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Fate of the 50p income tax rate

Fate of the 50p income tax rate

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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 (240)

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By jwwatson
12th Sep 2011 14:58

The 60% tax rate is alive and kicking ...

Why all the furore about the 50% tax rate above £150k? 

Surely the effective 60% tax rate between £100,000 and £114,950 (arising from the withdrawal of personal allowances [2011/12 rates]) deserves more attention, as it must affect many more people, so why have I not seen it mentioned either here or elsewhere in the media?

It seems to be one of the more effective stealth taxes if it can go unnoticed to this extent!

John W

 

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By Owain_Glyndwr
12th Sep 2011 15:05

Civilised ?

Paul Scholes

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 ...................

 

 

"Self will" - really?

I disagree, when it comes down to it natural instincts always prevail.  You may describe yourself as a pacafist (I'm guessing), and I bet you would say you could never kill another human being.

But, I guarantee that when put in a position of kill or be killed your natural instinct would come to the fore and you would kill in order to survive.

Something which has always interested me and which I have studied in some depth (I'm no expert just an interested amateur) is the Roman Gladiatorial contests. I've tried out the weaponry, I've tried out the protective armour, and I've read I imagine just about every study made into the subject, most interestingly some of the translations of the contemporary accounts written at the time.  

What made these men take part in the most dangerous "sport" in history?  Yes most were slaves, forced to fight, and kept as essentially prisoners in between fights in the most miserable conditions - but - despite their conditions they inevitably fought and tried to survive to fight another day.  Survival instinct. However, quite a large number of gladiators were in fact free men who fought in the arena for money, and more importantly, for glory. In other words, proving to the crowd (the pack) that they were the top dog, the alpha male.

Never make the mistake of believing that humans are "civilised" - it's merely a thin veneer, but under that veneer we are still animals.

Odd isn't it, people think that humans are more civilised than animals - but animals kill only for food or self defence, only humans invent reasons to justify killing. Who is the most civilised ?

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Teignmouth
By Paul Scholes
12th Sep 2011 15:18

Taxation and re-distribution

I tend to go along with much of what FWH says above about Cuba and the wasted money and resources of an inefficient administration.  I would say however that as a result of their impoverishment (whether by sanctions or dominance of the few) Cubans have learned to make the most of what they have and their agricultural methods, involving planning and using every spare hectare, is at the heart of my argument.

In a society where growth is the goal and, at times of crisis, the only solution, we will naturally become wasteful and move from crisis to crisis (much as in a company that devotes 90% of it's effort to get sales).  Would it really be the end of the world to spend a year in inertia where we could divert our attention to the admin and wellbeing of our communities and save some money or make better use of what we have?

There's obviously a balancing act on top taxation levels with regards to driving business away however it's so easy for those who "suffer" it to threaten to move and I'm in no doubt there's more squeezing and loads of pips still left. 

Hand in hand with this however still has to be the discussion of relative earnings, for example the X 20 rule discussed in the past year or two where the highest earners in an organisation do not earn more than 20 X more than the lowest or, if that doesn't work, where the lowest earners earn no less than a 1/20th of the highest earners.  There's a subtle difference. 

I know it sound like cloud cuckoo land but even moving some way in that direction might engender a more cooperative spirit than we have at the moment.

 

 

 

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Replying to Flying Scotsman:
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By frustratedwithhmrc
12th Sep 2011 15:35

Counting the number of angels on the head of a pin...

It seems to me that those who are most likely to generate income above the £150,000 limit are possibly the least likely to be taxed by it.

They will be the people like the non-dom's or Sir Phillip Green whose wife just happens to own all of the shares in Top Shop and lives in tax free Monaco, etc., etc. Even the mere millionaires will probably be owner / managers of limited companies and therefore be able to use dividends, capital gains or entrepreneurs' relief.

The only ones which get caught out by this are those working purely (or primarily) on a PAYE basis, which 'as everyone knows' is the most expensive way of earning a living. Unfortunately, it applies to most of the working folks in the UK. Even the MP's and civil servants have their own dodges for avoiding this sort of thing (tax free 'expenses' and pension enhancements).

Perhaps this is another reason why those in power are reluctant to do anything and those with real wealth are unaffected.

To quote the eponymous Leona Helmsley "Only the little people pay taxes" (yes, I'm aware she has denied saying this, but she would say that wouldn't she?).

