Our rulers
2:57pmFun story from Michael Crick about the sisterhood meeting at the Labour Conference. One thing did rather worry me though.
At one point Polly Toynbee raised her favourite topic, asking whether Labour should increase taxes for richer people, as she argues passionately.
Jacqui Smith said she thought this was a terrible idea, a great betrayal of everything Labour had promised and stood for since 1997.
She was backed by Ruth Kelly, and I'm told, Tessa Jowell, who warned that if the rich had to pay more tax they would all flee to New York.
Umm, I wouldn't have thought they'd go to New York, no. Income tax there is 47% (35% Federal, 8% State, 4% City), so while they might well leave it won't be New York they go to.
What worries me is that Kelly and Jowell are two that help to rule our own fair isle. Shouldn't they know this sort of thing?
Alfred T Mahan
September 25th, 2008 5:51pm Report this commentWhether or not New York is cheaper depends on whether the "rich" and their employers pay National Insurance or not. Assuming for simplicity that the rich earn over £40k a year, the upper earnings limit for Class 1 NICs, an employee will pay 40% IT plus 1% NI on marginal income, and the employer will pay an additional 12.8%.
Thus of a direct employment cost of 112.8 units, a Londoner and his employer will pay 40+1+12.8=53.8 in tax, leaving him with 59.
A New Yorker and his employer, on the other hand, will pay 112.8*47%=53.0 in tax, leaving him with 59.8.
Below the upper earnngs limit the New Yorker wins hands down on take home pay.
I hate to say it but Mss Kelly and Jowell are right and the cost of employing someone in London is already higher than in NY.
But doesn't this just show that we need to get rid of NI so we can make these comparisons easily and not be bamboozled by totally spurious claims that we pay a top rate Income Tax of 40%?
Tim Worstall
September 26th, 2008 4:27pm Report this commentUmm, no, sorry Alfred.
The US has something similar to NI, called Social Security. 12% I think, half from employee and half from employer. If I'd included SS and not NI, you would have been right, but I excluded both of them.
Alfred T Mahan
September 27th, 2008 6:19pm Report this commentOops! Thanks for putting me straight. I still think NI is an unnecessary obfuscation, though!
DBX
September 30th, 2008 4:01pm Report this commentAlfred, you're right and you're wrong. US Social Security, unlike NI, is capped, so income over about $100,000 a year or so doesn't get hit with it in the way that it does in the UK. HOWEVER, US employers have some other things to worry about. First off, health insurance. Because that is private in the US, that's another guaranteed expense for the employer, about $5,000-7,000 a year or more in the NY area for the employee plus each insured member of the employee's family. And even if the UK employer provides BUPA or something similar, BUPA premiums are far lower than their US equivalent because they still have the NHS to fall back on for things like casualty and trauma.
Second up, property taxes in the US, both residential and commercial, are very high.
Third, bear in mind that taxes on the rich in the US are at an historically low level, and are likely to go up. Obama has proposed a reform of the US Social Security system that is a watered down version of what Brown did a few years ago with Class 1 NICs, and additionally he has proposed to cancel the Bush tax cuts for those making over $250K. So we'll end up overall back at Clinton-era tax levels, which are considerably above what the rich pay in the UK.
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