Taxes on the rich clearly aren’t too high

There are lots of countries in the world that are tax havens. They are short of skilled labour. Anyone earning enough to pay higher-rate tax in a Western country has a skillset that would easily land them a job doing something similar in a tax haven.

Instead, they’ve chosen to live where they do. Definitionally, this shows that they believe the tax is a price worth paying for the quality of life they enjoy there. If they didn’t, then they’d have moved to a tax haven already [*].

So while some rich people might complain that they think taxes are too high, they clearly mean this in a “it’d be nice if this thing was cheaper, but I’m still going to buy it at the price it’s on sale for” way (rather like people buying Apple products), and therefore we can discount their protests.

Taxes on unskilled workers, who don’t have the same advantages when it comes to free migration, are a different story: the poor can’t be deemed to have agreed to the deal in the way that the rich clearly can.

So the morally best way to reform the tax system would be to remove the working poor from the tax net, while ensuring that those wealthy enough to have a choice bear more of the cost. This is even before you consider the massive benefits (on virtually all measures) of having a more equal society.

[*] there is a pragmatic argument that “we’ll be stuffed if all the talented people leave”, and there is presumably a level of tax at which this might be true. However, evidence from the 1960s and 1970s (when marginal tax rates on very high incomes were above 90% in the UK) suggests that the proportion of talented people leaving even at that rate was low enough as to be irrelevant to overall economic growth.

118 thoughts on “Taxes on the rich clearly aren’t too high”

  1. Your forgetting family ties, moving for them is easy in principle, but it's more than money that keeps them here.

    Certianly we should remove the tax burden on the poor, especially to the levels where it doesnt pay to work. But it should also be accepted that we all use the same services, and the rich will pay vastly more than their share of those services on an equal tax rate.

    It should also be remembered that though taxes where higher back in the 60-70s, tax income actually went up rather than down when the taxes where lowered.

    Really what is needed is a rethink on how you approach funding.

    Rather than the goverment deciding what to do and then taxing to acheive such. We should be deciding what is the best flat tax rate we can apply* without affecting growth or dissauding enterprise or encouraging tax avoidance. And then have the goverment live on that budget, tax stability is almost as important as low taxes when trying to entice busines.

    *with say a 15k tax break or whatever the poverty line is decided to be.

    The whole "equal society" thing is silly, people are naturally competitive and will always find ways to compete and differentiate themselves.

  2. With you on removing the working poor from tax. But don't forget it's the paying for the welfare state which put them there in the first place. There just aren't enough rich people. Which is why the perpetual bleat of the ignorant lefty, of "Ever more tax on the rich" is so lumpen in its stupidity. THe top 1% already account for 25% of income tax recipts. And they use services less.

    DO you honestly think it reasonable to tax people until JUST BEFORE they decide to leave their friend, family, job, home?

    Christ, lefties are evil.

  3. What 'skills' are you talking about? Given that tax havens tend to be small places, often islands, with small populations, I'm unsure that it can be that easy to move to one to work, especially with a family in tow. In fact if it were that easy I reckon such places would be overrun with people trying to get in.

    And crucially what do you mean by 'rich'? Because the difficult reality is that anyone earning over 50K is in the top 10% of earners. Approx 3m people pay higher rate tax, and in 2009 they paid £75bn in tax.

    (Article: http://www.telegraph.co.uk/finance/financetopics/

    So 40% of all income over approx £43K (ie allowance + basic rate tax band) is £75Bn. If that was all taxed at 80% (ie doubled) you would theoretically bring in another £75Bn. Which of course you wouldn't because who is going to work harder and make more money if the State is going to grab 80% of it? But even if nothing changed, and you got an extra £75Bn, given you want to reduce taxes on the lower paid, (it costs approx £17bn to introduce £10 tax free allowance), you'd end up with no more than £55-60Bn more to spend.

    Which is only about one third of the current budget deficit we are in. Where is the rest of the money to come from?

    Face it, taxpayers (of all incomes) are tapped out. They either can't afford more, or if they can, will do whatever is necessary to not pay more. I'm a higher rate taxpayer and earn well in excess of the cut off for basic rate tax. But I was taxed at 50,60,70% I would reduce my income to lower levels, use all sorts of (legitimate) dodges to reduce my taxable income (in a business its fairly easy). It is not legitimate for the State to take more than 50% of the fruits of your labours. It is effectively being a slave. I work, someone else gets the benefit. No thank you. And if people like me who run businesses that employ people, and keep the economy afloat decide to say 'F*ck it, I'm not working for nothing', EVERYONE will be poorer. Less employment, less spending, less tax revenues from VAT/duties/company taxes.

  4. Jim – I'm saying "if you pay higher rate tax, you can get a job in Dubai, or Singapore, or Switzerland, in whatever your field is". Which is true.

