50p tax rate will discourage entrepreneurship

Chuck Unsworth

Why is Susan Boyle standing alongside Darling?

Chris lancashire

Yes, shades of the 10p tax rate in reverse - politics interfering with revenue raising.
No it won't raise any more money because the Darling just made interesting enough for those who can avoid it to do so - and we will.

It bears similarity to the tax raising on company cars. When it began in the 80's most of us were happy to pay. As the tax increased to present stratospheric levels, those who could opted out by running their own car and charging mileage - once again I would be happy to bet that the tax take on co. cars has gone down.

They just don't realise that they need our agreement to tax us.

Rhoda Klapp

This is not particularly true. If you want to preserve your income from 50% income tax, get a limited company. That's if you are the kind of entrepreneur who expects to make tons of money. Most don't, or take several goes before they do. In the old days, losses could be set against tax. Nowadays that is very dificult. That is what puts off entrepreneurs. That and the sheer hell of employment laws, red tape, H&S, etc etc. It looks like most of the 50% payers will be council employees, quango leaders and so on. Sod 'em.

colin c

Government by crass political stunt would very aptly summarise Brown's approach to politics.

It may well be true that revenue will fall or increase insignificantly and I wouldn't be surprised to see the 50p rate reversed in a first or second Tory budget. But Cameron is right not to get drawn into a political fight of Brown's choosing but concentrate on wider issues that directly and immediately concern the majority of voters.

I agree that supporting new and growing businesses is essential but would prefer to see more focused tax breaks for businesses and the self-employed. Many people on 100k+ are not entrepreneurs at all and take no risks or worse take risks with other people's money.

Jeremy

"Independent forecasters have predicted that it (the 50p top tax rate) could well lose the Government revenue..."

What's government revenue got to do with it?

The impression I get is that in the Labour Party economics comes a poor second to politics. And the politics is that of class envy, class resentment, class division and class revenge. So the 50p top tax rate has got nothing to do with raising government revenue (which it won't). It's all about whacking them nasty top-hat wearing toffs and them aristocrats. Who do they think they are, anyway? They think they're better than us. And they don't eat pies. Not the pies we eat, anyway. Nor chips, neither. They eat little furry bunny rabbits. And hamsters, with their little shining eyes and quivering noses. Oh! The heartless brutes!..*sob!*..And never mind the rest of it - government revenue, wealth creation and job creation. What's all that about anyway?

No. It's all about hurting them evil hamster-eating toffs. That, and harvesting the votes of the pinched-mouthed and the mean-minded. After all, there might be millions of 'em, and they've got to have something to vote for, haven't they?

It might as well be Labour...

Joanna

Matthew, shockingly you can't do maths - at the moment you pay 40% tax and then 40% of the remaining 60% as IHT, making 64% in total, not 90%. And that's not taking into account the lower 18% rate of CGT or the significant allowances involved.

Moraymint

Doesn't the Government save jobs, create jobs, make jobs, protect jobs etc etc then?

If you listened to Lord Mandelson et al, you'd think that entrepreneurs were a sideline to the all-powerful state.

This is what happens when you let an unreconstructed socialist run the country for 12 years: initially with his hand up puppet Blair's back and now, to his grief, in the spotlight.

Brown thinks the 50 p tax rate is a brilliant idea, so who are we to argue?

BrianSJ

When we get a government a year from now, one of their many challenges will be how to wind back employment legislation; as Jeff Randall found out in his tour of the country a while back, this is the major barrier to growing businesses. Much bigger issue than tax rates.
Till then it is just earth-scorching gimmicks where there ought to be government.

oldtimer

I agree with your analysis. As cpmmented before, we need Adam Smith`s invisible hand at work to revive the UK economy. That will not happen with a stupid tax regime - whether it is inflicted on individuals, entrepreneurs or corporates. The evidence is plain; they either quit the UK or, alternatively, they don`t bother any more. That is no way to run an economy.

Jeremy

Chuck Unsworth:

"Why is Susan Boyle standing alongside Darling?"

Because she fancies him.

Either that, or he's got Simon Cowell's body inside that briefcase...

Matthew Sinclair

Joanna,

Take a look at our report. My maths is fine, the sums are just more complicated than your simple multiplication - there is compound interest to consider. There is a top marginal rate of 90%, rising to 92%, on income earned, saved and invested in a company then passed on to children.

Best,
Matt

Nicholas

The tax burden is too great and pays for obnoxious lefties like the one mentioned in another post sitting on a taxpayer funded lefty quango committee two days a month and getting 18k a year for it, no doubt dreaming up more stupid ideas and regulations to burden us all with even more tax and red tape. That is the kind of nonsense that should be stopped, Brown you blood-sucking imbecile.

Come back Robin Hood, we need you. The robber barons are now called lefties sit on quangos.

Bluebottle

While the 50p tax rate has grabbed the headlines, what has been overlooked is that as a result of some crass stupidity by Darling those with an income of between £100,000 and £113,000 will be paying a marginal rate of 60% because of his wheeze to phase out personal allowances. Those earning over £113,000 will actually pay tax at a lower rate than those on less. Such brilliance!

Only the poorly advised will pay it. Others will be paying their accountants to find a way out of it (and there are quite legitimate ways to avoid paying).

40% of something is still something. 60% of nothing will always be nothing.

C Powell

Rhoda: "It looks like most of the 50% payers will be council employees, quango leaders and so on".

