Should the top-rate tax be less than 40 per cent?

Stephen

The usual claptrap! if cutting the top rate of tax really did increase the tax take then the gov't would do it now so as to reduce the deficit. Of course it won't cut the top rate because it knows the tax take will decrease if it does.

tom jones

If the government can make a good/strong case for the tax change then fine, but it won't be easy to claim "we're all in this together" and then "cut taxes for the rich." I can understand why Cameron & Osbourne are happy to stick with the 50P rate for now. This government isn't exactly good at getting arguments across (check out all the u-turns) so I'm doubtful they'll even try.

James

This article should be filed under "Questions to which the answer is 'yes'".

Dennis Churchill

The Laffer Curve.
There is a conflict, now recognised even by the left, between diversity and equality.
As societies become less homogenous people resent paying taxes to support others they have little in common with.
The LibDems act as a drag on exploring reactions to lower taxes and a smaller state.

Radford NG

Answer is:been there,done that,didnt work....because you rich gits spoilt it with your greed.

Bickers

Stephen,
Ever heard of the Lafferr Curve? Laffer has proved that the tax take goes up when rates come down.
More fundementally, why does the Government have the have the right to tax its citizens anymore than the minimum necessary to provide core services. Of course the answer is that one you establish bureacracies they become self serving and grow and grow (and consume more of the wealth created by the private sector).
This Government has not reduced spending (it's still going up). When Labour came to power the Goverment was taking c.£256billion in tax receipts; it's now heading to £700+billion. There is enormous scope to reduce Government spending by tens of billions, however turkeys don't vote for Xmas so ministers need to tell their depts what has to be done; the gravy train days for the public sector are over and we need a Government that will do what's necessary. If this one can't let's call a general election and vote in one that will.

fergus pickering

Denis C, the Laffer curve isn't a scientific law, you know. It's an idea. Quite evidently if you tax people at 100% then they won't work. And if you tax people at 0% then you won't get any revenue. Quite where is the trade-off point nobody knows. I shall say that again. Nobody knows. Consequently everybody has an opinion.

There are also millionaires who do bugger all but spend daddy's money, or, worse, don't spend daddy's money. And there are millionaires who made it all out of selling crack cocaine. Perhaps the second sort are good millionaires. They increase economic activity. They supply a need. But this is a matter of opinion too, not a matter of fact.

It is confidently stated that the 50& tax rate has cost Britain money, but how do you know. You can't just SAY that. I start from the premise that all millionaires should have their throats cut and their yachts burnt. The I look for exception - good millionaires.

Bickers

Radford NG: go and do some research and you'll find that the biggest % of the deficit and overall debt is due to socialist Governments funding unsustainable public sectors and pet projects (PFI). Socialist Governments always spend other people's money until it runs out.

I'm not saying the Banksters don't deserve a lashing however Balls & Brown were very clever in blaming their profligacy on bankers rather than admitting they sqaundered the nations wealth (and our childrens for that matter) all in pusuit of their failed socialist idealogy

Radford NG

Try this:abolish Nat.Ins.:set tax thresh-hold at the formular of minimum pay-per-hour times 40hrs.per week plus5%...now £255per wk.Above that set a standard rate with no exemtions

Jonathan_T

Of course, the top rate of tax is not 50%.
You also have to include employers NI, since this is a straight deduction from what the employee takes home.
For the slice of income where the personal allowance is withdrawn, the effective rate is something like 60%.
Add in nearly 13% employers NI, plus 2% personal NI and you get to about a 75% rate.

ThigArLatha

Yes. Tax, to the socialist, is a good thing. It pays to redistribute money from those that have earned it to those who have not. You have no choice but to give this money up and if you refuse you are punished by loss of liberty.
(Robbery - theft of property with the threat of violence)
Personally I think that if I have earned money then I should keep it as far as is possible.
If I think like this with my small amount then I cannot think it unfair that Mr W Rooney thinks the same with his larger amount. I have not earned Wayne's money so I should not have it redistributed to me.
Basically any tax more than about 10% is far too much.

daniel maris

That was a party political broadcast on behalf of the Rich Party.

DavidDP

Oddly this comes at the same time as a report in the US that suggests the optimum point on the Laffer curve is 70%.I suppose you pays your money and takes your choice.Or not if you are rich.Personally,I'll wait till we get actual figures from the Treasury and work off actual figures.Mad, I know.

