Labour planning new 45p top rate of tax

Richard Holloway

The left reverts to type. We will be in recession for a very long time if this is the plan to get out of it.

Patrick

This will be a 'jam today bankruptcy tomorrow' budget.

If you tell people they will get some tax cuts for a limited period but then will have to pay it back with interest next year then there is no stimulus. The PBR will fail on its own terms.

The only critical thing now is to preserve the UK's national creditworthiness so the state can support the banking system. That means dealing with debt.

It is a sad truth that Brown's electoral needs and the country's financial needs are at polar opposites - and we know from past form exactly which of the two Brown will give succour to.

Travis Bickle

The reaction of the high rate taxpayers ; "so what", as they pick up the phone to their accountant who will tell them exactly how to , completely legally, avoid paying the higher rate.

Net benefit to treasury , zero at best, probably negative. Brilliant Brown economics at their best.

Andrew

Pleasingly, one bunch of high earners who can't de-camp to avoid super-tax are the quangocrats.

Presumably the Television Tax will need to rise to compensate the D-G for eroded earnings.

How much do we pay Pesty and Toenails?

Gordon Musgo

PMQ: Does the PM know what is meant by the Laffer Curve?

Will he be liable for the new rate himself?

Mark

PUre politics. Nothing to do with economics. Looks as though your buddy Mandelson hs taken over the Treasury.

This is playing politics at a time of economic crisis and should be exposed as such.

cuffleyburgers

And so the great election campaign goes on, funded by our grandchildren...

Of course anything intelligent or done for the greater good of the future of the country such as trimming spending, sacking quangocrats etc has not even been mentioned. Only raising the tax take.

This really epitomises, if such were necessary, the moral and intellectual bankruptcy at the heart of this government in general and this Prime Minister in particular.

David

"Does the PM know what is meant by the Laffer Curve?"

Dunno, but few people appear to. It does not, as people seem to suggets, stipulate that if you drop taxes, revenue will rise.

The curve is also a curve in a traditional sense - it goes up, peaks, then goes down.

What it states is that if taxes are below the peak, a rise in the taxation rate will bring a rise in revenue. Conversely, if taxation is above the peak, a rise in taxation will bring a drop in revenue. The key therefore is where one is on the curve.

Unfortunately the tax headbangers appear to have forgotten the first bit and appear to believe the curve is a downward sloping straight line.

JoeS

Good point here from David.

What the headbangers seems to be forgetting is that in the period in which you are coming out of recession the laffe curve ALWAYS moves to the right - meaning that your tax rates can increase as growth in the economy increases.

The political opposition of tax masquerading as economic fact on here is amazing

john

The PM gets just under 189,994 so will be 749.70 (0.39%) worse off. No other ministers will be affected. I appears the governments definition of a high earner is anyone who earns more than they do. I am sure the nation will be relieved to know that ministers will not be suffering

GS London

Surely this is what a flat rate tax is best for everyone? I wouldn't mind paying 20%, even if someone on £600,000pa paid 20%. I don't think a tiered taxation system is fair at all. It chokes ambition.

Nick Kaplan

There are a few points that David and Joe S are missing even though what they say about the laffer curve is true.

Firstly the amount of people earning above £175,000 is so minute that the revenue raised by such a change, if on the upward sloping part of the laffer curve, will be minimal; not enough to even make a dent on the huge debt Brown is racking up. From this one can only conclude that Brown is introducing it as a political ploy and those on the left that support it only do so out of spite and envy, not because of the effect it will have.

Secondly, the types of people earning this kind of money are the most mobile and thus the most easily able to avoid such tax rises by moving somewhere with lower tax rates, thus it seems fairly likely that we are on the downward sloping part of the laffer curve and thus there is a good chance that such an increase will have negative revenue effects. From this one can only conclude that, not only is this a political ploy, but it’s a dangerous one as well. Brown therefore is putting his own political interests ahead of the long term interests of his country.

Finally, from an ethical point of view it is absolutely abhorrent that government should act so profligately and then, when the chickens come home to roost, pay for it by appropriating what others have worked hard for. Even if this were to raise revenue it would still be theft and therefore unjustified.