    And yes, there are dodges that small business proprietors and freelancers can use to get round this (in any case I'm not actually advocating an 80% top rate income tax – 60% with NI abolished should be fine. At that point, your marginal hourly rate is gbp10.40 of spending money, which is still worth bothering with…)

  5. I like the argument in principle, but…

    …surely the right-wing anti-tax argument isn't just that high taxes will cause a brain drain. It's that at some point on the laffer curve everyone thinks "screw this" and stops pushing themselves. High taxes hurt economic growth because of that, not just because everyone buggers off to Monaco.

    I don't necessarily buy this argument, but it's one you hear nonetheless, and your post does nothing to address it.

  6. No, John, we just don't think it's at all reasonable for the state to take 60% (which is what it effectively is) of marginal income. You keep less than half of each extra pound you earn.

    This is as true at the bottom (socialists created 90% withdrawal rates for the poor, to keep them labour-voting supplicants to the state's will) as it is at the top.

    There are utiltiy arguments, but is is RIGHT or FAIR that you take over half of the sweat of a man's brow?

    If so, why?

  7. Because you aren't, simply put.

    The kind of jobs that pay higher-rate tax only exist *because* we have an expensively-maintained society in which they can exist. If you're a cleaner, you can go to Somalia and clean people's houses. If you're a cook, you can go to Somalia and cook food for people. If you're a programmer or a management consultant, you can go to Somalia and clean people's houses. Suggesting that someone who's paid gbp26 pretax per hour "earns" or "sweats" that gbp26 is bonkers – the generation of that value is due to the interplay of the society we live in and the work they've put in. Your theory is pretty much Marxist, suggesting that pay ought to be based on the amount of work the worker puts in and ignoring the other inputs that allow it to happen.

    Jonn is right about disincentive rates of high marginal taxes.

  8. Good post Mr B.

    @fake

    people are naturally competitive and will always find ways to compete and differentiate themselves

    This is bollocks. Opportunities to prosper are in no way equally distributed across the population. Its a lot easier for George Osborne to make a million than it is for Sid Smith from East London. Competitivieness is crushed by lack of opportunity.

    @Everyone who complains on this thread that they can't afford or won't be motivated by higher tax rates: Big fucking deal. You're saying that you'll just give up trying to earn more? That's a load of horse cock. Even if you do stop trying so hard and go into some sort of 'cruise mode' in your businesses, you will find yourself spending your time in much more socially beneficial ways by engaging with the community, spending more time with your kids (I can't count the number of my friends who'd have benefited from more time with their workaholic parents), possibly even developing more inovative business solutions now that you have voluntarily removed the pressure to push your current project to the max.

    On the stupidity of most of the crass conclusions jumped to here: As John mentions social equality is its own reward and so judging taxation policy solely on the financial numbers involved and the economic consequences is just ridiculous. There are so many intangibles associated with quality of life and wellbeing that, if the government were at all serious about maximising those endpoints over straightforward numerical ones then we would be living in a completely different country. Sadly they are not and the country is run by retards, elected by ignoramuses. Any sort of genuinely objective and evidence-based policy is considered extreme or radical due to the monopolisation of the ideological thinking space by vested interests branding their opposition as either 'liberals', 'socialists' or any other obsolete tag they can use as a stick to beat genuine progressives with. As an example, look at how the vast majority of economics reporting and discussion in the mainstream media treats economic growth as a fundamentally beneficial thing, regardless of consistent and well-evidenced criticisms from academics (note academics and not just lay commentators) that this concept is fundamentally uneconomic or ignores fundamental and insurmountable limits to growth.

  9. “it’d be nice if this thing was cheaper, but I’m still going to buy it at the price it’s on sale for”

    That's a specious argument. Having a large portion of your income forceably removed and choosing to stay where this happens is not equivalent to freely choosing to buy something.

    A closer analogy would be I live in an area where the mafia force me to pay them protection money, and I continue to live there given this knowledge. This may prove that I feel it is a cost worth enduring to live where I want, but would you seriously argue that it shows that I *chose* to pay protection money just because I could have moved? That not moving some how legitimises anything done to you until you actually do move?

  10. @fake

    “Your forgetting family ties, moving for them is easy in principle, but it’s more than money that keeps them here.”

    Family ties are often broken in search of a better job. Millions of people every year leave their families – even young children – to go to another country or even another continent in order to earn more money than they can at home.

    “who is going to work harder and make more money if the State is going to grab 80% of it?”

    This simple argument allows one to disprove the existence of, say, Howard Hughes, who was one of the richest men in America at a time when the top tax rate was north of 90%.

