50p tax rate - perception or impact

[Loz]

I would. Seriously. I would not flog myself to death for less than half of the pay for working that extra day.

How many people turn down extra work on the weekends or evenings because it's really not worth it? Not that my industry does it, but if I was offered to work, say, and extra half day on a Saturday (paid) I really couldn't turn them down quick enough.

[Marmora Man]

Let's add Will Hutton to the debate. Will proposes that there should be a relationshipbbetween the highest and lowest earners in a company ( he was discussing public sector roles - but supports the principal for the private sector, as does Vince Cable).

Will Hutton's proposed ratio is 1 : 20, ie the highest salary should be no more than 20 times that of the lowest earner. If that is considered socially ethical, fair and appropriate how can, in absolute terms, taking 100 times more from the highest versus the lowest also be seen as fair?

BTW - I proposed on this forum raising tax thresholds to ?10k about 3 years ago. I believe that the lowest quartile of employed should pay no tax at all and that over this threshold (roughly ?18,000) there should be a flat tax rate, so that every extra pound earned ( or profits generated by business ) is taxed at exactly the same rate. No loopholes, no special breaks.

[Timster]

Loz Wrote:

-------------------------------------------------------

> I would. Seriously. I would not flog myself to

> death for less than half of the pay for working

> that extra day.

>

> How many people turn down extra work on the

> weekends or evenings because it's really not worth

> it? Not that my industry does it, but if I was

> offered to work, say, and extra half day on a

> Saturday (paid) I really couldn't turn them down

> quick enough.

People don't end up earning over ?150k by doing an extra shift on a Saturday!

Seriously, if I was to end up in that tax bracket it would mean I'd got a good promotion - I am not going to turn it down because I end up taking home 50p in the ? rather than 60p in the ? on a fraction of what I earn each month and I am sure you wouldn't either.

[Huguenot]

Timster, your logic is flawed because you're trying to make it work on simple principles.

These 'it's obvious innit' solutions don't work in practice, because the outcome of little tweaks are rarely obvious.

For example, hikes in top rate tax in s sophisticated modern financial model will more likely see employees remunerated in stocks rather than salary. This increases a drive for corporate earnings to be divested as dividend rather than reinvestment in growth - which results in less R&D, less expansion, and less.... jobs.

Your view that tax is progressive because rich people find it easier to pay is simply incorrect. Modern economists don't work on moral priciples, but on productivity. Rich people are taxed more because taxation of this income has less impact on economic productivity. In other words they're taxed more because it helps the economy, not because they can pay.

Loz's flat personal allowance instead of housing allowance adversely disadvantages lower paid workers in the South East. This leads to a drain in the service sector from the SE, which leads to increasing differentials in wage weighting by region, which leads to industrial unrest, wage inflation that leads to strikes, which leads to productivity drops and lower tax takes, which leads to increases in income tax etc etc.

MM's simple tax systems prevent the government from advantaging certain activities which incentivise long term growth or social engineering which is necessary for our future prosperity. These are driven by imperfect markets (such as energy or pollution) where the cost the consumer pays is only part of the cost future generations will pay.

Anyway, they're all just examples of how 'it's obvious innit' rarely is.

[Timster]

Huguenot Wrote:

-------------------------------------------------------

> Timster, your logic is flawed because you're

> trying to make it work on simple principles.

>

> These 'it's obvious innit' solutions don't work in

> practice, because the outcome of little tweaks are

> rarely obvious.

>

>

> Your view that tax is progressive because rich

> people find it easier to pay is simply incorrect.

> Modern economists don't work on moral priciples,

> but on productivity. Rich people are taxed more

> because taxation of this income has less impact on

> economic productivity. In other words they're

> taxed more because it helps the economy, not

> because they can pay.

>

>

Er, that is exactly the point I made in my earlier post if you read it....

[Huguenot]

Sorry for any confusion Timster, it was your sound bite that confused me ;-)

"The very sensible reason for taxing high earners more than those on low incomes is that they can afford it."