Unfortunately the leftist headbangers here appear to be so consumed by envy and hate that they cannot be bothered to rationally analyse the situation.

David

"I wouldn't mind paying 20%, even if someone on £600,000pa paid 20%."

This figure tends to be bandied about by flat tax proponents with alraming regularity, such that it's quite clear there is no economic rationale behind it, rather it is the figure that sounds good and what they would like.

In reality, a flat tax is likely to be at a level of above 30% in order to obtain the requisite amount of revenue.

Once you understand this, the political problems of a flat tax become clear - the middle class gets totally walloped.

"Firstly the amount of people earning above £175,000 is so minute that the revenue raised by such a change, if on the upward sloping part of the laffer curve, will be minimal"

Yes. And? I'm only answering the laffer curve point, not making any wider point about the pros and cons of the proposed tax rise in this case.

"Secondly, the types of people earning this kind of money are the most mobile and thus the most easily able to avoid such tax rises by moving somewhere with lower tax rates, thus it seems fairly likely that we are on the downward sloping part of the laffer curve and thus there is a good chance that such an increase will have negative revenue effects"

It's really pure supposition on your part. For example, a large number of high earners agree with the idea that they should pay more tax, even if they rightly conclude they shouldn't pay more than 50%. Further, as you point out, the sums involved are minimal, hence the incentive to start looking into avoidance may be low, resulting in the increased revenue, however small. We don't know. But again, my point is merely to rebut the notion that the Laffer curve provides that a rise in taxation must result in a drop in revenues, when it does no such thing.

"Even if this were to raise revenue it would still be theft and therefore unjustified. "

Unless you beleive taxation is theft period, which would be highly odd and rather problematic, this is nonsense hyperbole. There is certainly an argument to be made with respect to goverment profligacy, but this isn't it.

Simon Stephenson

This latest move gives us the opportunity to bring back into the public focus two myths:-

1. That people who get paid massive incomes actually "earn" these amounts. Mostly, they don't. They acquire such multiples of average spending power because the system allows them to do so. It really doesn't bear any relationship to the intrinsic value of what they contribute in return. Very largely, the system has created a game that high-earners have become very good at playing. No more, no less.

2. That confiscation through taxation is an effective way of handicapping those who have learned the most effecive way to succeed in the game. It isn't. It assumes that taxation isn't part of the game, and that therefore the behaviour of the successful will be unaffected by changes in the taxation rules. If the "game" was about maximising gross income, this could be true. But it isn't. The game is about maximising acquired spending power, and as obstacles go, tax rules are one of the more important.

If we really want to reduce the level of income inequality, we need to change the focus of the game, not the rules under which it is played.

Nick Kaplan

“as you point out, the sums involved are minimal, hence the incentive to start looking into avoidance may be low”

Actually David, what I pointed put was that the sums involved are minimal to the government, £1 billion when spread over 60 million people and compared to a deficit of £100 billion is nothing. However £1 billion spread between the very few people who actually earn over £175,000 is a huge amount of money, the incentive to avoid this tax will be great. (1 billion being the amount this is expected to raise on a static asumption)

“Unless you beleive taxation is theft period, which would be highly odd and rather problematic, this is nonsense hyperbole.”

My argument about theft does not rule out tax completely because there are legitimate reasons to tax people at a fair level. However taxing some at 45% to help bailout an incompetent government from its own mess is neither a justified amount nor a justified reason, this proposal is theft. To say this is nonsense hyperbole is to fail to make a distinction between legitimate taxation and illegitimate appropriation of the property of others. And there clearly is a distinction to be made; I would for example hope that you would agree that if the government taxed all people at 75% it would unjustifiably be stealing from them, I would just draw the line a lot earlier.

