In addition how is it the last Government keeps getting criticised for high tax rates when the peak tax paid was under Maggie Thatcher at 47% of GDP.  The last Government merely brought expenditure up to the average figure for post war Britain.

It is time accountants grew consciences and stopped believing that market forces justify anything legal. 

...it must be the right thing to do.

And what drivel he does spout.  Plenty of businesses and others have left the UK at least partly as a result.  Many high value added business are not tied to any particular country and can choose where to base themselves.  The UK needs to attract these sorts of businesses, unless it thinks it can compete with Far East labour costs (joke).

Another reason businesses won't come to the UK is the constant, venomous vilification.  The issues are (i) does a 50% rate raise more or less tax overall than a 40% rate - the jury is out but I suspect no e.g. if one entrpreneur making £10m pa leaves as a result you need 400 people making £250k to stay just to break even, and (ii) does it encourage people to risk their capital and expand their business, or come to the UK, or to strike out on their own - answer no.

Hi markfd! 

QUESTION: Do you agree with me that The Daily Telegraph letter's statement "The tax, which is in effect a 58p tax after national insurance is taken into account," with its alleged combined  "58p tax" figure, is NOT correct, as I indicated in my post on Friday, please?

I look forward to hearing from you!

... they have investment income of say £200k coded out, then the tax on earned salary plus NI could be 58% up to where the 2% kicks in!

Hi OGA! Thank you for your steer, which - in my opinion - leads me to an interesting possible interpretation of the assertions in the DT letter, which stated in part:    QUOTE     SIR – Given the state of the British economy, we ... wealth creators like us ...  high earners ... business people ... celebrate British entrepreneurialism, stimulate industry and contribute to the Government’s growth agenda   ENDQUOTE   through our investment income, rather than just our earned income, allegedly! [NB the words - in bold underlined italics - after the ENDQUOTE have been added by dstickl following an interesting possible interpretation of the alleged basis of the alleged 58p tax etc figure.]

However, the problem with "investment income" is that it's known to be subject to risks, and financial risks seem to me to have been transferred to UK citizens by the BANKERS, see below:

When Alan Greenspan, at a USA Capitol Hill/Congressional hearing in October 2008, faced the charge: 

“You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others,” said Representative H A Waxman, chairman of the House Committee on Oversight and Government Reform. “Do you feel that your ideology pushed you to make decisions that you wish you had not made?”

Alan Greenspan's reply allegedly included:

“This modern risk-management paradigm [of spreading financial risk widely, through the use of exotic financial instruments e.g. derivatives] held sway for decades,” he said. “The whole intellectual edifice, however, collapsed in the summer of last year.”

Oh dear, oh dear, oh dear!

CONCLUSION: In my opinion, what we are now witnessing from these several "wealth creators" etc, with their possible large investment incomes, together with their possible large salaries, and their special pleading for an income tax reduction this year, is that they just do not seem to like the consequences of financial risk being spread widely, with the concomitant result that - when the effects of these financial risks are transferred to the UK economy - they WILL have to pay more tax, in order to clear up the financial mess transferred to UK.

QUESTIONS: Why didn't the distinguished "business people" who wrote to The Daily Telegraph appreciate earlier - and speak up about - the possible income tax increase consequences of the financial risk transfer from the USA, via high earners including BANKERS, to themselves? Surely they only have themselves to blame for the tax regime they face now? And if they just push off abroad, isn't that a good benefit to an over-populated and over-crowded UK?

A request to OGA: Could you please give us - for clarity for AWEB readers like myself - a % plus % build up, showing how the various components add up to the alleged 58% marginal "high earner's" tax rate (after national insurance is taken into account) please?  Thanks in advance ...

... I have better things to do! If you wish do the maths yourself:

http://www.hmrc.gov.uk/rates/ 

...how about spending time researching it rather than on the rather irritating junk mail type formatting?

The 58% is correct, it's marginal tax + employers and employees NI because that's what an owner manager suffers eg £100 earned that he wants to pay himself as salary goes as follows:

100/1.138 = 87.87 (deduct employers NI)

87.87 * (1- 0.52) = 42.18  (pay tax and employees NI)

Hi markfd!

Thank you for - in my opinion - explicitly showing all of us that the alleged 58p is NOT just income tax, BUT that apparently the alleged 58p is the highest rate marginal tax - for the slice of incomes over a very generous threshold of about GBP 150,000 a year - on the monies extracted by the so-called "wealth creators" from their apparently personally owned "industries", apparently for their private enjoyment !

That seems to me to be a slightly different scenario from that for a normal employee ...

... NI is included in the 58% is abundantly clear in the OP:

“SIR – Given the state of the British economy, we urge George Osborne, the Chancellor, to consider scrapping the top rate of tax in his forthcoming Budget. The tax, which is in effect a 58p tax after national insurance is taken into account, puts wealth creators like us in a very awkward position. "

Hi OGA!    Yes, but I feel sure you'll agree that the pural form of "national insuranceS" would have been clearer => IT + NI_EE + NI_ER  

[and I'll avoid the analogous "Voldemort" subject this time!]