[Marmora Man]

I'm not arguing that the wealthy shouldn't pay more than those lower down the income scale. It is my contention thAt they already do and that the current rates are becoming punitive and a disincentive. I am questioning the rates and ratios between the two ends of the scale.

Going back to my earlier example - Person A (on ?13,000 pa) pays 8% in tax and, in absolute terms ?835. Person C (on ?200,000 pa) is earning 15 times the salary but, in absolute terms, is paying 100 times as much tax at ?85,381. That's certainly progressive - but is it fair?

As Hugenot has pointed out calling the wealthy greedy b*******s is not a helpful analysis. They form a vital part of the economic chain. Person C is, again in absolute terms, funding the equivalent of 4 band 4 nurses a year, or three junior teachers, or two middle management civil servants - a pretty significant contribution to the community. Additionally, if they are not salting all their disposable income away in pensions or overseas then their spending in the UK economy by buying "stuff" is also pretty significant - generating business in the retail, manufacturing and service sector and more tax take via VAT.

[david_carnell]

MM - I would say it is fair for the reasons Timster highlights - the effects of that tax take affect those in the 50% tax bracket very little in comparison to those at the bottom end of the scale.

[Loz]

david_carnell Wrote:

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> MM - I would say it is fair for the reasons

> Timster highlights - the effects of that tax take

> affect those in the 50% tax bracket very little in

> comparison to those at the bottom end of the

> scale.

But DC, I think we are all pretty much in agreement that the 'bottom end of the scale' should be lifted out of the tax regime. What needs to be assessed is the 'squeezed middle'. Is it really squeezed? Or, if you like, what is the definition of 'rich'. We know that the 50% tax bracket actually doesn't take in very much - most of the arguments for it are political rather than economic. So, if someone has to pay 'their share', who is this and how much should they pay?

[nashoi]

MM you need to consider the overrall tax burden rather than just focusing on income tax, which leads to ridiculously misleading conclusions. The majority of taxes we pay are regressive in nature and for people near the bottom of the ladder income tax can be far from the biggest tax they pay. The idea the wealthy are being squeezed just isn't true.

[Marmora Man]

Nashoi - you critique the current system but aren't proposing alternative systems. I agree entirely that the least well off should not pay tax - but I don't agree with this strange and economically illiterate belief that "the rich" can be endlessly milked to pay for costs of an expanded, and bloated, state. Loz has hit the spot - it's about where do you draw the line.

CLearly you can't tax the high earners more than 250 times that of those at the bottom of the income ladder or they'll have nothing left from their income at all. So at what point does between a 90 x multiple that I'm proposing a return to and the 250 x "point of no return" multiple become unfair / fair?

[Senor Chevalier]

Cripes - same old on here. All the arguments in favour of the 50p tax are basically arguments for higher tax on those with high incomes (often confused with the rich). The question (as ever) remains where should the limits be. All the arguments for a 50p tax were the same that were used presumably to justify the 40p tax rate before. The self same reasoning could also be used to justify 60p and 70p and then on to 80p. The argument is a simple upward taxation argument. It is a relative argument.

However, as with all systems there are limits to how far you can push something before there is a counter force / argument that has to balance it to arrive at a sensible equilibrium. The question is, at what point does it become pointless and / or unfair?

I think everyone would agree that at some point it becomes unfair and would be a disincentive to work. Timster you can argue that it doesn't at 50p but there will always be marginal people (no offence Loz!) for whom it does. We all probably have different views of where that is.

In any case I think the numbers from Inland Revenue will suggest the revenue generation argument is pretty thin at best and looking at fiscal policy across other countries most other governments have decided that the optimal level is somewhat lower.

http://en.wikipedia.org/wiki/Laffer_curve

ETA: Cross post with MM. Looks like we concur on this one.