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By Owain_Glyndwr
12th Sep 2011 15:29

THE 20x RULE

So, in any company where someone is on minimum wage (£240/week) the highest paid executive would be limited to 20x240 = 4,800/week = £250,000 a year?

Not a hope in hell.

 

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Teignmouth
By Paul Scholes
12th Sep 2011 15:32

Natural instincts will always prevail?

Not here they don't.  

When I take my dog out I keep my trousers on and take bags for the dog, if you don't then I pity the serf who cleans out your armour!

I would only kill if I or someone vulnerable were in mortal danger and in 57 years it's yet to happen, so perhaps we can put things into perspecive here and talk about the vast majority of the population today rather then soldiers or murderers.

As before there's a feeling of deja vu in these discussions and so, I'll leave this dead-end tangent to you.

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By Steve Holloway
12th Sep 2011 16:15

@ Chatman

Sorry, have I upset you in some way? I do think your arguments are overly simplistic but I did not intend to be antagonistic so relax and enjoy the debate.

See, we agree, I too believe you cannot make your own luck per se. Gary Player was using irony to make exactly that argument. He could have said 'its not luck you cretin' to the journalist but he went for something a little more subtle. My point was that it is too easy for people to label themselves as 'unlucky' whereas most of us get exactly what our efforts deserve in the long run.

Re the affect of working class culture on attainment ... this introduces some of the arguments and important writers in an easy to digest 'A' level kind of way.

http://sociologytwynham.wordpress.com/tag/hyman/

 

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Replying to petersaxton:
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By chatman
12th Sep 2011 17:29

@Steve Holloway

Steve Holloway wrote:
Sorry, have I upset you in some way?

What a strange question. Why do you ask?

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Replying to petersaxton:
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By chatman
12th Sep 2011 17:36

@Steve Holloway

Steve Holloway wrote:
I do think your arguments are overly simplistic

They may or not, but just saying so is not really an argument. You really have to present some facts or logical argument if you want to participate in a discussion, otherwise you are just throwing insults. As I said before, you need put your emotions aside.

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Replying to petersaxton:
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By chatman
12th Sep 2011 17:38

@Steve Holloway

Steve Holloway wrote:
relax and enjoy the debate

What a strange thing to say. I think it would be best if we confined ourselves to the issues under discussion.

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Replying to petersaxton:
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By chatman
12th Sep 2011 17:39

@Steve Holloway

Steve Holloway wrote:
http://sociologytwynham.wordpress.com/tag/hyman/

Thanks. I'll have a look.

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Teignmouth
By Paul Scholes
12th Sep 2011 16:54

@ John Watson & 60%

Good point. 

It's a real weird one this.  I have a client who is an explosive Tory with connections and an income of £110K who blustered and foamed at the mouth when I teased him over George & Dave letting this one through and  who said he'd "go to the top" (of his party) to disprove what I told him.  One of those "punch the air" moments.

In reality though it seems daft to me and just adds confusion where confusion is not needed.

 

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By chatman
12th Sep 2011 17:46

@Steve Holloway: Effect of Social Class on Academic Achievement

Just looked at http://sociologytwynham.wordpress.com/tag/hyman/ Steve, and it seems to confirm that academic achievement is easier for middle class children than for working class children. Have I misunderstood, and were we in agreement from the beginning? I thought you  were saying it was all a case of hard work, and nothing to do with the advantages or disadvantages with which we were born (eg the social class into which we were born).

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By rochabrava
13th Sep 2011 11:57

back to the question:

All this argument about socialism and equality is rather off the question.  Now it appears that the 50% rate raises no income for the government, and possibly costs more than it raises, it should obviously be abolished.  The point of taxation, surely, is to raise an income for government to spend (how wisely or not is a different question.)

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Replying to Flying Scotsman:
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By WhichTyler
13th Sep 2011 12:28

Evidence?

rochabrava wrote:

Now it appears that the 50% rate raises no income for the government, and possibly costs more than it raises,

Source please?

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Replying to NickGreen:
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By frustratedwithhmrc
13th Sep 2011 12:42

George Osborne MP - Chancellor of the Exchequer

WhichTyler wrote:

Source please?

The Chancellor branded the 50p rate "uncompetitive" and said there was "not much point" in having taxes that brought in little revenue.

http://www.independent.co.uk/news/uk/politics/withdraw-pointless-50p-tax-rate-says-george-osborne-2337884.html

Admittedly, he is unclear as to whether the cost of collection is greater than revenue received or whether the overall tax take is lower because of the 50% rate (don't forget NI on top). A little too early to tell and perhaps only HM Treasury or HMRC can tell us whether this is the case or not.