Thanks anyway!

I guess for a start we should all be reminded that this tax is a 'personal' tax rate - so any incorporated businesses will be unaffected by this move.  In addition the individual owns a personal company then it is unlikely they will take any profits as salary and will instead take large dividends thus avoiding any NIC.  However if they are big businesses they may well be getting share options instead of bonus payments - thereby avoiding any signficant personal charges.  Perhaps we should look at getting rid of the NMW.....to help those poor business leaders/wealth creators earn a little more..... 

But if not happy with that then there is always Greece or Syria to move to - I am sure they probably will accomodate you with the appropriate tax breaks you require.  As for the UK - you may not like a progessive tax system (I think that is what it is known as) but it is there to help all of society so you don't have to live in somewhere that resembles Beriut!

The style reminds me of another member long departed who was well known for always being 'right' regardless of the facts.

Sorry, Henry, for being blunt but that style of posting always makes me feel like a little child being told off by the headteacher ... not that I have personal experience of being told off by a headteacher (well ... ok, I'll admit it!)  ;

@ShirleyM: Sorry, I was just trying to be helpful ...to the reader in a hurry, because I regret that the three part build up of the 58p tax figure wasn't abundantly clear to me at first reading.

I was annoyed by it, but no offence taken (and hopefully none given).

In my humble opinion that style of writing will stop your message getting across because it looks like a rant rather than a serious opinion or question.

1. It is National Insurance, in the same way as it is 1 sheep or 2 sheep, 1 fish or 2 fish
2. What has ER's NI got to do with?

You asked how you could get 58%, I told you, end of - I really can't be bothered with it anymore

No, it is wrong on so many levels, not least that it will be a disincentive and is born of teh politics of envy.

There are so many things to consider, not least what level to set it at.

A £2 million property in the south east is not that rare, in Scotland it would buy you a 4000 acre estate with half a dozen cottages thrown in!

The money used to buy the property would have been taxed at 40%, why should it be taxed again.

This sort of tax is as bad as Inheritance Tax and is not one that should in my view be countenanced.

The more money people are left to spend the better for the economy,the more that gets sucked in and pissed away by the government the worse.

Far better in my view to offer tax reliefs to encourage investment and spending not avoidance and departure.

EDIT - Interesting, I wrote this before I saw the main article!

When we professional accountants audit sample PAYE employees’ payslips for their earned income, we automatically reject any employee payslip that includes charges for payment by that employee for their employer’s ‘national insurance’, because that could be either be due to a misunderstanding and/or fraud.

Thus the - in my opinion - ‘sneaky’ assertion that ‘the top rate of tax … is in effect a 58p tax‘ is paradoxically an indicator to HMRC that they should investigate the payslips of the several companies represented by the signatories of the quoted letter to the Telegraph, for possible misunderstandings and/or fraud!

As robertlovell wisely wrote: This is all part of the theatre that surrounds the Budget.

Turning now to robertlovell’s question: Does the 50% tax rate affect many of your clients and affect their entrepreneurial behaviour?: It’s my opinion that - whilst there is certainly a majority of public opinion that a top effective marginal rate of 52p [built up of 50p IT & 2p NI for employees] is fair given the consequences of the risks that high earning bankers etc dumped on them - there does appear to be a disincentive to normal hard working employees earning less than GBP 1m a year.

Consequently, I’d suggest – if the tax computer left by Labour could cope with an extra rate – for the earned income range from GBP 150,001 up to GBP 999,999 that there could be a new “reduced” income tax marginal rate of 47p in the pound.

When the 2p employee’s NI is taken into account, that would amount to an incentivising marginal rate of 49p, i.e. less than the optically sensitive figure of 50p!

Of course, if there might be a problem of non-revenue neutrality, the remaining upper crust tranche of income could have their marginal income tax rate raised by a 'balancing 3p' from 50p, to 53p, making an all up optically memorable figure of 55p (including the 2p for employees' NI) for millionaires, on their income froth over £1m. 

How can you possibly justify your statement that the money used to buy the properties was taxed at 40%??????? It could have been inherited, gifted, won on the lottery, part of a trust, or any number of different sources.

I don't see how the mansion tax scheme could work without it costing more in administration than it would bring in.

For God's sake, we all know the 50% is going to go, and we know the government has to have more money to squander while people are losing their jobs left, right and centre, and these people will need benefits to put food on the table, so lets just hit the low and middle income people to make up for the little bit that the 50% tax brings in.

The way people whinge & moan about the 50% tax you would think the whole blasted country was paying it instead of a tiny minority. It just isn't worth arguing about so get shut of it and bung it on the people who don't have influence and can't blackmail the politicians and therefore will have to make do with whinging, which they are doing anyway, but nobody bothers to take any notice.