[nashoi]

uStill not sure you're getting my point MM. If you tax the overall tax take there is surprisingly little vuariation in what we all pay. The two exceptions are the very poor and the very wealthy. The poor pay very high levels of tax (in a R4 debate ome this tax yesterday the anti 50% side admitted someone on the minimum wage working 30 hours a week would pay a marginal rate of om average 73%), the wealthy (millions pa not ?150k). For the rest of us in between there is a slightly progressive slant to the tax take but not by much. It would be absurd to suggest taxing to equivalent marginal levels of utility (and no one is) but also wrong to suggest anyone is being taxed until their pips squeak. Apologies for errors etc currently typing on small phone as no broadband till Saturday

[Marmora Man]

Nashoi,

I do understand your point - but don't quite agree. Someone on the average salary has 77.1% of their salary left after direct tax deductions by gov't.

Someone on ?200,000 has 57.1% of salary left after direct tax deductions.

That's progressive. To further assist those on lower incomes much indirect taxation is directed at higher spending items. Housing does not incur VAT, food does not incur VAT, utilities do - but heating oil is at a lower rate. 2nd hand cars do not attract VAT, children's clothing does not attract VAT.

I cannot see where the marginal tax rate of 73% you quote comes in - unless it is the impact of withdrawing of state benefits, which is a very different question.

I do not agree with the complex arrangements for state benefits - taking the lower paid out of the tax take entirely should be the aim. Not taking tax with one hand, processing it at some administrative costs, and returning some of it in the form of benefits was an Orwelllian Big Brother / G Brown ploy that makes "slaves" of those trapped in this tyranny.

However, I'm pleased to see a gradual acceptance that those of ?150K pa are not filthy rich and agree also that the truly wealthy should not be able / allowed to avoid tax.

[david_carnell]

How you can claim someone who earns approx 7x the average salary isn't rich is beyond me?

It's more than the vast majority will ever earn in their careers. To suggest that they might be struggling to get by due to some punative tax measure is absurd.

[Loz]

david_carnell Wrote:

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> How you can claim someone who earns approx 7x the

> average salary isn't rich is beyond me?

They aren't 'rich' at all. They are very, very comfortably off, but rich is David Beckham, Duke of Westminster, Richard Branson.

> It's more than the vast majority will ever earn in their careers.

Actually, by your own logic, it is about what the average wage earner will earn in 7 years. (Though it's actually about 5, as average salary in the UK is about ?30K now).

> To suggest that they might be struggling to get by due to some punative tax measure is absurd.

Bit of a strawman - no one ever said they would struggle. It is just establishing a tax system that is based on a fair levy across the board, not about establishing who has lots of money and slugging them for it.

Given the state of the countries finances, taking the personal allowance up to ?15K and then adding 1% to both the 20% and 40% bands: fair

Deciding that 'the rich' should just pay more: unfair.

Also, DC, where would you draw the line between 'the rich' and 'not the rich'? Top 10% of incomes? 20%? 25%? Care to define what you think are 'the rich'?

[david_carnell]

Loz - I didn't mean "earn over their lifetime" I meant more than most people could ever hope to earn in a year even at the end of their careers when they should be at their earning peak.

I'm afraid I would have to disagree and suggest oligarchs, sportsman and entrepreneurs are so small in number, although still distort stas due to their vast wealth, that I would class someone on ?150k as "rich".

I would suggest anyone earning more than twice the average salary (or perhaps twice the average regional salary to take account of London distortion) would be classed as "rich". Although I'm not sure where that gets us. But that would be somewhere between about ?50k-70k per annum. Obviously it doesn't take account of wealth i.e. house, car etc.

[DJKillaQueen]

30K might be the average salary but most people don't earn anything like it. So yes 150k per year is rich indeed compared to the majority of workers.

[Loz]

So, given the 40% tax bracket comes in ?35K this year, do you consider that a good indicator of the line marking 'the rich'?

[mockney piers]

indeed, London and particlularly the city skew figures for everyone else.

Median figures are much lower.

I used to have a link to a site with really good interactive breakdowens of all the data, but can't be arsed to look for it so here's wikipedia.