  11. @cuthhyra

    "A closer analogy would be I live in an area where the mafia force me to pay them protection money, and I continue to live there given this knowledge. "

    The very rich have a good deal more freedom of choice than the average mafia victim. So actually yes, it is closer to buying something.

  12. A couple of points:

    a) the practical. 60% higher rate tax gives you a theoretical £37/8Bn extra tax revenue. Less the £17Bn to raise the tax free allowance (£17bn) leaves £20bn. But you wouldn’t get that, everyone knows it. Some people would leave (the truely wealthy) others would cut back their taxable income by whatever legitimate means, others would evade it (go underground). I reckon the extra tax take would be in the range £10-15bn. Not to be sniffed at, but not going to make that much of a dent in a £150bn budget deficit, also given the State spends £650Bn-ish per year. It also would reduce growth because it provides a disincentive for the very people who provide the motor of growth – the entrepreneurial classes. Why start a new business, or expand your old one when 60p in every pound you earn gets taken away? It would completely stultify growth.

    b) the principle: It is wrong for the State to take more than half of my labour in tax, however much I earn. And we are not talking Howard Hughes here, just people earning more than £43K per year. Not people with huge assets, Rolls Royces and private jets. Just normal people who do middle class jobs (doctors, dentists, solicitors, accountants, head teachers, loads of people in local government, self employed tradesmen, small businessmen). Once the State wants to take more from my labour than I get, thats when I say ‘Enough’. You can whistle for it. One way or another I’m not paying it. And there’s plenty like me. I would rather earn and spend less than work hard and see the State take 60%.

    You really do not understand human nature if you don’t see where that attitude is coming from, and why your ideas are such a danger to the economy as a whole.

    I suggest you read Atlas Shrugged (if you haven’t already) and then you might realise what can happen when you p!ss off such an important section of society.

  13. I would rather earn and spend less than work hard and see the State take 60%.

    As Punkscience says, good. Your wife and kids’ll thank you for it.

    I suggest you read Atlas Shrugged

    I have. But, erm, struggling to come up with a response that does your comment justice. Perhaps Ajay can comment on this one?

  14. Jim, you don't understand (or are deliberately pretending not to understand) how taxes work. If you earn £43k a year, the government is not taking "more than half your labour" in tax. It's taking just over a quarter. Do you understand why? It's because the top rate only applies to income over a certain amount. Your first few thousand aren't taxed at all. The next several thousand are taxed only at the basic rate. Only the bit over the top rate threshold is taxed at the top rate. Get it?

    Do you know how much gross income you really have to have for the UK government to take more than half of it? No, you don't. So I'll tell you. It's roughly one million eight hundred thousand pounds a year.
    How many people do you think that applies to in Britain? How many normal people doing middle-class jobs?

    Do you know how much you have to have to have the state take 60%? You don't. So I'll tell you. It can't happen. The effective tax rate plateaus at a little over 50%. Even if you're earning a billion pounds a year, the state's not going take 60%.

  15. “If you’re a cleaner, you can go to Somalia”

    Because of course you couldn’t possible emigrate to many European countries, America or Australia. Like it or not, wrong or right, we do live in a global economy and policy must be made with that fact in mind, there is a point were people will leave and it gains us nothing.

    “suggesting that pay ought to be based on the amount of work the worker puts in and ignoring the other inputs that allow it to happen.”

    Yes, I can’t own and run a business without the state protecting my property rights, and a tithe towards that is reasonable. I can’t hire workers who can read and write without them being taught to do so, should I pay for that also, or should the parents pay that? Such points are ideological as to who should pay, and I would say there is no right or wrong answer, though I probably wouldn’t agree with yours.

    But there is a right or wrong answer as to how high that tax should be, because there is a point where to much tax kills the goose that lays the egg, or encourages the goose to lay it’s eggs elsewhere. Again you can argue the morality of this till you are blue in the face, but it won’t change it from being so.

    The point is that this has been forgotten. It’s always XYZ needs to be done, and then the tax found to fund it. This is why we started taxing the rich, then when that was not enough the middle class, but then that wasn’t enough so the poor as well, and then that still wasn’t enough. Going after the rich nearly always results in the poor later being buggered over by tax, because once you accept that it’s ok to tax to meet expenditure, rather than expenditure meeting tax, you’ll always get government going after more and more tax.

    Now being a libertarian I obviously believe in low flat taxes. But if I was to look at it from a social point of view I would argue that the best thing for a strong economy would be to decide what is the best tax rate to obtain money, one that gives a tax free bracket up to living standards (first 16k free or whatever) and one that takes good money but without discouraging business (I really don’t think it’s ever fair to take more than half of a persons earnings, and whilst you make the point that the state plays it’s part, it’s me working all day).

