The Lib Dems are obviously very sure that the 50p tax rate is going in the budget. I have already explained the substantial cost that will be suffered if we do so, and the statistics that may be manipulated if the Tories decide to adopt this course of action. What is now clear though is that this issue is not being decided rationally - because if it were there would be no question of it being abolished. This issue is being decided politically.
There are likely to be three options available. The first is retaining the 50p tax rate. Everyone, bar the right wing of the Tories and the self interested would claim this as a success. That's almost certainly why George Osborne won't do it, although since the move would appeal to the vast majority the politician in him should follow his instinct and please the crowd on this occasion - because they can be right.
The worst case is that the rate is simply abolished and no alternative action is taken to ensure that those who benefit pay any other tax. I have argued that no mansion tax or tycoon tax could possibly make up the loss, but no attempt being made could of course only exacerbate the problem. The Lib Dems may be tempted into open rebellion. The future of the coalition would have to be in doubt. And there would be righteous indignation tending towards outright confrontation in the country at large. The sheer blunt political bias that such a move would present could not be assuaged by any claims on disincentive effects: no one (quite rightly) believes they exist, and equally thinks that if ever there were punitive effects of tax changes then those on parents on benefits deserve much more attention. Despite this the possibility of the 40p rate being restored seems very real.
And then there's the fudge that the coalition may produce - a cut to 45p. This will signal three things. The first is that the case for the tax rate raising money has been conceded. The second is that the political significance of the rate in delivering tax justice will have been conceded. And third it will say despite such obvious evidence that these first two present that the Tories will serve their own come what may. In that case the compromise may be the worst possible outcome of all for the Tories: they will have conceded that what they are doing is irrational and purely self serving but will have done it none the less.
A 45p rate is the outcome I now expect.
If they do it's a gift. Let's use it.
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Or this is the standard management technique of floating a worse option ahead of an announcement. So the already agreed 45p rate is readily accepted.
I don’t think this sentence makes sense “What is now clear though is that this issue is now being decided rationally – because if it were there would be no question of it being abolished. “
Amended, thanks
Here’s the NY Times on the myth of the disincentive effect:
http://economix.blogs.nytimes.com/2012/03/13/would-a-higher-top-tax-rate-raise-revenues/
I imagine that that should read, ‘not being decided rationally’, NOT ‘now being decided rationally’.
Indeed
Amended – thanks – trouble of blogging whilst checking maths homework
Whatever Osborne is doing tomorrow, he’s already announced a new anti-avoidance measure in advance. But the cynic in me thinks the level of thunder expressed at these avoiders is inversely proportionate to the amount it will actually raise. He wants to sound “tough on tax avoiders” today to draw fire from a more substantial gift to the rich tomorrow.
Whatever – its a ‘tipping point’ – for it shows how ‘bold’ the Tory Right have become and with the proposed cuts in public service employee pay and family income cuts due in April this gives Labour a chance for a harder attack .Moreover the LibDems will inevitably suffer losses in their urban & university town seats. I expect the press will defend this help for those on a quarter of a million a year and the BBC too will regugitate it in a neutral manner. Its an iconic moment.
It is clear that your estimate for the amount of tax raised by the 50p rate of £7bn is way out. I have not seen one serious report which approaches anything like that number – perhaps you could direct us to one (not your own for the TUC).
Even the most optimistic suggest £1.5bn tops, with most suggesting about £800m and a few even suggesting negative amounts.
Given that your £7bn figure was prepared using figures from HMRC which you now declare to be rubbish, should you not withdraw that estimate?
The serious report that agrees with me is HMRC’s
And I have not declared their report rubbish. I said growth of 9% implicit in it was not plausible.
That would reduce the estimate from around £6.7 bn to about £6bn
The rest of the estimates are outside any plausible range and assume avoidance behaviour that cannot be estimated and if it is happening must be stopped
But the error is by everyone else – as I think time will tell
Surely a better way would be a 2p cut a year for 5 years – shows a commitment to reduce what was after all intodcued as a temporary tax, but each years move is too smal to encourage income shifting between years.
Personally I would prefer to see the allowance loss for people over £100k removed and the allowance raised to £10,000 before the 50p tax is removed.
Don.t you believe it
I assure you 2p a year would be a gift to planners
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