I liked this letter in the Irish Times today, so I hope they’ll forgive me reproducing it in full:
When the need for public money is so crucial, it surprises me that the fairest and simplest way of raising it — income tax — is seldom in the headlines. Fair? Well, it would be if there were not so many cheats (brought up to cheat, to employ cheats or just left to cheat) in our society.
All schemes for tax evasion, tax avoidance, residence dodges and avenues to tax havens would have to go. To achieve this would create useful employment paying for itself. And then — hike away.
Instead of tax bands, a curve of tax against taxable income would be fairer and easy for all to use. A parabola whose shape, once the maximum untaxed income has been decided, could be governed by a single parameter whose value would be the other political decision. Such a curve could be merciful to those with small resources and merciless to that increasing number of citizens whose salaries have become patently obscene. Of course, bonuses, which are covert bribes, would be illegal or taxed at 100 per cent.
Utopian — or worth a try? — Yours, etc,
DAVID GIBBS,
Cullahill, Laois.
Utopian?
Definitely not.
Worth a try?
Emphatically yes.
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“Of course, bonuses, which are covert bribes, would be illegal or taxed at 100 per cent.”
Suppose I work for a high-tech company that pays me a regular salary. At the end of the year, if the company results are good, my company also pays me a bonus. It pays this out of its earnings, after accounting for its own tax and ongoing investment in business growth. As the recipient, I pay full income tax and NI on my bonus payment. My annual bonus might be around 5% to 10% of my salary, and is arguably a much better way to align my interests with those of the company than a flat annual salary.
Please explain, then, in economic terms, why paying me a bonus as an inducement to work is a bribe, whereas paying me a salary as an inducement to work is not.
@Jon Barker
I think you have misinterpreted the punctuation in the letter, which I did not write
I think it is clear that the bonuses referred to are those which are covert bribes. You are not describing such a bonus
I don’t see anything in the punctuation of your quoted letter that offers any way to differentiate between acceptable and unacceptable bonuses.
At what percentage of salary does a bonus turn from acceptable remuneration into a “covert bribe” worthy of confiscation? Does this percentage change if I accept a reduced salary in exchange for a potentially higher bonus?
Or are you simply arguing for a tax rate of 100% above a certain level of remuneration? If so, what level? Please state exactly how much salary any one person should be allowed before the state would cap it entirely. Then explain how this cannot be in conflict with the notion of a free society.