Dennis Churchill

fergus pickering
November 23rd, 2011 5:58pm
Economics is not a science in the way chemistry is so yes, the Laffer curve does not give you the optimum point, as far as the state is concerned, where tax take is maximised. What many of us question is the way the state uses our money.
It is the size of the state sector I object to therefore reducing the tax take and limiting states borrowing, which is deferred taxation, is something I would support.
Convincing taxpayers that funding Diversity Officers, Five A-Day Advocates and various propaganda sheets put out by local authorities etc is a good way of spending their money is becoming harder and the higher the proportion of tax that is taken the more the waste is resented.
As I wrote above there is also a conflict between diversity and equality. I don’t see why I should support Hook Handed Preachers of anti-western bile or relocated Bangladeshi villages now in East London.
Andrew Neather was wrong. It is not the right that will be destroyed by Open Borders.

True Bred Pomponian

Of course it should. The going rate is 15% in Hong Kong. Next question, pea-brain.

Edward McLaughlin

This is a recurrent theme run by the Spectator and only yesterday, by the BBC.

It runs thus: if we tax the rich too highly, then they will go and live somewhere else. We will lose out on their 'wealth creating' activities, which as we all know, form the backbone of our economy. All those oiks turning out goods on the shopfloor are just bit players.

What puzzles me is: if this super breed are here right now and the nation is benefitting from all their wealth creation and we need to do all we can to keep them here, then how come the nation is not creating wealth?

Dennis Churchill

Edward McLaughlin
November 23rd, 2011 7:30pm
Compared to where? Pakistan? The Sudan?

Bill (Scotland)

The answer to the question in the title is, in one, word: "Yes!"

Once we get down to US levels of tax we will be on the right track, but nowhere near the ideal final destination; 40 per cent is already far too high. Government spending should be reduced drastically in all areas (i.e. not excluding health and education) and tax should never exceed 10 per cent, with government spending limited to such matters as national defence, basic health (i.e. clinics, not hospitals) and enforcement of law; everything else should be abolished. Period.

And before anyone says "what about ... ?", the response is nothing. Period.

Mudplugger

The key problem with our Income Tax system is not that the top rate is too high, it is that the gaps between bands are too big - that's the cause of much creative accountancy avoidance, simply to keep clear of the next step.
A far batter plan would be to have 60 tax bands, starting at 1% and going all the way up to 60% at 1% increments, with no low-earning or benefit expemtions either.
That way, everyone pays something thus having an 'investment' in society, but the progressively richer pay progressively more, but on a very micro scale, so there's never any huge increment worth paying an accountant to avoid.
It's easy to calculate now we have the computer technology, so no excess labour cost.
All the Chancellor then has to do it set the earnings thresholds for each of the 60 bands at whatever level he wants each year.
OK, it will cost a few thousand non-jobs for accountants currently playing the system but hey, who cares ?

McClane

We should have a flat rate tax. 20% should do it.

Nicholas

Like the cut of your jibs Bickers and Bill (Scotland).

Socialists believe in tax and spend (aka tax and waste) and have managed to brainwash most of Britain including our ridiculous Libtard PM, that huge government expenditure = huge government intrusion = lucrative jobs for a bloated nanny quangocracy are a necessity otherwise skoolz'n'hospitalz will cease to exist and whaaat abaaat the children! Great con, aided by making bankers the scapegoats for all our ills.

Herbert Thornton

PART 1

A lot of people have been blaming all the current financial difficulties in Europe on "Capitalism" in general. I think that's not quite true. I think that the difficulties have been caused not by Capitalism as such, but by one of Capitalism's components. And that component is the so-called Financial Services sector.

Maybe it was the Occupy protesters who started this line of thought. They obviously believe that something has gone wrong, even if they don't quite know what. And it makes me think that their instincts are right.

Another thing that's made me think along these lines has been German Chancellor Merkel's saying that she wants the EU to impose the Tobin Tax on Britain - i.e., in effect, on London. This idea has caused outrage in London because London is a major Financial centre in the world and the tax would drain off huge amounts of money from Britain and pour it into Europe for European bureaucrats and politicians to dispense and spend and waste. My own knee-jerk reaction to it was - like that of most British people - this has to be resisted - because it's an outright attack on Britain.