    Now again you might disagree on the %, but without setting a limit, without finding out what is best to tax and not discourage business, you only end up with the inevitable mess that labour have just created, and that’s the poor being taxed into deeper poverty.

    @Punk “This is bollocks. Opportunities to prosper are in no way equally distributed across the population. Its a lot easier for George Osborne to make a million than it is for Sid Smith from East London. Competitiveness is crushed by lack of opportunity. “

    Wherever governments have tried to make things more equal, it has never worked, and generally makes things worse. Either the governments become corrupted with the extra power (for extra power is required and given for them to do such things), or the people play the system, or mostly both. There are plenty of real world examples of that happening, And you either know them or wilfully ignore them to suit your ideology.

    The rest of your post is full of ad-hominen so I couldn’t even be bothered to read it.

    “Family ties are often broken in search of a better job. Millions of people every year leave their families – even young children – to go to another country or even another continent in order to earn more money than they can at home.”

    So are you saying that it’s OK and we should encourage more people to do it through higher tax?

    This simple argument allows one to disprove the existence of, say, Howard Hughes, who was one of the richest men in America at a time when the top tax rate was north of 90%.

    You mean the same Howard Hughes who's tax avoidance was legendary, what does this prove exactly?

    1. I would rather earn and spend less than work hard and see the State take 60%.
    As Punkscience says, good. Your wife and kids’ll thank you for it.
    But the state would take less tax, I thought the whole point of this is “we want more money for the government and society”.

    And really, who do you people think you are telling people how they should live?

    Someone I know couldn’t have kids, and so their business became their life (and the philanthropy the money allowed her to do) Not something I would ever want to do myself, but it made that person happy.

    You lot are really coming across as a bunch of narrow minded “rich people are evil and selfish” folks.

  16. Ajay – the 60% point I think is due to my suggestion that raising higher rate tax to 60% would be a good idea. At which point someone with a taxable income of a billion quid would pay something so close to 60% that I can't even be bothered doing the sums to show it's a fraction of a percent lower. But yes, otherwise, you're 100% right.

    Jim – I've paid higher-rate tax every year since I was 24. I'm not idly Sparting and rich-blaming here – I'm just fully aware that in a different society without the advantages conferred by the state I grew up in, I'd never have been in a position to, so complaining would be churlish.

  17. Also.

    I always feel a little shame when a libertarian suggest reading ayn rand.

    Here's the thing, I've never read it, and am a libertarian.

    I dunno, there is something just cringworthy in the whole "please read this book it will change your life".

    It's kind of the same with commies who try to get me to read trotsky books or whatever.

    Or when a Bible basher tries to tell me i should really really read the bible, it will change my life.

    Just argue your points.

  18. Do you know how much you have to have to have the state take 60%? You don’t. So I’ll tell you. It can’t happen. The effective tax rate plateaus at a little over 50%. Even if you’re earning a billion pounds a year, the state’s not going take 60%.

    Very pedantically speaking, and this is proving to be today's headache at work, for a UK LLP to trade in Brazil without its partners paying overall taxes at about this rate is a bloody tricky thing.

    But, yes, despite my job, I'm with punkscience and John on this side of the debate.

  19. fake's comment is tl;dr, but I did light on this sentence:

    Wherever governments have tried to make things more equal, it has never worked, and generally makes things worse.

    Oh, boy.

  20. And I've not even got a trip down there out of the whole palaver. But, I digress.

    Taxes are a strange one – certainly people get emotional about them in a way that few other things do – even quite a small tax issue can have people lose their rag (happens about once a year to me), and as to trying to explain tax incidence to them. Really, really don't ever try.

  21. Ajay, cmon.

    Obviosly my comment was an oversimplification.

    The more goverments try to redistribute wealth, the more people cheat the system, the more the goverment ministers take for themselves, and the worse it gets generally.

    The welfare state here has gotten far to generous. I'm not talking about daily mail headlines. I personally know people who choose not to work, not can't, but choose. They still have money to go out and drink, occasional going to concerts (stuff i struggle to afford). We have massive debts to pay for this.

    Trying to tax with the sole purpose of "making things more equal" hasnt really helped.

  22. The more goverments try to redistribute wealth, the more people cheat the system, the more the goverment ministers take for themselves, and the worse it gets generally.

    An interesting theory which would predict that Swedish government ministers (highly redistributive) should be more corrupt than Congolese ones (almost no attempt to redistribute). In fact, many of the most redistributive governments are also the ones that keep coming top of the transparency and honesty league tables. Try again.

  23. Now, I liked my week in Singapore, and the [white] expat friends I know out there certainly like the low tax rates, but you don't have to scratch too far below the surface to realise that it's perhaps the world's cuddliest dictatorship, so long as you're white or a local citizen.