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Replying to justsotax:
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By WhichTyler
13th Sep 2011 13:03

Politician's answer!

I see he asks the question of 'what is it actually raising?' but doesn't answer it.

It seems he has made his mind up without waiting for evidence. And I suspect that even if the evidence shows that it raises (for arguments sake) £1bn/year, which is significant compared to some of the programmes that have been cut, but small in terms of total tax take, he and others would still argue for abolition.

As I said earlier it's a political, not an economic decision...

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By frustratedwithhmrc
13th Sep 2011 12:08

Wealth Redistribution

Now it appears that the 50% rate raises no income for the government, and possibly costs more than it raises, it should obviously be abolished.

Yes - I agree. However, the Labour government which introduced this was aware of the likelihood that there would be widespread avoidance and that the overall tax collected might go down (i.e. "a strong behavioural response" to use the terminology).

Labour pushed ahead anyway as it was important to their core vote and sent out the "correct" messages about progressive taxation and wealth redistribution.

 

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By ShirleyM
13th Sep 2011 13:00

Opening post

http://www.taxresearch.org.uk/Blog/2011/09/07/fisking-the-demand-to-cut-the-50p-tax-and-showing-it-for-what-it-is/

Has anyone read the above link from the opening post, besides me?

There is always more than one interpretation, and statistics can be made to say anything you want, but the above link is interesting and points out that there are other factors in play besides the 50% tax rate.

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Replying to Flash Gordon:
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By frustratedwithhmrc
13th Sep 2011 13:36

Just what we need, some 'tax research' from Mr. Murphy.

ShirleyM wrote:

http://www.taxresearch.org.uk/Blog/2011/09/07/fisking-the-demand-to-cut-the-50p-tax-and-showing-it-for-what-it-is/

Has anyone read the above link from the opening post, besides me?

There is always more than one interpretation, and statistics can be made to say anything you want, but the above link is interesting and points out that there are other factors in play besides the 50% tax rate.

Yes. However, again we're back to politics rather than economics. Mr. Richard Murphy's views on matters of tax are well known.

What is not so well known is that he is sponsored by (among others) the PCS union and the Joseph Rountree Foundation to provide 'tax research' (i.e. all very left-wing oriented).

I think if I need an unbiased opinion on these issues he is pretty much the last view I would consider - somewhat after Fidel Castro and Hugo Chavez, who have at least had the experience of government financing.

 

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Replying to Mike Truman:
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By chatman
17th Sep 2011 01:56

Are all left wing views invalid?

frustratedwithhmrc wrote:
Mr. Richard Murphy's views on matters of tax are well known.

What is not so well known is that he is sponsored by (among others) the PCS union and the Joseph Rountree Foundation to provide 'tax research' (i.e. all very left-wing oriented).

I think if I need an unbiased opinion on these issues he is pretty much the last view I would consider - somewhat after Fidel Castro and Hugo Chavez, who have at least had the experience of government financing.

You seem to be saying you ignore his views because they are left wing.  Is this valid?

If I disagree with someone's view that, for example, fascism is the best political system, I can not just dismiss it on the grounds that it is right wing;that is merely stating the obvious. To refute the claim, I need to provide facts and reasoned arguments.

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Replying to Knight Rider:
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By frustratedwithhmrc
17th Sep 2011 08:27

Not left wing views, but left wing propaganda

chatman wrote:

You seem to be saying you ignore his views because they are left wing.  Is this valid?

I am not saying that Mr. Richard Murphy's (or indeed anyone's) views should be ignored because they are left wing, right wing, pro-vegan or antidisestablishmentarianist.

What I AM saying though is that his views are subject to question as he is paid to espouse his views by organizations which have something to gain from the further entrenchment of those views.

Certainly if you examine his historical body of work, such as his tax articles from the early 1990's, they were filled with the standard approaches to tax avoidance that most middle-of-the-road accountants would advise their clients to adopt and which he now vilifies.

I can completely understand anyone having a 'Road to Damascus' experience on social justice, but a conversion paid for by the subscriptions of struggling union members is a bit difficult to swallow.

In short, I don't wish to ignore or silence anyone's views. People having left wing views pay their taxes too and they have a right to be heard.