Even at peak of careers (50-54 age band) the figures are pretty dramatic

[pre]

median average men - median men - mean women - median women - mean

? 19,300 ? 27,000 ? 23,500 ? 33,400 ? 15,100 ? 19,200

[/pre]

number of taxpayers below the 100k = 29 million

above it = 400 thousand

[mockney piers]

no loz, because we're discussing the 50% tax bracket. And I tend to agree that anyone falling under that is rich, not 'very very comfortably off' which is about the quibbliest semantics I've ever come across!!

[Marmora Man]

number of taxpayers below the 100k = 29 million

above it = 400 thousand

And the 400,000 above probably breaks down again on a similar basis with 10% (ie 40,000 people) earning more than ?200,000 and the majority (360,000) earning between ?100K & ?200K. can you research that also MP? I don't know where to look.

While there's no doubt anyone with an income in that bracket is comfortable I would contend, with Loz, that they are not rich.

Rich don't worry about income - they have wealth. They buy houses, yachts and cars without mortgages or loans. They fly 1st Class as a matter of course without considering the cost (that's if they don't actually own a private jet). Rich have several properties, rich have special advisors to help them invest and minimise their tax liability.

The high salaried, comfortably off can, often, be just a few months away from being very poor - as their apparent wealth and assets depend upon regular, high, salary payments. The recession has demonstrated how quickly a high flying businesman on ?150K a year can, once redundant and unable to service the mortgage, school fees, car leasing costs and the like that give the appearance of wealth, have to give up these luxuries, cash in whatever assets they posses and downsize dramatically or even be made bankrupt.

[mockney piers]

I'm not sure there are dictionary definitions for these MM, just like the whole class differentiation says more about the definer than the definitions, which are at best woolly.

I guess I'd consider a high flyer, regularly on business class, with a pied-a-terre in the City and A nice home in surrey and a sports car, rich, even if he's a few missing paychecks away from disaster.

Those that will simply never have to give it a thought I'd define as super-rich, but sue me as I'm not sure anyone has the definitive ... er.. definition, gosh that sounds tautological.

[Timster]

Surely this has just come down to semantics now! I don't really care whether someone who earns ?150k thinks they are rich. What they can't argue with is that they are in the top 3% (or whatever the figure is) of earners.

We seem to be forgetting that if you get rid of the 50p tax rate then we have to find that money from somewhere else (assuming the government keeps to its current budget deficit reduction plans). That would either mean taxing those on lower incomes instead which is both unfair (in my subjective opinion) but also bad economic sense (wealth trickles up not down). Taxes like VAT are regressive and other taxes that might be an option would hit businesses.

The 50p tax rate may not raise huge sums but as long as it raises some money then I cannot see any good reason to get rid of it in the present economic climate. Certainly there is no evidence it has damaged the economy. The one argument against it is that high earners move elsewhere (there is zero evidence that it discourages productivity - our economy simply does not work like that) and this is only really relevant to the City which remains the one bit of the UK economy still relatively booming.

[Marmora Man]

Surely this has just come down to semantics now! I don't really care whether someone who earns ?150k thinks they are rich. What they can't argue with is that they are in the top 3% (or whatever the figure is) of earners.

Great a mathematically challenged poster making econimic arguments. It takes less than a few seconds of mental arithmetic to arrive at a figure that shows 400,000 divided by 29 million is less than 1.5% (actually, as I then checked it with a calculator, 1.379%). You were out in your estimate by over 100% Timster.

There is a genuine question as to whether it does raise any money - this is being checked at present. If you go right back to my original post I did posit that if it raised a significant sum the rate should stay for a while.

What I am concerned about is the tendency of so many to make idle and economically illiterate comments along the lines of "let's make the rich pay more - they can afford it", without bothering to think through the impact of forever adding more disincentives at the top end of business. I woudln't want to a return to "1 for you, 19 for me" that George Harrison quoted in his Taxman song of the 60s.

The one argument against it is that high earners move elsewhere (there is zero evidence that it discourages productivity - our economy simply does not work like that) and this is only really relevant to the City which remains the one bit of the UK economy still relatively booming.

So you agree that taxing the one part of the economy that is relatively booming would be disincentivising? If capital investment moves eleswhere, investment falls, if investment falls, growth falls, if growth falls - we all suffer.