I note a letter in the Telegraph this morning which seems to go something like this:
Dear Sir,
We are concerned to see Ed Balls and the Labour Party calling for higher taxes on businesses and business people.
We don't like this, at all. We think Ed Balls is being mean and beasty and nasty and is just a jealous little man.
As a result we're going to punish Ed Balls if he does this by cancelling the investment he wants us to make in the UK even though our shareholders will suffer as a result.
What's more, we'll shift some jobs abroad as well. Most of them will be for those polishing the brass plaques on our new tax haven headquarters.
Now get really frightened.
Your sincerely
I think I've got that right.
There will be plenty more of these by May 2015.
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http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10598351/MPs-to-scrutinise-50p-tax-rate-proposal-within-weeks.html
Also from the Telegraph, to be fair.
Business is now recovering, it was the private sector that managed to do this. Not the public sector. There has been no real data to show any money raised from this tax increase. There is data to show people left the country, companies moved and jobs lost.
You mean £375 billion did nothing?
And banks bail ours were irrelevant ?
Please let’s have a sense of proportion here
Your claim is pure nonsense
What has QE or bank bailouts got to do with the above Telegraph article regarding the 45/50p tax rate change? Both HMRC and the Treasury select committee have evidence to show the 50p rate returned less revenue than the lower 45p rate.
By all means support the 50p rate, but you can’t do it by claiming it raises large revenue. Support it for being the nakedly political, soak-the-rich class warfare it is.
No they do not have evidence
They have assertion
Not the same thing at all
“No they do not have evidence They have assertion Not the same thing at all”
http://www.hmrc.gov.uk/budget2012/excheq-income-tax-2042.pdf
Looks pretty well evidenced to me.
You simply have an assertion based on a linear model:
http://www.taxresearch.org.uk/Blog/2012/02/29/the-50p-tax-rate-lets-shatter-the-myths-behind-the-telegraphs-letter/
All you have done is taken the total taxable income of those in the 45/50p bracket and multiplied through by the 5% change. Totally ignoring tax inelasticity and behavioural changes. I certainly can’t find anywhere where you have done a thorough analysis of the problem – if you have please direct me to it.
I have already challenged that work
I can’t be bothered to do so again
If so, could you post a link to your calculations and model?
As it is, all I can find is the most basic linear extrapolation, suggesting an increase of the tax rate by 5% would generate an extra 5% of revenues – an argument which will never hold up in real life.
Google will do the job for you
£375 billion? Where does that number come from? The cash injected into the UK banks was far less than that. If you are referring to the government guarantees that allowed the banks to reduce the risk weighting on the lots of their assets, the government was paid a hefty insurance premium for that, and as the only guarantor able to create a 0% risk-weighted the government was able to ensure that it was paid handsomely for its troubles.
QE
OK, using google I have found this article by you:
http://www.taxresearch.org.uk/Blog/2012/03/08/the-50p-tax-rate-will-raise-more-than-6-7-billion-according-to-hmrcs-data/
Where you use a simple linear model. You simply take the average income in band, take the part subject to the 50p tax, take 10% of that and then multiply up by the number of taxpayers in the band. It’s a purely linear model, and ignores every other factor.
Unfortunately the link to this particular article you wrote on the TUC website seems to be down, or the page removed – so I can’t tell if your model has any more to it, but on the face of it, there isn’t. The same work in the link above also appears on the LSE website.
As such, your model is incredibly basic, and the answer you get at absolute best can only be an upper bound.
As we know, tax avoidance in perfectly legal ways will reduce the tax take. Indeed, I understand you yourself arrange your tax affairs via a partnership with your wife (perfectly legally) to be tax efficient. If an anti tax avoidance campaigner does this before he is (I assume) paying tax in the 50p band, it stands to reason that the rest of those in the 50p band will also try and minimise their tax bills.
Your bold assertion that you are right and HMRC are wrong is simply that. Looking at the evidence, HMRC’s carefully woorked and argued estimate might be wrong, but it is certainly closer to the truth than your estimate – which is literally the most simplistic calculation one can do to get an answer.
Sometimes simplistic work because that is what the world is
And oddly, people don’t just ‘disappear’ income as you assume – for many it’s not that easy
“Sometimes simplistic work because that is what the world is”
Except we know in this case it isn’t simple. You simply CANNOT use a linear model for tax, where behaviour has such a major affect – and all the evidence shows this to be the case, and tax reciepts to be non-linear.