What I do object to is a paid-for union shill espousing propaganda as the sole voice of social justice in taxation.

That sticks in my craw!
 

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Replying to rohit:
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By chatman
17th Sep 2011 23:52

@frustratedwithhmrc

frustratedwithhmrc wrote:
his views are subject to question as he is paid to espouse his views by organizations which have something to gain from the further entrenchment of those views.

Surely everyone's views are subject to question, and an opinion stands or falls on its merits, not on the motives of the holder.

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Replying to leshoward:
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By listerramjet
18th Sep 2011 13:11

murphy

chatman wrote:

frustratedwithhmrc wrote:
his views are subject to question as he is paid to espouse his views by organizations which have something to gain from the further entrenchment of those views.

Surely everyone's views are subject to question, and an opinion stands or falls on its merits, not on the motives of the holder.

 

on whose judgement?  With Richard it is difficult - since anyone who disagrees with him is at best wrong.  Although strangely he often appears to disagree with himself - or at least his opinions seem to change depending on which way the wind is blowing.

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Replying to Flying Scotsman:
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By chatman
18th Sep 2011 13:17

Richard Murphy

listerramjet wrote:
with Richard it is difficult - since anyone who disagrees with him is at best wrong

If someone disagrees with you, do you consider them to be right? Surely if you did, you would not be disagreeing.

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Replying to Flying Scotsman:
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By chatman
18th Sep 2011 13:19

Richard Murphy

listerramjet wrote:
on whose judgement?

In the judgement of those to whom the argument is being presented and the person making the argument. Isn't that how arguments work?

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By ShirleyM
13th Sep 2011 13:12

@WhichTyler

And the 50% tax will probably be removed for political reasons (and that will probably be just before an election).

Cynical? Me?

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Replying to Roland195:
By Owain_Glyndwr
13th Sep 2011 17:58

Cynical?

ShirleyM wrote:

And the 50% tax will probably be removed for political reasons (and that will probably be just before an election).

Cynical? Me?

 

 

That's not cynical - it just shows that you're not a politician.

Also, never underestimate just how stupid and gullible the average voter can be.

 

 

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Replying to Flash Gordon:
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By Old Greying Accountant
13th Sep 2011 20:59

Exactly ...

Owain_Glyndwr wrote:

ShirleyM wrote:

And the 50% tax will probably be removed for political reasons (and that will probably be just before an election).

Cynical? Me?

 

 

That's not cynical - it just shows that you're not a politician.

Also, never underestimate just how stupid and gullible the average voter can be.

... at my old practice we dealt with someone involved in political campaigning and they told us that overwhelming research showed voters have a very short memory (3 or 6 months, can't remember which (this was years ago - lol)) so it doesn't matter what they do during their term, as long as they get the last few months right, which is why the advantage should always be with the incumbents as they have the power to call the election on their terms, and why in some respects fixed terms could be good.  

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By ShirleyM
13th Sep 2011 14:23

@frustrated

All the newspapers, all the politicians (including George Osbourne), and all the various factions are politically motivated.

It is reading the different views that allows us to see all sides of the debate, rather than just singling out one view.

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Replying to Flying Scotsman:
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By frustratedwithhmrc
13th Sep 2011 16:49

Political views varied and diverse...

ShirleyM wrote:

All the newspapers, all the politicians (including George Osbourne), and all the various factions are politically motivated.

It is reading the different views that allows us to see all sides of the debate, rather than just singling out one view.

Indeed, however I am seeing very little objectivity in the debate on both sides. This is why (for the most part), I prefer to stick to the pure economic arguments about the 50% tax rate.

Put simply, in an open economy, where we have a tax rate which appears to be above the revenue maximization rate on the theoretical Laffer curve, then all things being equal, I would expect overall revenues to be reduced as those affected make behavioural responses to avoid the tax.

Changes in taxation take time to work their way through an economy and it also takes time to accurately measure their impact, however my feeling is that while there will be some people who will pay tax at the 50% rate, there will be enough that will take some form of avoiding action.

If enough decide to not just say they will leave, but ACTUALLY DO LEAVE AND TAKE THEIR JOBS WITH THEM, then I would expect that overall tax revenues would fall further than if the 50% tax rate had never been introduced.

However, to judge the difference between a UK economy with and without the 50% rate and accurately assess peoples behavioural responses is next to impossible.