    There's very few other low-tax jurisdictions that aren't:-

    a) shitholes,

    b) capital parking spots for nearby rich people, or

    c) happen to have a small native population and a large amount of natural resources.

    [Somalia is a), Russia is a) and c), Dubai is all three.]

  24. @fake

    once you accept that it’s ok to tax to meet expenditure, rather than expenditure meeting tax

    A delightful combination of a straw man and a false dichotomy. Way to mix your logical fallacies. You're suggesting policy, even in the fantasy that is neoliberal economics, is a precise science. Its not and even the morons on Westminster don't treat it as such so why do you?

    I really don’t think it’s ever fair to take more than half of a persons earnings

    Not even if they've been accrued illegally? But besides that cheap shot, the fact remains that money makes money. The idea that the super-rich need to be protected from excess taxation to preserve their contribution to the economy is farcical. More importantly for even a pseudo-democracy like ours, it has no popular support.

    Wherever governments have tried to make things more equal, it has never worked, and generally makes things worse.

    That's an absurd assertion which suggests that either you haven't thought your comment through or you are a mental. I could list a dozen governments off the top of my head in Europe, Africa or Central and SOuthern America which have "tried to make things more equal" and have succeeded. Does the end of apartheid ring any bells?

    As for ad hominems: where have I assaulted your character in my previous post? I have made statements of fact or opinion based on the writings here. Nowhere have I singled out any individual for direct attack.

    So are you saying that it’s OK and we should encourage more people to do it through higher tax?

    No, he's pointing out that your argument is ignorant of reality.

    You mean the same Howard Hughes who’s tax avoidance was legendary, what does this prove exactly?

    In the context of your initial question: “who is going to work harder and make more money if the State is going to grab 80% of it?” this response shows that you are wrong to assert that high tax rates discourage people from continuing working to accrue extra wealth. (Honestly, this is like shooting fish in a barrel).

    I thought the whole point of this is “we want more money for the government and society”.

    No, my point- which you have singularly failed to address- is that neoliberal economics fail to adequately model reality and, consequently, policy formulated according to its precepts leads to social, economic and environmental disaster.

    And really, who do you people think you are telling people how they should live?

    I'm Some Guy With A Website.

    You lot are really coming across as a bunch of narrow minded “rich people are evil and selfish” folks.

    Really? I do? Good! I'm okay with that. I truly believe a lot of very rich people are evil and selfish. To be happy to sit on a hundred or a thousand or more times more wealth than your fellow humans and to revel in the luxury of being able to buy pretty much anything you want while poverty remains so widespread in our own country is abhorrent to me.

  25. Of course if you earn £43K the State doesn't take half your income, I never said it did. It takes about 17% in income tax (ignoring NI contributions which are tax by any other name).

    But the most important thing in taxation is the marginal rate of taxation, just as it is in the benefits trap. No one thinks 'You know what, I've just worked extra hours, and earned a nice little bit of income, and I don't mind a bit that the State has taken 60% of it (because my other income is £43K or more). My effective tax rate has only risen a small amount'. No, they think 'Thieving b@rst@rds have nicked 60% of the extra money I worked hard for'.

    So like it or not thats how people, especially the middle income earners think. And they will do all they can to not pay extra tax. They, like me, would rather earn less, than work harder and see the State nick over half of it and p!ss it up a rope on benefits for drug raddled layabouts. And before you get on your high horses, I know plenty of exactly such people, who are perfectly capabable of working but prefer to let the rest of us pay for their habits.

    So by all means put up the higher rate taxes to 60, 70 or 80%. Because I won't pay it, neither will loads of others, and you'll all suffer as a result. No skin off my nose, I'm sorted either way. But the poor b*ggers who will be put out of work, or never get a job in the first place, because no-one wants to expand their businesses or want to leave the county – how about asking them whether they'd prefer a job, and their boss paying 40% tax, or no job and the boss having sodded off to the Isle of Man or suchlike to play golf and swig gin all day. They might have a slightly less jealous outlook on life.

  26. I personally know people who choose not to work, not can’t, but choose. They still have money to go out and drink, occasional going to concerts (stuff i struggle to afford).

    Well bloody good on them. You must feel like a bit of a sucker.

  27. It's weird. All the people I know who are or who've been on benefits are there because of things that have gone wrong in their lives, were very short of cash for essentials, nevermind luxuries, and were desperate to get off benefits as soon as they could. Which is exactly the situation I expect I'd be in if I were paid *65 bloody pounds a week*. Do you have any idea how much money that isn't…?

    Maybe there's a special policy I missed, where friends of right-wing Ayn-Rand-loving blowhards get paid 5x the normal benefit just to increase society's general levels of mirth.