Simon Stephenson:

What is the “intrinsic value” of what is contributed? A profit making company will not pay anyone above what they contribute to the profits of that company i.e their Marginal Product of Labour, since to do so would be to lose money by employing that person and therefore to not profit from his employment. Thus if value is actually measured along the only sensible lines i.e the value of what that person produces then workers rich or poor will often get paid a small amount less then what they contribute, the fact that they accept these wages however shows that they value the wage more than the Labour and thus the transaction is legitimate. Why crazy disinterested socialists such as yourself should feign moral outrage at transactions made by 2 interested parties is beyond me, the only reason you could care is envy. Why don’t you mid your own business?

“If we really want to reduce the level of income inequality, we need to change the focus of the game, not the rules under which it is played.”

And if we are not envious cretins and do not care about income inequality the only thing we need to change is the amount of government intervention. Why is it that people such as yourself (socialists) seem to think that need is defined by envy, greed by wanting to keep what you earn and charity by how willing you are to spend other people’s money?

Simon Stephenson

Nick Kaplan

If you'ld like to re-phrase your comment as though you had respect for the human being to whom you addressed it, I might consider replying to it.

Christian Gowers

Far from this being economic policy it is clear party politics.

He knows that defending the right of the rich to keep money isn't popular with the electorate, so what he wants to do is make this a key 2010 election issue. He's daring the Tories to pledge to scrap it just so that he can accuse them of focusing on the rich minority.

Only Gordon would think of something like this

Nick Kaplan

I cannot sum up any feeling better than contempt for socialist views... sorry.

Jimmy Ainsworth

Nick Kaplan :-

If that's your argument, please call me A Big Fat Socialist from now on.

"A profit making company will not pay anyone above what they contribute to the profits of that company" - true to an extent but are you seriously suggesting the CEO of Lehman Brothers had a bonus package of a similar percentile to the contract cleaner who hoovered his office?

You've probably got some valuable points to make - I assume they're on another blog, as they aren't here - what cannot be argued, surely, is that the current financial mess is down to the largesse and risk-taking of the higher echelons of command in our major financial institutions, married to the insane use of credit by the masses (inspired by the housing market boom). To expect the top 1%, many of whom have created the bloody mess in the first place, to cough up a little extra isn't thievery or communism.

Does the fact that the government has been almost forced to nationalise swathes of our banking system not mean anything to you? That laissez-faire capitalism has just about eaten itself?

Simon Stephenson

Nick Kaplan

"I cannot sum up any feeling better than contempt for socialist views... sorry."

Well, you're not actually sorry, are you. Otherwise you'ld do something about it.

It's not as though I've strangled your mother.

Nick Kaplan

Jimmy Ainsworth says:

“true to an extent but are you seriously suggesting the CEO of Lehman Brothers had a bonus package of a similar percentile to the contract cleaner who hoovered his office?”

CEOs make decisions that earn or save in the region of 5-10% of a company’s productivity. When this occurs for large multimillion pound companies such decisions amount to hundreds of millions of pounds thus the marginal product of CEOs is often hundreds of millions of pounds and they are paid accordingly. The same is not true for cleaners whose marginal product is sadly far lower and hence no company could or person could plausibly value their work at a high wage rate.

Your point about the financial mess is far better and more interesting. I suppose you are right that the irresponsible bankers do owe disproportionately, although incompetent government policy was greatly responsible as well. However this is not what would have happened under a free market (where the banks would have gone under to the cost of bankers) so I guess all bets are off regarding them. However, not all people earning this kind of money are bankers and it seems unfair to me to charge all those earning over £175,000 more tax just because of a few of them (including our PM) have been monumentally incompetent.

Also, the mess has virtually nothing to do with Lassiez faire capitalism given that we have nothing of the kind (NB: I am not arguing for Lassiez faire), this crisis has been the result of incompetent government policy which encouraged ludicrously risking banking (The Community Reinvestment Act, the implicit guarantees of Freddie and Fannie across the pond, mixed with hopelessly low interest rates, a government spending and borrowing binge and a hopeless regulatory system here). It’s a horrible mess that will require big changes to government policy in the future, but to take it out on successful workers who are not to blame is wrong.

Simon; I suppose your right, I’m not sorry. It’s the socialists who have a hell of a lot to apologise for .