We have been here before though and the following short document (14 pages) from 1978 explains how the exact circumstances we are talking about have an actual (rather than theoretical) impact on the real economy.

http://www.nationalaffairs.com/doclib/20080528_197805001taxesrevenuesandthelaffercurvejudewanniski.pdf

The only way to prevent people from avoidance / evasion of the tax is to stop them leaving the country, reducing their efforts or resigning.

If we do that then we might as well build a wall around the British Isles, because we will have recreated some of the worst aspects under Soviet Communism. Although some members of the Labour and Liberal Democrat parties would probably think that is a good idea.

 

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Replying to ShirleyM:
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By WhichTyler
13th Sep 2011 17:18

Not necessarily...

"The only way to prevent people from avoidance / evasion of the tax is to stop them leaving the country, reducing their efforts or resigning."

The paper you cited contains the example of nations at war who are happy to pay higher rates of tax (approaching100%) when they are convinced that it is in their interest to do so (i.e. the alternative will be worse in the long run). There is no indication in it that a marginal rate of 50% on income is at or necessarily near the turning point.

According to the paper, the optimum rate for raising taxes represents 'the point at which the electorate desires to be taxed'. If that is the case, the tax structure can change according to national preference. If a political party can make a convincing case that a higher rate increases investment in infrastructure and education will make the country more economically efficient and increase overall wealth and happiness, the electorate (including entrepreneurs) may be more likely to pay it and so the optimum rate moves upwards. Similarly if the case is made that paying down debt as fast as possible is ideal. But that requires credible political leadership and integrity on behalf of the political classes (and arguably the media too).

Both seem to be sadly lacking in the recent past, leaving us with a battle between various short term vested interests

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Replying to taxguru:
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By frustratedwithhmrc
13th Sep 2011 17:51

Where is the maximising rate for UK Income Tax?

WhichTyler wrote:

According to the paper, the optimum rate for raising taxes represents 'the point at which the electorate desires to be taxed'. 

Agreed - however, what we have in the UK with the 50% tax rate being applied at such a level that it only applies to a small percentage of the electorate. Effectively, the majority voting to increase taxes not for themselves, but for others. I also agree that you can get away with that sort of thing in wartime and it may be appropriate. However, in wartime its also usually quite difficult to leave the country, which kind of negates my point about an "Open Economy".

However, I am only pointing out the economic theory.

For some people and some economies, their maximizing rate may be quite high. Evidence suggests that for Scandinavian countries the peak of the Laffer Curve for income tax might be as high as 70%, equally evidence suggests that for France its closer to 40% (i.e. close to the actual income tax rates charged).

For the UK, who can possibly know, but we may be in the process of finding out the hard way.

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By listerramjet
15th Sep 2011 16:19

its all politics

the 50 p rate was a Brown time bomb - he dropped it when he realised he might not be around to face the music - a classic political trap for the next government.

It works because it does not raise revenue (his own advisors told him it would cost revenue) but if a conservative administration scraps it then it is immediately on the wrong side of the argument.  And George and David fell for it. To be fair they probably had little choice given the circumstances of their victory, and the power of the Clegg.

If I were a gambler I would put 50p on it being dropped this side of the election in a fanfair of headline catching  gimmicks designed to make people vote for Cameron.  In the meantime he has enagaged an "expert" to review its effectiveness - all part of the political plan to get them on the right side of the argument, and actually yet another classic Brown ploy.

All of the arguments for and against 50p rate are a red herring.  It clearly costs revenue, and it does not catch the wealthiest in our society.  On the other hand the wealthiest do pay most of the tax (strange that!).

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By chatman
18th Sep 2011 13:23

"left wing propaganda"

Why is it propaganda, and not simply an opinion? I really feel you cannot just write off someone's opinions based on what you believe their motives to be. You can either refute them based on fact and reasoning or you can't.

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Replying to afairpo:
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By nogammonsinanundoubledgame
18th Sep 2011 16:12

Propaganda v opinion

chatman wrote:

Why is it propaganda, and not simply an opinion? I really feel you cannot just write off someone's opinions based on what you believe their motives to be. You can either refute them based on fact and reasoning or you can't.

I think it counts as propaganda rather than opinion when they wait until they have no hope of having to deal with the fallout when implementing it, clearly for no purpose other than to reap political capital from its repeal.  Same with the £100K AIA limit.