  28. "I could list a dozen governments off the top of my head in Europe, Africa or Central and SOuthern America which have “tried to make things more equal” and have succeeded. Does the end of apartheid ring any bells?"

    This would be the erm…. removal of government interference. Apartheid was a state policy was it not?

  29. @Ajay = “governments are also the ones that keep coming top of the transparency and honesty league tables. Try again.”

    In the tl;dr version what I originally said was that it can corrupt governments, people or both. IE the welfare state. A quick google shows Swedish unemployment at 8-9%, not particularly great, though I admit a rather shallow look at their situation. There are many more failures than successes when looking at redistributive policies, Sweden is one of the better examples though I admit, and I suspect their constitution has something to do with it (it’s much better at ours at keeping the politicians in check).

    I wonder if stories like this http://www.swedishwire.com/economy/3207-massive-a… have anything to do with their recent election results.

    @Punkscience
    I can’t even be bothered to read your posts as with just the first sentence you start shit flinging, debate like a grown up and I might bother to read your posts, I may even feel like responding if I’m feeling generous.

    @Some Guy With A Website.
    It’s a matter of scale. Plenty of people on low wages buy themselves little luxuries, whilst people starve on the street. Plenty of people on low wages have the time, but not the inclination to do any charity work. It just feels that pointing to the rich and screaming EVIL either missing the point (in that people can be shitty or nice regardless of rich/poor), or it’s just a way of massaging your own conscience. Now I don’t point that at you in particular, but I have meet plenty of people screaming about the evils of wealth, who do absolutely fuck all for their fellow man themselves.

    @Ginfrey = Well bloody good on them. You must feel like a bit of a sucker.

    Very very angry actually. I’m currently “managing” to pay the bills, whilst one particular person just sits on their arse and collects benefits, whilst getting free housing and all bills payed. I suggested she get a job, and it was basically “eew no, why would I want to do that!”. She’s friends with friends, and because of that I don’t tell her to just fuck off.

    She has a kid (hence why everything is paid for), but has childcare (and the state will pay for that if she didn’t anyway).

    Surprisingly enough her parents barely worked either, which to me is the real life proof that the system we have really does just engineer “non working households”, and the issue being passed down the family.

    I really feel sorry for her kid, he doesn’t stand a chance in hell of becoming anything more than another workshy scrounger like the rest of her family.

    “@John B = It’s weird. All the people I know who are or who’ve been on benefits are there because of things that have gone wrong in their lives, were very short of cash for essentials, nevermind luxuries, and were desperate to get off benefits as soon as they could. Which is exactly the situation I expect I’d be in if I were paid *65 bloody pounds a week*. Do you have any idea how much money that isn’t…?”

    Yes, there are people who need it, and who get the minimal. Normally working people who get made redundant. When I claimed it I was unemployed for 3 months, I got 2 weeks worth of payments 2 months after I had got a job, Wonderfully usefull i'm sure you can imagine.

    Long term unemployed get most of their bills payed for, when your bills are all paid for that 65 quid is no longer a small amount of money.

  30. @JB Your argument on the social contract seems to boil down to: "I support the high taxation/spending that we have, anyone earning more than X who doesn't can fuck off into exile. Ergo, anyone earning X+ not in exile must, in their heart of hearts, support my views."

    As you may have guessed, this is not an assertion I support.

  31. @John B

    Indeed £65/week isn't very much. But there are millions who aren't on £65/week only. I know loads of people on disablity allowance or single parent benefit that get many times £65/week, plus their house provided, council tax paid, grants for furniture, etc etc. And cash in their hand at the end of the week to spend as they want. A good friend of mine worked out that after she'd earned £25k a year, paid her mortgage, bills etc, she had less money to spend than her ex boyfriend, who was on the sick, had a house provided etc. He wasn't really sick, just lazy. He could have done some sort of job, but why would he? Why work on a low paid job when benefits pays more?

    You see incentives cut both ways. There's no incentive to from benefits to work for millions of people, because benefits pays more than work. And there will be no incentive to work harder, get that promotion, start a new business if the State takes 60% of your income at the margin. The whole system is rotten to the core and needs sweeping away and starting again.

  32. @Jim
    Jim: "No, they think ‘Thieving b@rst@rds have nicked 60% of the extra money I worked hard for’. So like it or not thats how people, especially the middle income earners think. And they will do all they can to not pay extra tax. They, like me, would rather earn less, than work harder and see the State nick over half of it and p!ss it up a rope on benefits for drug raddled layabouts"

    I repeat: the existence of lots and lots of rich people in every jurisdiction in the world which charges high top rates of tax proves that you are talking utter toot.