“And oddly, people don’t just ‘disappear’ income as you assume — for many it’s not that easy”
It really is easy. All it takes is a call to the payroll department to increase my pension contribution from 7.5% to the maximum 12.5% – reducing the amount of tax I have to pay, prefectly legally. That’s before talking about things like ISA’s, and then more complicated structures. The more someone earns, the more financial sense it makes to plan tax affairs to save money.
As I say, you yourself have planned your tax affairs (perfectly legally) to minimise your tax bill via your partnership with your wife, and as I understand it you aren’t in the 50p bracket. If it makes sense for someone in the 40p bracket (again, I assume) to plan for tax, surely it makes sense for those in the 50p bracket to do so?
I think you should recall that the data I extracted was straight from and not an extrapolation of Treasury data from 2009/10
Your claims are wrong
HMRC said the tax would work in 2009/10 and did not in 2011/12
Or rather, they were told to by 2011/12
And for the record – I save no tax by a partnership with my wife: she is (except when suffering a long term illness, as she has been) a 40% taxpayer
So shall we stop the silliness?
I understand the only partners in your partnership, Tax Research LLP, are you and your wife. I assume you do most or all of the work in TR LLP.
As such, one can only assume that the structure is in place to share income between the two of you to minimise the tax bill, and/or to avoid paying employers NICs.
Either way you are legally minimising your tax bill.
“I think you should recall that the data I extracted was straight from and not an extrapolation of Treasury data from 2009/10”
But you took the tax due, then added 10% to it to simulate a 10% rise in the top rate, and claimed that as the amount of extra revenue raised without accounting for TIE and other behavioural changes etc! I’m not claiming you fiddled HMRC data, I’m just saying your treatment of the data is simple at best, and could only ever be the absolute upper band for extra revenues raised. The extension of your working would suggest that each subsequent 10% rise would give you an extra 10% revenue, which is clearly incorrect.
Regardless, I offer my best wishes to your wife in her time of sickness.
Maybe you’d like to read my evidence to the House of Lords yesterday when published
All your assumptions are wrong
As they are on my data extrapolations
You are really getting rather tedious
Expect to be deleted soon
The usual right wing nonsense. Who caused the virtual collapse of the ecomomy William? Answer, some of the best paid people in the private sector, working in the banks.
What, at enormous cost to itself then, now and in the future, rescued the private sector from the results of the fecklessness, incompetence and greed of some ot its members? Answer, the British state.
Where would your wonderful private sector be now if it hadn’t been rescued by the public sector; you know, that public sector that the right so dislike and are so reluctant to pay taxes to?
Probably won’t get past Mr. M. but here goes…..
The public sector did not rescue the UK economy….the funds provided as security by the UK taxpayer to HMG rescued the UK economy as HMG was able to borrow against that income stream.
The public sector and the taxpayer are, most respectfully, not one and the same.
In the same way the taxpayer paid a massive sum of cash to the public sector BBC to help pay for the BBC pensions deficit because the ‘public sector’ boys and girls in the BBC went on strike instead of paying more in.
When it comes to ‘corporate welfare’ both organisations in the private and public sector are more than capable of sticking their hands out and demanding the taxpayers foot the bill.
The return from dropping the 50% rate to 45% increased by a considerable amount. is Balls really going to let his vindictiveness reduce the tax take from the rich?
And we ordinary people have a big beef with Labour policy to – the theft of millions from our occupational pension schemes for instance!
There is simply no evidence to support that claim
Or the claim re pension schemes
Here is a fairly balanced article about Brown’s pension raid.
http://www.bbc.co.uk/blogs/thereporters/evandavis/2007/04/that_pensions_raid.html
There were other reasons, but it is abundantly clear that the change in pension taxation was designed to raise money.
Evan Davis, balanced?
Oh come on….
Richard,
There is clearly evidence to support Neil’s pension claims. It was Gordon Brown’s removal of Advanced Corporation Tax. The cost of this is somewhere around £100-£150bln according to the institute of Actuaries. Britain used to have a world class pension system. Now, hardly a day goes by without comment of the pension crisis we have.
On the 50% tax, I think it is difficult to quantify the actual cost to the treasury as it was only introduced in 2010 and reduced again last year. There was too much shifting of income around those years to give a definitive answer. It is clear, though, that the treasury saw a surge in revenues from top rate tax payers following Lawson’s reduction in the rate from 60% to 40%. It is almost certain that over a long period of time a 50% tax rate on high incomes with result in lower revenues than a 45% rate (the laffer curve effect), so the latest rise in merely a political and/or social move which in my opinion is a different argument. That said, remember a tax rise to 50% is a tax on income, not on capital. Capital is highly mobile and a tax rise here would very likely result in significant revenue declines. I would argue that a tax on income would not have such a drastic effect.