With kind regards

Clint Westwood

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Replying to Flying Scotsman:
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By chatman
18th Sep 2011 17:41

@Clint - The comment was in relation to Richard Murphy.

nogammonsinanundoubledgame wrote:
I think it counts as propaganda rather than opinion when they wait until they have no hope of having to deal with the fallout when implementing it, clearly for no purpose other than to reap political capital from its repeal.

It seems that you are talking about the Labour party, who, of course, only deal in PR, but the comment was in relation to Richard Murphy, who will never have to implement it because he is not a politician.

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Replying to justsotax:
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By frustratedwithhmrc
19th Sep 2011 08:52

Richard Murphy may not be an MP...

chatman wrote:

It seems that you are talking about the Labour party, who, of course, only deal in PR, but the comment was in relation to Richard Murphy, who will never have to implement it because he is not a politician.

Unfortunately, he is the tax advisor to at least one MP that I am aware of (Caroline Lucas) and given his rather lonely stand on his "Tax Justice Network" platform, his advice is probably taken by quite a few of our elected representatives as he has status as being part of the "Liberal Collective" (i.e. "nest of Marxists" as the beloved Margaret was wont to use the phrase).

For myself, Mr. Murphy professes himself to be an expert on taxation, but given that he spouts such garbage as the 120 billion pound tax gap (ignoring things like capital allowances and other reliefs, which contribute the vast majority of this 'gap'), I have to count myself as somewhat dubious. However, given that the left is surrounded by such 'experts' perhaps it is not so surprising that we have 142 billion pound deficit.

Your mileage may vary.

 

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By nogammonsinanundoubledgame
18th Sep 2011 16:09

Not the highest priority question?

Very few of our client base is close to breaching 50% (especially those with spouses whom they trust with half their income!).  But we have a large number who would quite willingly pay 40% on £150K but keep their incomes to below £100K because they have a pathological aversion to the punitive marginal rate applying on the abatement of personal allowances.  If that is typical across the board than it seems to me that the £100K hiccough could be losing more revenue than it is collecting, and my vote is that should go.  Especially if we are in favour of "simplification".

Next in line for the chop should be the special annual allowance charge on pension contributions.  Again a highly complex set of rules to prevent pension contributions in an era when we KNOW that the government will not be able to afford to supplement their pensions when they retire.

Next in line would be merging the smaller and top rate of CT.  Moving there, but at a snail's pace.

Then I might get excited about the 50% IT rate band.

With kind regards

Clint Westwood

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By listerramjet
19th Sep 2011 09:18

hello chatman

if you want to see a parody of an argument with the murphy then read this.

http://www.mindspring.com/~mfpatton/sketch.htm

a more reasoned debate around the 50p tax rate would reflect on tax incidence and the laffer curve - in which case you might agree both of these things are 'real' but differ on what they mean for the 50p rate.

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Replying to The Black Knight:
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By Old Greying Accountant
19th Sep 2011 12:29

It is better in the flesh so to speak

listerramjet wrote:

if you want to see a parody of an argument with the murphy then read this.

http://www.mindspring.com/~mfpatton/sketch.htm

a more reasoned debate around the 50p tax rate would reflect on tax incidence and the laffer curve - in which case you might agree both of these things are 'real' but differ on what they mean for the 50p rate.

It is better in the flesh so to speak

http://www.youtube.com/watch?v=kQFKtI6gn9Y 

 

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By Old Greying Accountant
19th Sep 2011 12:00

Call me a cynic

(Put a new thread on the Agent view discussion too!) 

http://www.accountancyage.com/aa/news/2110028/-250-tax-inspectors-lined-avoidance-focus

I think this quote is from Danny Alexander;

"At a time of austerity, this argument simply beggars belief. If we are all in this together, those with the broadest shoulders must bear the greatest burden.

 

Makes me laugh, surely the higher paid do bear a bigger burden, but why should they bear a disproportionate burden?

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By Old Greying Accountant
19th Sep 2011 12:46

Back on topic ...

... http://www.youtube.com/watch?v=ju3h7yk4Hcg 

 

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By nogammonsinanundoubledgame
20th Sep 2011 08:41

A balanced view?

I don't know the author, his pedigree or his independence, nor can I confirm the factual veracity of what he wrote, but I read a letter to The Independent reproduced in last week's The Week from someone who claimed that the post-war age of prosperity in the USA, during which period that country rose to world economic dominance and in which its citizens enjoyed high disposable incomes, arose during a period in which the top right of income tax in that country peaked at 94% and did not drop below 70%.