    Just to be clear: you're saying that, in any state where the marginal top rate of tax is over 50%, most well-off people will hold their earnings constant just below the top rate threshold. If you charge 51% tax on earnings over £90k, for example, you will then have a very large number of people earning £89k and almost no one earning £91k or more.
    And if you then drop this threshold to £80k, these people – these £89k earners – will voluntarily reduce their own earnings to £79k rather than have to pay 51% tax on the top £10k of their gross earnings. They will deliberately make themselves worse off simply to avoid having to pay 51% tax on some of their earnings.

    This isn't true (outside, frankly, a tiny minority of embittered freaks) and it hasn't been true in any country anywhere at any time. I defy you to prove otherwise. Find me a single example anywhere in history where you can show this sort of sheer economic irrationality happening for any significant number of people.

  33. @Jim : You are aware that quite a lot of businesses got started between 1983 and 1987, the last period when the top rate of income tax was set at 60%? If I was to introduce you to Psion founder David Wood, for example, you would explain to him why he never started the company?

    In fact, annualised UK GDP growth was higher on average in the 1970s than the 80s, 90s, or 2000s.

  34. @fake
    "I’m currently “managing” to pay the bills, whilst one particular person just sits on their arse and collects benefits, whilst getting free housing and all bills payed."

    So your problem isn't actually anything to do with public policy, but rather with your resentment of your family member, right? Perhaps you could see a counsellor?

  35. @Jim
    OK, then – so what have you actually done to avoid working hard enough to go into the higher tax bracket? Prove it.

    Libertarians, as a rule, are all talk. They bitch endlessly about tax, but given the opportunity to earn 50% of an extra few grand…

    This should really be obvious, given that their philosophy is entirely based on the idea of rational utility maximisation at the margin. Rationally, you'd continue to try until the marginal effective tax rate reached 100%, because up to that point you'd still be richer.

  36. <blockquote cite="#commentbody-143167">
    Alex :
    This should really be obvious, given that their philosophy is entirely based on the idea of rational utility maximisation at the margin. Rationally, you’d continue to try until the marginal effective tax rate reached 100%, because up to that point you’d still be richer.

    Not true according to orthodox economic theory – you'd try until the amount per hour you got from working was lower than the marginal utility you got from spending an hour watching Jeremy Kyle and scratching your arse. Which is somewhere between 1-3 quid, I reckon…

  37. @Alex: I am well into the higher tax bracket right now. And could very easily be in the 50% tax bracket (ie 100k pa) if I reorganised my business in certain ways. However I will not do that because I can't see the point of doing the extra work and getting only half of the extra profit. And if the higher rate went up to 50+% I would find ways to reduce my taxable income so I was paying less tax. I don't spend the income I have now, so I'd rather spend it on my business (there are plenty of ways to spend money in a business that count as business expenses, and are therefore 100% tax deductable). Every bit of machinery I buy is deductable (up to 50K/year). All repairs are 100% allowable. I could lose tens of thousands that way in a trice. Better to have a brand new shiny machine sitting in my shed than the tax man having 60% of its worth. I could spend some on 'R&D' which is 100% allowable.

    I also notice no one has even attempted to counter my practical obsevations on the amount of tax raising the higher rate would bring in? Presumably you all agree with my analysis and are just motivated by pure jealousy at people who have more than you? In my experience all those who wish to 'tax the rich' always seem to define 'the rich' at an income level about one and a half times their own. Far enough away from their income (cos they're not rich at all) to affect only other people, but not them.

    And before you all come back and say, 'No I earn shed loads of money and should be paying 50,60,70% higher rate tax', well if thats the case there's nothing stopping you writing a cheque to HM Treasury as a donation. I'm sure they'll bank it pretty sharply.

  38. "Not true according to orthodox economic theory – you’d try until the amount per hour you got from working was lower than the marginal utility you got from spending an hour watching Jeremy Kyle and scratching your arse. Which is somewhere between 1-3 quid, I reckon…"

    I think you reckon wrong. Someone earning substantial amounts and working many hours a week will value their leisure time considerably higher than the majority of Jeremy Kyle watchers.

  39. @Jim
    Jim, as already established, you are not representative. Show us evidence that any significant number of people think the same as you.

    I should point out that there are over half a million people in Britain who earn £100k or more. Every single one of them is another datum indicating that you do not know what you are talking about. All 545,000 of them see the point of working harder and getting more money, even if it does mean 50% taxation of their marginal income.

    Even if we assume you are telling the truth, you are in a tiny, bitter minority.

  40. Falco: True. I dunno – most higher-rate jobs are middle-class ones where you aren't paid per hour anyway.

    There are a few skilled-working-class jobs where overtime is paid per hour directly, and where people who work significant overtime are in the higher-rate- tax bracket. Train driver strikes me as an obvious one. Now, if you were to raise (or lower) higher-rate tax bands, it'd be very interesting to look at how train drivers' rates of overtime changed.