How much tax subsidy for the savings of the best off in society do you want?
I’m sorry but in terms of total pension valuation this has always appeared like a giant who whinge to me
Are pensions really only for the better off?
Most are, and by value very largely
Jeff, pensions shouldn’t be just for the better off but, while the average punter gets 20% tax relief, the higher rate taxpayer gets 40% tax relief. If that’s not blatantly in favour of better pensions for the better off, what on earth is?
Also, it is, to use your words, almost certain that there is very little hard evidence to support the alleged effects of the Laffer Curve. Don’t forget, it only came to prominence because Ronald Reagan’s attention span didn’t extend to much more that a simple diagram accompanied by words he wanted to hear.
@ nick james
You have a point that the better paid get more relief in the way in, but do also remember you pay tax on your pension on the way out. So if you save more you could end up paying higher taxes as you draw it.
The Laffer curve clearly exists though. There is plenty of evidence for it, not least the argument we are having above about the 50p rate. Defining it is the hard bit though – not least because it is different for every different tax, and for every different individual. It’s an estimate, not a hard number.
Even Richard Murphy seems to be coming round to the idea that they exist, given he tweeted a link to this article (which draws some incorrect conclusions from the original resource paper, but….):
http://leap-lrc.blogspot.co.uk/2012/02/having-laffer.html
Of course at 100% tax there is no tax as such due
So of course you can argue there is a Laffer curve
But as ample research now shows, it has not impact until rates are 70% or more
In that case all claims that the impact will be seen are false and can be dismissed as irrelevant
That’s what i do
Ah yes, the Trabandt/Uhlig people the left have got so excited about, and to a great extent misread – hence these suggestions tha ta 70% tax rate would raise more money and have no other effect on the economy.
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1174.pdf
Looking at Table 11, for capital taxes, it shows the UK could only raise 1% extra revenue.
Table 9, for Labour taxes, shows the UK could raise an extra 17% revenue! However, it is important to notice that this assumes a flat tax, which the UK does not have – the maximising rate from this research is between 51% and 71%.
Including NICs, employees in the 3 tax bands are paying the following (approximate) effective tax rates:
Basic Rate Taxpayer: 40.25%
40% rate taxpayer: 49.00%
Top rate taxpayer: 57.80% (with the withdrawal of the personal allowance this increases further still).
So, we can see that the top rate taxpayer is already in the middle of the range where the research suggest tax revenues are maximised – which fits with the results HMRC are getting. It would require massive tax hikes on *lower* income taxpayers to achieve this increase in tax revenue.
The research also shows that tax cuts would be self financing to a certain extent. The (wide) range for Labour is 37-78%, but for capital taxes, a cut would be 73-87% self-financing.
It’s Piketty we get excited by
Wrong again
Actually read the Piketty/Saez piece.
http://elsa.berkeley.edu/~saez/piketty-saezNBER12handbook.pdf
They get that 80% number by using a linear Rawlsian case. This model assumes the government confiscates 100% of taxes, spends whatever it needs then redisdributes the remainder to maximise the utility of the poorest person. it’s a welfare based model, with the specific aim of redistribution such that all people are roughly equitable in income, and the basic model makes NO account for behaviour again. In the limiting case 100% of incomes would be taxed.
One immediate problem is the assumption is the government is maximising utility, rather than the individual (therefore assuming that the individual would work just as hard regardless of the tax rate). I’d like to see this happen in reality – only communism could achieve this.
Regardless, we can also see what Piketty/Saez come up with for their optimal tax rates, when you include the CRRA coefficient in the extension of the model:
Simple Rawlsian tax rate: 80%
Optimal Utilitarian tax rate: 61%
(See table 2 in appendix).
Which once again matches up pretty closely with the current top rate of tax. To raise more revenue, you would have to dramatically the basic rate of tax, not the top rate.
Hepls if you actually read and understand these papers, not just take pick and choose numbers which suit you.
Where’s the 61% tax rate?
Please get real
” pensions shouldn’t be just for the better off but, while the average punter gets 20% tax relief, the higher rate taxpayer gets 40% tax relief.If that’s not blatantly in favour of better pensions for the better off, what on earth is?” Nick James
It’s because pension contributions are taken off income before it’s taxed. there’s nothing ‘unfair’ about that. If a 20% taxpayer wants to get £1,000 into his pension fund, the effect will be something along the lines: taxable income before pension contribution £36,000, taxable income after pension contribution £35,000, amount in pension pot £1,000. For a 40% tax payer it might be taxable income before £50,000, taxable income after £49,000 amount in pension £1,000. Where’s the unfairness?