I suspect that his views lacked a degree of balance, but even so, if what he restricted himself to saying was factually accurate it does tend to put our harping about 52% into context.

With kind regards

Clint Westwood

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Replying to Rudolf:
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By frustratedwithhmrc
20th Sep 2011 09:06

US tax rates have risen and fallen cyclically during the 20th C.

nogammonsinanundoubledgame wrote:

during a period in which the top right of income tax in that country peaked at 94% and did not drop below 70%.

@Clint Westwood:

I agree with what you are saying about the US economy, however as a counterpoint to that argument, over the entire time that there was a massive peak in nominal tax rates, falling with the Kennedy tax cuts in 1963, rising with the Vietnam tax rises and falling again with the Reagan tax cuts, over all of this period, actual tax incomes have fluctuated in a very narrow band around 18% of US GDP, with the largest peak occuring (at nearly 20% of GDP) in 2000.

http://www.deptofnumbers.com/blog/2010/08/tax-revenue-as-a-fraction-of-gdp/ 

This does tend to suggest that regardless of higher or lower rates of income tax and corporation tax, the overall tax collected remains stable. I believe this is because when rates are 'reasonable' people and companies don't attempt to avoid or evade taxes (both have an impact) and when rates are 'unreasonable' people take measure to avoid or evade taxes.

Fairly obvious I would have thought.

 

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Teignmouth
By Paul Scholes
20th Sep 2011 09:29

There's always another balance view

Clint - I have no knowledge of the US tax system but I suppose that whilst it may be undeniable that a high top rate existed during periods of prosperity, opponents of the policy can always say, "OK but imagine how much more prosperous we'd be without it".  Bit like "Ok Mr Darwin, you have a point, but who started evolution?"

fwh - not sure why you need to bold and underline, whilst appearing to provide reasoned opinion?

With regard to what is & isn't a "reasonable" rate of tax, surely a 50% tax rate during times of prosperity, when high earners are riding the crest of a wave and middle earners see it as a badge of success, might be regarded as "more than reasonable", whereas 5 years later, during hard times the same people will see it as draconian.

I just can't see that a 50% tax rate over £150K of earnings is unreasonable, either during good times, when we need to pay off debt, build infrastructure or accumulate reserves, or bad times that follow good times when we didn't do any of those things.

 

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By Monty Python
20th Sep 2011 10:00

Is any differncial in tax rates justified ?

 

Surely in a fair society everyone would pay the same rate.  By raising tax rates at arbitary points we simply create a disincentive for people to go beyond that point.

Everyone pays the same rate of VAT in the shops whether rich or poor. Everyone pays the same level of petrol tax, alcohol tax, tobbacco tax, road tax (RFL), TV tax (licence), etc regardless of whether they are rich or poor, so why do we differentiate with income tax?

On very rough calculations (incuding lots of guesswork) I calculate that if free pay was raised to £10k, and thereafter everyone paid tax at 25%, the tax take would increase over its present level, and the artificial barriers to self improvement would be removed.  As a bonus of course, there would be administration savings too.

 

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Replying to Old Greying Accountant:
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By frustratedwithhmrc
20th Sep 2011 10:09

Remember, "Only the little people pay taxes"

Monty Python wrote:

On very rough calculations (incuding lots of guesswork) I calculate that if free pay was raised to £10k, and thereafter everyone paid tax at 25%, the tax take would increase over its present level, and the artificial barriers to self improvement would be removed.  As a bonus of course, there would be administration savings too.

Sounds great, but the civil servants in charge at HM Treasury and HMRC would never allow it. This might force them to reduce their staffing levels and would prevent them from interfering in the lives of others.

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By BKD
20th Sep 2011 11:14

"Is any differncial in tax rates justified ?"

In a word, yes.

I won't expand, because it will end in argument, but quite simply, yes I do believe that differential rates can be justified.

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Replying to Rudolf:
By Monty Python
20th Sep 2011 13:36

Defending the indefensible

BKD wrote:

In a word, yes.

I won't expand, because it will end in argument, but quite simply, yes I do believe that differential rates can be justified.

 

So if differential rates of income tax can be justified, then how are flat rates of other taxes (VAT etc) justified?  Isn't there a certain hypocrisy in half the tax system being based on a flat rate for all, and the other half being based on differential rates?

The fact is that 40% and 50% rates of tax have more to do with political dogma and class envy than they do with fairness and raising revenue.

 

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