Now, though, I've come round to thinking that Chancellor Merkel is onto something, because it seems clear that a great many of these financial transactions are very harmful. But at the same time it seems to me that she's going about it the wrong way, because merely taxing harmful financial transactions can't do much good & would certainly make things worse. They need much more drastic treatment. A great many financial transactions are so harmful that they need to be stopped altogether. They should be made both unenforceable and illegal.

The Financial Services sector - no matter what branch of it - whether in London, Wall Street or elsewhere ought, urgently, to be brought under better control. That of course will sound like heresy in London in particular, but have not the multifarious financial shenanigans that London has concocted been very large contributors to the current financial crises in Europe?

Ian Walker

Income tax should be scrapped altogether. It is a tax on the productive, not the 'rich'

Tax wealth instead - through an easy to understand, fair and crucially hard-to-avoid land value tax.

McClane

20%, 15%, 10%, but *no* allowances.

tom jones

I tend to agree with Ian Walker about taxing land over pay. If people are making jobs and helping boost growth then they shouldn't be punished. If people inherit a massive house and they don't want to pay huge taxes then they should sell up and get a job and buy a smaller, less taxed-home. Sentimental value doesn't count because by in large - the rich are heartless. I kid, I kid. But I do believe land should be taxed over pay and it's a shame the LibDems aren't being listened to on that.

Herbert Thornton

PART 2

I've said this before, but I hope to be allowed to go on repeating it -

"The practice of protecting loans by taking security for the money lent has evolved and branched out into labyrinthine webs of derivative transactions that have caused terrible harm. Surely it is high time that the law was changed to invalidate, or at the least, severely restrict the validity of, such transactions? It would even be desirable, I suggest, to go beyond restrictions on validity: the concoction of such schemes should also be prohibited by the Criminal Law."

The invention in the 19th Century of the Limited Liability Company - though cynically described at the time as a device to enable people to avoid paying their debts - was really intended to encourage manufacturing business - and it did, very effectively.

But since then ingenious people have, more and more devised financial schemes that don't promoting manufacturing, but harm both it, and investors. So much so that too many Financial Services people (and even many Boards of Directors) operate not as honourable and useful stimulators but only to emrich themselves. Such are parasites. In the 21st Century, financial services in London have, to a frightening extent, become a parasitic infection that is destroying it's host - and is doing so with the help of short-sighted politicians. We don't want to destroy Capitalism, because it's the only system that really works, but we do need to revive it.

I think it's high time to examine this problem with open minds and to find an effective way to solve it.

Herbert Thornton

Sorry - "promoting" should have been "promote". This is what comes of trying, several times, to shorten a posting to try to persuade the Spectator computer to stop rejecting it.

Dennis Churchill

tom jones
November 23rd, 2011 10:33pm
But why land and not shares or gold or...anything else?
The core issue is what is high taxation.
Bill (Scotland) takes the minimalist state view.Mudplugger thinks the size of the state is about right. Herbert Thornton seems to want to decide which activities should be taxed heaviest.
I think we need to think about why we support a state of the size we now have. It employs people to do things we don’t necessarily agree with but have no choice in whether we contribute to their costs.
As I wrote above with a more diverse society I think there will be much more reluctance to pay high taxes to support welfare payments or the NHS.High rates of taxation are only acceptable in cohesive homogenous societies such as the Scandinavian countries in the late 20th century not the post-Neather UK.

Dobbin

If 95% of the country's income tax is raised from the richest 5% of taxpayers (or whatever the figure is) surely we should be offering them a quantity discount to attract more rich tax payers. If the basic rate was 20% up to (say) £100,000 it ought to be 15% for the next £100,000, 10% for the next £100,000 and so on. Every businessman understands the principle; after all you only get one vote however much tax you pay.

Dimoto

It's a bit dispiriting that Clarissa Tan STILL hasn't twigged (despite the endless discussion), that this was a typical destructive ploy by Brown, and that in a coalition government, even the majority party don't have total freedom of action.

If anyone is "stubborn", of course it's Clegg, Cable and Huhne.

As for the "Tobin tax", what makes Merkel think the proceeds of a UK tax would go straight into the Euro-coffers ?
No chance.

Nick

1) Entrepreneurs don't care about income tax, their wealth comes through capital gains. High paid professionals (lawyers, bankers) care about 50p tax rate and they aren't "wealth creators".

2) Lord Bilimoria went bust.