No - there are plenty of others who work hard and contribute to society who will be hit by this and who are not at all pleased at, effectively, being forced to spend the majority of their time working for the state. Oh - and note that the marginal tax rate at £100k will be 60% because of the interaction of the higher rate and the withdrawal of the personal allowance - it goes down to 50% at a higher rate. Yet another example of Labour's malicious and complex incompetence.

The lesson is that under Labour there's no point working and saving. 'Twas ever thus ....

Draughtsman

Not really to do with the 50p tax rate, but I am self employed, and considered for a time taking on a bright young person interested in getting into engineering design to whom I could pass whatever skills I might possess after many years in the profession. When I looked at the red tape and legislation involved I rapidly abandoned the whole idea.

Most of my friends who are in the same line of work and I all agree that when we hang our boots up there will be very few properly trained engineering draughtsmen around. Youngsters just don't get the old fashioned training and apprenticeships that were common in my day. Great shame.

Ray

Hell, who cares if the Government actually loses more money than it gains from the 50p rate. Brown's building a workers' paradise, after all.

MK

Don't forget the 2008 increase in CGT on shares in startups from 10% to 18% and end of taper relief.

This was a major incentive for people to start businesses and the fact it was applied retrospectively was a kick in the nuts to all the people who generated much tax revenue from growing businesses in the UK during this last decade.

David Ossitt

Moraymint.

"initially with his hand up puppet Blair's back"

Moraymint; you are too kind to them, it was not his back that the hand was up.

Joanna

Matt

Not true - you have indeed got it very wrong indeed. Your formula (1-t1){[1+r(1-t2)(1-t3)]^T}(1-t4) assumes that corporate profits are subject to both corporation tax and capital gains tax, and ignores the way that personal dividend tax credits reduce the effect income tax rate on dividends. Either corporate profits are paid out as dividends, in which case they are not subject to CGT and are grossed up by the dividend tax credit for income tax purposes, or they are reinvested and add to a capital gain in which case they are not subject to income tax. So you've done a lot of double counting.

Your reputation as a credible think tank would be enhanced if you didn't trot out nonsense like this.

FU, Qatar

Greetings from the Middle East. I'm here with numerous other non-tax paying UK ex-Pats building up a nest egg before we retire to a suitable Country that doesn't view us as fodder to fund their pet idiotic schemes. Most of us won't set foot in the UK again (certainly for not more than 90 days per year) We'll find ways to get our pensions and we can afford good health care because we pay for ourselves and not to treat the rest of the world with an over-managed, broken-down job-creation scheme.

The UK is now full of aliens, all sending their earnings home and never properly scrutinised by the tax man for fear of the race lobby. Don't believe me? Ask a taxman how many in-depth VAT investigations they do on corner shops.

We watch with sadness as the revenues plummet and the old country slowly becomes the third world.

Alf Tupper C.R.O.F.

I'm trying to figure out why, just because someone wears a top hat and has loads of money and is therefore 'a toff', they would have an insatiable desire to consume hamsters?

Scott Chegue

Bluebottle.

"Those earning over £113,000 will actually pay tax at a lower rate than those on less. Such brilliance!"

There are many who would consider that a most agreeable situation.

In fact, upon reaching such a salary as can meet the fees of the very best advisers, we can attain that perfect state of not paying any tax at all.

We can leave all that sort of thing to the millions of oiks who litter our streets. (We being the wealth creators and they having played no part in any of it)

It's all so yummy.

Ian Walker

The 50p rate just makes a good accountant even better value for money.

Surely even the Labour faithful know that it's gesture politics - anyone earning that kind of money knows full well how to avoid paying pretty much any tax at all.

Thatcherboy

Why punish the rich with this socialist driven tax on success.
Abolish this lunacy of giving money to scrotes.....it encourages them to breed. Tax the poor.....a lot of them deserve it

Ollie

Joanna:

Here is my calculation:

Step 1: I earn 1 pound.
Step 2: It is taxed at the highest margin rate of t1
I’m left with (1-t1)
Step 3: I invest it in a company which is able to generate r return before tax in one year
My original pound is now worth (1-t1)[1+r]
Step 4: The company pays corporation tax on r at a rate of t2
My original pound is now worth (1-t1)[1+r(1-t2)]
Step 5: I sell my investment, and pay capital gains tax on the gain at a rate of t3
My original pound is now worth (1+t1)[1+r(1-t2)(1-t3)]
Step 6: I repeat the process for T years
My original pound is now worth (1+t1){[1+r(1-t2)(1-t3)]^T}
Step 7: I leave the money to my children, which is taxed at the inheritance tax rate t4
My original pound is now worth (1+t1){[1+r(1-t2)(1-t3)]^T}(1-t4)

This is the formula in the original paper.

The dividend tax credit is only 10%, and so if the company pays out profits as dividend, the tax situation would be even worse for me.

As for fixed allowances, this calculation specifically says that it is referring to the marginal tax rate, which is the one that affects incentives to earn the extra pound.

I can see why at first glance you thought there is a mistake in the formula, but the fact is, company profits ARE subject to both Corporation Tax and Capital Gains tax before they reach an individual.

I wonder whether you sprayed the abuse at the Taxpayers Alliance rather too hastily?

2trueblue

The 50p tax is just a sop to the left. There is no logic to much of what this government do, it is all just noise. Love the bit this morning from Mandy saying Cameron just talked and had a nice smile. All the government do at present is make statements that are pretty vacuous.

Who is the chipmunk on the left?