I’ve never seen the same argument advanced by the likes of Richard Murphy on business expenses. That it is somehow ‘unfair’ that a plumber paying 40% tax gets more knocked off his tax bill when he buys some advertising than would a 20% tax paying plumber buying the same advertising.
It’s the same basic principle. If a deduction is allowable for tax purposes that deduction will result in a bigger reduction in your tax bill if you pay tax at higher marginal rates. It’s not ‘unfair’, it’s the inevitable way the tax system will work if there are different rates of tax.
As soon as you accept that taking less OFF someone is not the same as GIVING someone something it’s easier to get your head round.
But the taking off can all be at the same rate
There’s no problem in giving relief at 20% only
“The public sector did not rescue the UK economy….the funds provided as security by the UK taxpayer to HMG rescued the UK economy as HMG was able to borrow against that income stream.
The public sector and the taxpayer are, most respectfully, not one and the same.”
Allan, my point made, in response to William’s post, was that the UK economy was only rescued from collapse by huge spending by the UK state, of which the public sector is an integral part. That public sector, whose employees are now suffering financially due to the alleged need to ‘reduce the deficit’, includes the civil servants in the Treasury who worked with the banks to arrange the bailout.
It also includes the civil servants in HMRC who collect the taxes in the first place. So without the public sector, there would have been no rescue of the banks. And by the way, public sector employees are also taxpayers.
My response to William’s remark was prompted because I am tired of the right wing nonsense that sees the private sector as the be all and end all of our society, while constantly denigrating the public sector. If the private sector is so wonderful, how come a certain part of it had to be rescued by everybody else?
I don’t know if Mr. M will allow a right of reply but you did offer a detailed reply so here goes…..
“Allan, my point made, in response to William’s post, was that the UK economy was only rescued from collapse by huge spending by the UK state, of which the public sector is an integral part….”
Fair comment, but don’t forget that the public sector is funded by both taxation from everyone (thus those in the public sector are going some way to pay their own wages) and from borrowing by HMG but that without the huge slab of taxation paid by the private sector, there would be no public sector unless of course HMG wanted to just keep printing cash…….
HMG of course can borrow due to the assets provided by all taxpayers regardless of the sector or type of taxpayer they are hence the point I was making that the public sector is not the taxpayer…it may contain taxpayers, but it is not the taxpayer.
And of course when it comes to hand-outs and grabs for taxpayers cash, the public sector can be just as greedy / unfair in their demands as those in the private sector – look at the extremely well paid BBC staff who refused to put up their contributions to their pensions scheme and instead forced all TV licence holders (aka Telly Tax payers) to make up the BBC pension deficit.
I’d like to know where’s my billion or so from the taxpayer to top my occ. pension fund that is currently in a deficit – ohh…that’s right, I’m in the private sector on an average sort of wage and I and my employer have to put more in….while some of my taxes go on providing pensions for BBC types that won’t put their own cash in. How fair is that especially after one Labour PM decided he wanted more tax from the pension schemes to pay for massive increases in the public spending……
Is it any wonder that due to that sort of behaviour by some, yes some, public sector types, that some of us (well quite a few according to opinion polls) think that some in the public sector are overpaid, over protected and can be just as greedy as those ‘bosses and workers’ in the private sector.
Incidentally, I don’t hold with the right wing view that all in the public sector are workshy layabouts incapable of getting a job in the real world, just as I don’t buy into the Left idea that giving everyone a living wage will end all the problems in the UK.
The issues and problems are way more complex than that as even Mr. M has acknowledged – for example – in his work over the GAAR and how it might impact on the finances of all sorts of people and companies.
Now let’s try the alternative idea to your core hypothesis
If everyone on a living wage does not work does everyone on a less than subsistence wage work instead?
¨If the private sector is so wonderful, how come a certain part of it had to be rescued by everybody else¨
The entire financial industry has been skating on thin ice for decades, it still is.
Banking is a thieves charter.
The pension industry has been living off other peoples cream for so long it has forgotten what work means. Take away the various tax reliefs and it would be broke in a few weeks, if that long.
Take away one scam and they immediately produce another. I´ll try not to mention the PPI legality-evasion schemes, although not a lot of people have got around to figuring that they will be paying themselves with respect to PPI reimbursments, over the years!
The only problem with the banks going bust, was that they didn´t.
What was the actual cash hand-out?
About 120 billion?
With nearly a trillion kept in the kitty just in case?
I should be so lucky if the mortgage falls behind!
All privatisation does is increase the money outflow without necessarily increasing the service.
Oh, and someones mates get rich[er]…where is justice in all this?