3) The 50p tax is only forecast to lose £1bn in 2015. Currently it raises money.

Herbert Thornton

Dennis Churchill (Nov 23rd 11.01pm) -

"Herbert Thornton seems to want to decide which activities should be taxed heaviest."

Dennis, how on earth did you get that impression? I'm not advocating taxation as any kind of cure whatsoever.

I'm advocating measures to discourage and prevent, and if necessary punish as criminal, the concoction of labyrinthine series of complex, unsound financial transactions of the kinds that become more unsound with each new step. Financial Services people have not only done that, but have too often certified them as deserving high credit ratings. As Clarissa (I think it was) put it so well, some have been as it were "sprinkled with gold dust" to create entirely false impressions of actual value. That sort of thing should no longer be tolerated.

Charles

Just a quick real world example for some people. No judgement - allow people to come to their own conclusions.

I have just set up a limited company to handle some consultancy contracts. I expect to generate around £1 million in revenue over the next 3-4 years. I could have handled this as an individual, and would have paid c. £500,000 in tax.

In setting up as a company, I pay around £200,000 in tax on the revenue and then additional tax should I want to take it out of the company (in the form of a dividend or whatever).

The cost to me of this structure is around £3,000 per year.

The net result? I set up a company. It will be a little bit of an administrative hassle for me and I won't be able to use the money directly (although I can invest it or make pension contributions relatively tax efficiently). The government is £300,000 worse off.

There would be a point - perhaps if the rate had been 35 or 40% when the tax saving would have been too small to make the hassle worthwhile.

I'm only one individual - but there must be hundreds like me & those kind of sums of money pretty soon add up to serious amounts.

TomTom

"dampers on productivity and entrepreneurship"

BS. Employees get salary. Entrepreneurs get capital gains in Jersey. Why cut tax rates for Council Chief Executives and BBC "entrepreneurs" like Mark Thompson ?

Sean Haffey

Correlation is not causation. Remember this when next looking at the Laffer curve.

More importantly, how many of those millionaires were going to leave anyway, for a variety of reasons? If, fiftenn years ago, I'd have been offered an assignment in Silicon Valley, I'd have jumped at it, pretty much regardless of tax rates.

Now let's think about someone on say £500k a year. With the 50p tax rate, s/he will pay an extra £35,000 in tax (a bit less, but let's not quibble.) That's assuming s/he is unable to legally protect that income from tax, such as by making extra pension contributions. S/he will still be clearing between £20,000 and £25,000 a month: enough for a large house in leafy Surrey, public schools for the children, luxury cars and luxury holidays.

Now if such a person were to say "That's not enough" then you have to wonder whether the country is worse or better off if they leave.

The extra tax isn't being put there to be wasted but try to help get the government finances in order, which is to everyone's benefit.

Really, the focus should be on substantially simplifying the horrendously complicated tax system and reducing corporate tax, which will attract profitable companies, thereby reducing unemployment.

William

SH - 'The extra tax isn't being put there to be wasted but try to help get the government finances in order, which is to everyone's benefit.'

That would be valid if the government spent wisely. Governments never do. Most tax revenue is wasted; it always was and always will be.

Dennis Churchill

There still seems to be some “morality” issues about how the money is earned rather than why we pay the rate of tax we do.
The rate of taxation comes down to the size of the state. The real issue is do we want to reduce the size of the state and pay less tax or continue to have the large and very intrusive state sector we have now.
When the welfare state and NHS was created popular culture showed the manual working class as the Salt of the Earth. They are now portrayed as Chavs .Immigration on a massive and unprecedented scale has also changed our population so that there is now no common culture in many of our cities. Convincing people they should pay high taxes to support people they have little in common with is a different task than persuading them to help people they can identify with.

CB

Paul Krugman (a popular fellow round here I'm sure) linked to an interesting paper on the optimal tax rate written by Peter Diamond (2009 Nobel Prize Winner) and Emmanuel Saez.

In it, Diamond and Saez argue that the optimum direct tax rate is the point that takes in the most revenue. Which I think is fair enough.

They calculate that once you take all the disincentives from higher taxes into account, the optimum direct tax rate is approximately 70%. That's not 70% just on income tax, but 70% on all direct taxes - NI etc.

Someone above worked out that with the 50% band you pay a total of 75% in direct taxes - which would support the argument that 50% is not the best tax rate. It would appear to be somewhere around 45%.

