I was intrigued by a comment made by a person posting on this blog yesterday who claimed to be named Colin. His claim was that he was not wealthy but he would, nonetheless, reduce his work effort if his tax rate was increased as a consequence of tax relief on his pension contributions being reduced.
Colin did, inadvertently, provide an obvious definition of the divide between having sufficient income to live on, and having that level of income which supports the accumulation of wealth.
If those with sufficient, or less, income suffer a reduction in their take-home pay then their obvious reaction is to increase their work effort to recover the sum lost, or their absolute standard of living will decline, potentially at very real actual cost to the wellbeing of themselves and their families.
In contrast, a person with sufficient income to sustain their wealth can respond to a reduction in their income if it is, for example, caused by an increase in their tax rate by then voluntarily reducing their work effort, creating a further potential reduction in their wellbeing over and above that already created by the tax increase. In other words, they can afford to choose to reduce their financial well-being without actually prejudicing the ability of themselves or their family to meet their needs. As a consequence, it follows that they must have income in excess of that required to meet need. That provides a clear indication that they have income that supports their increase in wealth, and not their current requirements.
Of course the point at which this occurs will vary between people, but the fact that this divide so obviously exists and that those who have income that supports wealth are unaware of the fact, is in itself interesting, and a potential basis for policy creation.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
I have never met anyone who, in response to a change in tax rates, has reduced their effort at work. Now, there will be such people…. but I have never met one.
Me neither
The claim is absurd
Hence all the talk about the Laffer curve. My brother tells me the Scottish Daily Mail was taking an SNP politician to task for ‘not understanding it”. As Richard tells us a lot of economic doctrines have little relationship with reality.
The Laffer curve has no relationship with reality at currently known rates.
As I remember, Tory MSP Murdo Fraser is an advocate of the Laffer Curve.
That would not surprise me
It seems to me Murdo Fraser is a better fit for the Laughter Curve.
There is decades of research that support the view that there is little relationship between pay and productivity.
The next time a Colin appears you might ask him for the research that demonstrates that his point of view is objectively true.
I know of people who reduced to 80% or 90% of full-time equivalent hours since the marginal tax rate of 62% meant it was more attractive to give up what was effectively 38% of salary for (much of the) 10% or 20% of the week whilst achieving a better work-life balance. An alternative to that would be to sacrifice salary in some other way, e.g. on pension contributions or an electric company car.
But I totally agree – you can only make those sorts of decisions if you are financially comfortable in the first place, relatively speaking.
I think this a good idea for generating policy based on anecdotal evidence.
A survey of people of all levels of wealth reported on Radio 4 was interesting as to a man/woman/other they pretty confirmed that when they had enough wealth they would be content but that they weren’t quite there. The extra proportion of wealth desired was about a third of what they already had.
I understood this to mean, given the apparent desire of the super rich to accumulate yet more, that most of those surveyed never find or want contentment once they arrive at that level, perhaps influenced by peer pressure and lack of self awareness but more probably by avarice or keeping up with the Joneses! I suspect as a community they will dispute any proposed policies of this kind.
I hear evidence of over accumulation most days as there is now a regular stream of private jets flying over my house (they have a distinctive sound) on their way to Biggin Hill. A couple of years ago this was rare.
Thanks
I agree with your post.
I struggle to believe that most well paid employees will voluntarily reduce their hours because of tax or, indeed, that they would leave the country. But it might be a good thing if they did. Assuming they actually do anything useful (quite an assumption) then, by voluntarily reducing their hours they would provide and opportunity for others to take over their work. This would spread high paid employment amongst more people and somewhat reduce inequality.
What strikes me most is the hypocrisy of some well off when they say they will work less because of taxation. And, at the same time, they agree with reducing payments to the poor to “encourage” or “help” them into work. So, reducing payments to the poor makes them work harder, whilst reducing payments to the rick makes them work less hard? Really? That doesn’t make sense.
As far as I can see, complaints about “increased tax”, when they are really talking about reductions in favourable tax relief, is really just special pleading. It’s an unedifying spectacle from the well off.
“The poor don’t work because they have too much money. The rich don’t work because they don’t have enough money. If you believe that, you’ll believe anything.”
— J.K. Galbraith
Good point well made.
I started from nothing and have managed to accumulate some money by living beneath my means and having a good salary. Believe it or not, even right now I genuinely won’t work extra hard to get the promotion or get a better paid role because my marginal utility from the extra money is not high enough to compensate me for the time I would miss out on.
But it is like you say, perhaps I’m accumulating enough after all and you made me realise something about how it contrasts with having just enough.
Thank you
With regards to Scotland, I found this quote on the “The Scotsman” website. Did not know where to post it but this thread seems like a good place.
“As we conclude the Starmer section of PMQs, I am reminded of a comment from a political friend of mine, who suggested the election will be a “battle between the ghost of Liz Truss and the ghost of Jeremy Corbyn”.
His words feel more prescient with each parliamentary session.”
I thought this was pretty good.
Very good