Ed Balls got his economics quite extraordinarily wrong today, for reasons that I have already explained (see previous post). But he got the restoration of the 50p tax rate absolutely right.
I have written on this issue extensively (links here) explaining that I think this tax rate would have raised an additional £6 billion in tax a year but for tax avoidance on its introduction and demise.
We need that £6 billion now, most especially to redistribute income to create greater equality in society. The impact is also significant on economic activity - the multiplier effect of this reallocation is significant.
And the risk of significant cost to the economy is minuscule. Entrepreneurial activity takes place in companies that do not pay income tax. Capital gains are not impacted. And only those living off rents - who contributed nothing to real growth - leave the UK and still enjoy their income.
I do not in general support tax rates of much over 50% (and yes, I am aware of NIC) but think that right now clear signal of a willingness to use tax to beat inequality is vital.
This policy does not redeem a mistaken economic policy, but it's welcome nonetheless.
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Why do you not generally support tax rates of over 50% Richard? For a good chunk of the twentieth century they were much higher in many countries, including the UK and US, when rates of growth were higher, on average, and levels of inequality were much lower. Shouldn’t rates of taxation be implemented according to context?
It is purely a gut thing – but I think the temptation to avoid then becomes significant
That’s not an endorsement of Laffer – it is a recognition that there are differentials between personal and corporate Dax rates
Where will you set the threshold for the 50% rate?
Somewhere between £150,000 and £250,000 annual income, individuals stop paying tax. I could say ‘stop paying tax altogether’ but that’s not quite true: they pay about the same amoint of tax as the cleaners.
Which leads to an obvious question: if you place the threshold above the effective tax compliance ceiling, why not set the rate at 60%? Or 150%, three men-at-arms, and a unicorn?
If you place the threshold below the tax compliance ceiling, successful professionals and small-to-medium business owners will ask the other obvious question:
“Why am I paying this tax when my neighbour with a slightly bigger car is paying none?”
Closely followed by:
“Maybe I should speak to his accountant, or move from salaried work over into ‘consultancy’ and an offshore umbrella company?”
The last time the 50% band was tried, it was set at a £150k threshold and evaded by deferring cashflows -had we persisted in collecting it, we’d have netted that six billion… once. And seen the tax compliance ceiling come down, softly, taking all of it away – not just the tax within the 50% band, but all the tax they would have paid at 40%.
Last time it was tried, there was never any real intention to enforce compliance on the individuals above the ceiling.
And if there is the will, this time, why bother with a fifty-band when we’d collect all that unpaid tax we’re due at forty?
I think your comment on intention to enforce straightforwardly wrong
There is no evidence of that
Nobody actually ‘earns’ a salary of £150,000 – it is mostly economic rent borne of a privilege and can quite legitimately be taxed away. But 90% seems OK to me – similar to a 90% land value tax levied on land rent, which is entirely unearned income.
This talk of £150k is nonsense. No one needs more than £24k. Equality happens when everyone is fully taxed above £24k. People who want more than that are greedy capitalists.
People who want equality but only if they can spend other people’s money to achieve it are intellectual poseurs.
“Equality but only if I can keep my little premium” is the hallmark of the morally and ethically bankrupt.
I have to say I cannot see how taxing 100% of all income above average helps
It makes no sense – because it would reduce average incomes
If you can’t see it then let me be clearer. If anyone thinks they need more than £24k then they are greedy capitalists who have no ethics. They have succumbed to neo liberalism. Worse, they try to maintain the appearance of morality by asking The Other to fund the pious moralising.
It’s worse than neoliberal. It’s hypocritical. If one is not prepared to fund equality then that person has no ethical basis to ask others to fund it. Not without being being amoral.
I disagree
But I do live on ore than £24k and do not think that makes me a greedy capitalist
It’s your right to disagree but frankly ad hominems don’t help your casue any more than they do the right’s
90% would do! It would sort out inequality of income and have a staggering green effect automatically and people would be obliged to consider that life might be about more than “who dies with the most toys wins”. I say this in jest, of course as the sea change involved in the human psyche ain’t gonna happen anytime soon. If Thom hartmann is right , we’ve got another 40 years of neo-lib stuff until it burn itself out.
Sorry that’s a little blunt but if you can’t see the point then I need to be a little more pointed. And anyway the truth needs said. “Equality but not from me” is no equality at all, and sanctimonious posturing is just putting lipstick on the pig. It ain’t fooling anyone.
I do not argue for absolute equality of outcome and never have
I argue for a lot less inequality
If I paid more tax as a result – and expect I might – that’s fine by me
I think equality of outcome unrealistic – a single person on £24k is for example much better off than a large family
Simple measures do not work
But surely there is an argument for the French ‘super-tax’ of %75? Any one earning above 200,000 wont be using the extra in the real economy anyway, it will be laundered in some manner.
I would prefer many other loopholes were closed first or this is mere tokenism
I have little time for that
Excellent points Gary and I agree with you completely.
I earn around this figure (a bit less but thereabouts). I accept that some of my consumption (eg NHS healthcare) is funded by the State so my ‘income’ is higher than what I directly earn.
My needs are adequately met. Shelter. Food. Clean water. Access to arts. These are the essentials. But by international and historical comparisons, my life is blessed and I am indeed rich.
Anyone earning more than about the figure you say must (except in exceptional cases eg if they have a disability involving extra costs) be spending the excess on unnecessary luxuries which are bad for the planet (eg global warming), and demonstrate neoliberal selfishness.
If they are unwilling to give this excess away to charities (which are not a useful substitute for the State), it ought to be confiscated via taxation.
Tax is not confiscatory
And you are not discussing situations compatible with democracy
As such they are unacceptable here
I used the word ‘confiscated’ in the sense it be required to be paid compulsorily (ie not voluntarily).
I do agree with you that all property and money belongs to the State and therefore cannot be ‘confiscated’ from taxpayers. The State can’t confiscate what it already owns. What we get to keep is what Society allows us to keep.
Sorry if I misused the word.
This is another strange thread on here.
Whilst inequality is an issue, its a major help to the UK. Yet we forget about the people it helps every day> Why, jealously?
There are people in the World who are wealthy. They buy yachts made in Poole and Oyster made in Suffolk. They buy clothes made in the UK. They buy cars made in the UK. They travel more, on planes parts f which are made in the UK.
Closer to home, the last time Labour tried this trick it failed. It was a disaster. Now he has in a lsat ditch attempt tried it again. Of course it will win votes, thas its intention. But will equality change no, will it help anyone yes. The lawyers they will do very well, but such is life.
The nondoms is a bigger issue. We now have established the UK as a World leading business destination. People are buy houses apartments in London because the pound is a safe currency. Now is the time to let the non doms go.
Agreed re non-doms
But you’re wrong on inequality
And spending
The purchasing power of the least off is more powerful
I was trying to point out the jobs that is created by the wealthy. If the wealthy didn’t spend their money, the jobs wouldn’t be there.
But a higher proportion if income is spent by the poorest so redistribution increases the number if jobs created
Indeed -we now the wealthy DON’T spend their money, they ‘launder’ it which, presumably, is why the stock market can do well whilst an economy on the ground is stagnant or nose diving.
Income Tax is charged at the same rates on income from any source, not just employment. There used to be separate treatment of the two types of income, didn’t there? Do we know how much is paid just on the latter? With the fact that a very high proportion is paid by the top earners (so we mustn’t knock them), this might be revelatory.
I think we do need an investment income surcharge
Maybe a blog tomorrow….
A start maybe the equalisation of the higher rate tax paid on dividends to that of earned income
Agreed