Ian Walker

Dennis Churchill, the key thing about land as opposed to other wealth assets is that it is very easy to define (which makes it cheap to administer and hard to find legal loopholes around) and very hard to disguide or hide - you can't offshore your house.

It's also eminently fair - if a Russian oligarch wants to bring his cash to London and buy a multi-million pound house, then we welcome him with open arms, and he pays the same rate of tax on his land as everyone else. No dodgy non-dom rules, no army of lawyers and accountants. We don't tax your worldwide income like most first-world countries.

In effect, we become that killer combination of first-world infrastructure and tax-haven friendliness.

The problem is that, from the cold hard view of economics, the twenty-something banker blowing his bonus in a wine bar is far more useful than a widow living alone in a four-bedroom house. And I personally think that you should have a taxation policy based on sound economics, and they use those sound taxes to pay for your social policies. Trying to effect social policy through taxation just creates loopholes that then get exploited.

Another good reason to use property taxes is that you could scrap inheritance tax, which is a nasty bit of double taxation, because the 'moral' argument for it is that it's about wealth redistribution...but land value taxes are redistrubitive at their very core anyway.

John Moss

The top rate of tax is 57.8%.

You need £113.80 to pay somebody £100 grossafter deducting £13.80 employer's NI. They then pay £52 in tax and NI. Do the math as they say.

We need to merge IT and NI, set personal allowancees at £10k and have a flat tax rate of 40% above that with 50% relief for earnings from savings or pensions.

If you earned £40k gross today, your gross would go up to £45k-ish, you would pay £14k in tax, roughly what the Government get now from the complicated system we now use.

Percentage tax rates would be perfectly progressive from 0% at £10k, rising at the same rate as income rises above this.

What's not to like?

Dennis Churchill

Ian Walker
November 24th, 2011 12:04pm
Your widow’s four bedroom house would fall in value of course as tax was factored in. Rents would go up as the tax was passed on.Afterall petrol tax is not paid by oil companies but motorists so the same would apply here.
It still comes down to how much tax, rather than from where. Maybe we should be able to opt out of things like the NHS if we have private insurance and get an allowance.
I still believe high taxes are only acceptable in homogenous societies. Ours is now too “diverse”.
Inheritance tax should also be more accurately described as Death Tax as it is on the estate rather than on the individual amounts inherited.

Ian Walker

Dennis, I'm one of those that believe that houses falling from their current market value to something more realistic would be a wholly good thing.

Note that the usual proposal is to tax "land value" - that is the value of the property minus the notional cost to build the fixed structures and connect to utilities etc (think of your buildings insurance cover)

The idea is that this rewards the productive use of land, because to just sit on land waiting for a boom becomes an expensive proposition.

Re: IHT - ironically if they changed it so that it was per-benficiary rather than per-estate, it would help achieve the redistribution that they claim to want.

Monro

Oh, for heaven's sake!

There is loads of research into the deleterious effect of high marginal rates of tax on the total tax take.

Just google it.

Then google Harold Wilson, marginal rates of tax over 100% and the fifty pound foreign currency allowance.

Oh, and then the IMF were called in!

All the country needs is a leader prepared to be controversial and do the things that are plainly, and evidentially, common sense.

We had one of those a few years back but they don't come around that often.

libertarian

@Nick

Total crap, I'm an entrepreneur ( 5 businesses) and angel investor and also finance a lean start up incubator . I do very much care about the stupid rate of income tax. It affects me, the new business owners I back and more importantly the talented people we employ. It also effects me as we definitely DO NOT live on capital gains

Mark M

I've often thought that the obvious answer to the problem of the millionaire paying less tax than the cleaner is to tax the cleaner less. In the world as it is now, it's the only answer. Lefties can complain about the immortality of tax avoidance all they want, its not going to bring any more money in. The only way to a fairer tax system is lower taxes for all.

John

Stephen - that's rubbish. The government are aware of the loss in tax take from the increase in the top tax rate but they care about winning votes as well. This is all a tactic to win over the public. I started my own business 10 years ago and now employ over 50 people. I have created new jobs and I (and my business) pay more than £3m in taxes to the Government each year. Had the top rate of tax been 50% in 2000, I may well not have gone out on my own. Starting up on your own is a big risk - and if the rewards aren't there, why would you bother working 80 hour weeks to earn your crust?