    My assumption is they wouldn't, much. The ones who liked money would work extra hours for the same take-home pay; the ones who liked home would maybe work less, or possibly work the same, and buy their kids fewer Nintendos. If there are any existing economic studies on this, I'd be really interested to see them.

  41. In my experience all those who wish to ‘tax the rich’ always seem to define ‘the rich’ at an income level about one and a half times their own

    60% of my own, personally. Also, you seem to be unaware of the difference between the way businesses are taxed and the way employees are taxed. This makes me think that rather than a businessman who employs employees and owns machines whose capital cost is entirely tax-deductible, you might be a blowhard talking about things you don't understand.

  42. "Now, if you were to raise (or lower) higher-rate tax bands, it’d be very interesting to look at how train drivers’ rates of overtime changed."

    It might be interesting but you have one major skewing factor, overtime rates are higher so the tax rate would have to be very high indeed for these people to lose marginal utility for the extra hours worked when compared to their normal pay. The meat of it is whether those on a wage with no overtime will bother putting in extra work or bugger off on the dot of 5pm.

  43. It shouldn't matter: your overtime's your overtime, and if Jim's right that having an extra x% of your money stolen by the gummint means you're not going to do any more, then that holds for train drivers whose take-home-overtime has fallen from (salary – tax + y% overtime including existing overtime tax) to (salary – tax + y% – extra x% tax) just as much as it does for everyone else.

  44. @Jim
    "And could very easily be in the 50% tax bracket (ie 100k pa) if I reorganised my business in certain ways. However I will not do that because I can’t see the point of doing the extra work and getting only half of the extra profit."

    Which business? Is it a limited company? Does it have a website?

  45. @Falco
    This is a good point, but it would imply that actually, income tax wouldn't matter much in the decision to work more or not. You might rationalise the decision ex post as being driven by tax, of course.

  46. Except that's not how people will view it under those circumstances, ignoring the pschological factors will get you wibbly results, (where wibbly is an adjective describing the relevant noun as somewhere between "made up bullshit" and "total nonsense"), as opposed to the slighty wibbly results that you'd get with the best of intentions.

    You've also made no attempt beyond "there exist poor people" to show why anyone should accept the state taking such a huge proportion of their income. Simply holding a belief neither makes it true nor convinces others of its veracity.

  47. @Alex – It's more a question of "What extra do I get to take home?", income tax is going to be a major factor in that but as I said, not the only one.

  48. Apologies that the website has split the comments page; there's no reason for doing this and I firmly believe that people who split articles are hits-chasing arsewits. When I can be bothered to spend some time on the programming, things will improve. Oh yes.

    Side note: I know the leftie commenters here, but not all of the rightie ones. Everyone I know who's taking the left-wing side of this issue I know, without a shadow of a doubt, pays higher-rate tax.

  49. Re Side note: You also know damn well that at least one of the righties, (***takes issue with left / right definitions – thought I'd spare you the actual argument on this bit***) doesn't, (sounds like the start of a logic puzzle).

  50. Sorry. In many occasions I'd argue that left/right is based on the King of France's court and hence is an argument between social liberal merchants who want free trade and pro-aristocratic-tyranny landowners who want protectionism, with the former being "left" and the latter being "right". But here I'm using the convenient shorthand. And yes, I do know that damn well, but I think "committing a lot of time and $ to study to make sure you make it into said tax bracket in the long term" doesn't totally count as "disincentivised to make it into said tax bracket".

  51. I don't think I ever claimed to be “disincentivised to make it into said tax bracket” but if I were in it then a very high rate would encourage me to either work less and cherry pick or bugger off, (not an easy transfer in my line though, does this mean that I would be in with the poor on deeming to have agreed with the social contract?).

    There are two questions; why should people be very highly penalised for success beyond X and even if you can justify it, it is really worth reducing the national income to do so?

  52. "not an easy transfer in my line though"

    Complete lies. All British Isles tax havens plus HK and Singapore – everyone in your line is welcomed, feted and crowned with a crown of money.

  53. Given that minimum wage workers earn a little over £45 a day, and they don't seem to have it too well, £65 a week isn't best summed up by "not very much".

    @fake

    @Ginfrey = Well bloody good on them. You must feel like a bit of a sucker.
    Very very angry actually. I’m currently “managing” to pay the bills, whilst one particular person just sits on their arse and collects benefits, whilst getting free housing and all bills payed.

    You sort of missed the point here. If there really is someone else who is doing a lot better than you and doesn't even have to work then…why don't you do the same?

    And I don't want to hear any rubbish about how you, unlike miss layabout, want to do your bit, earn your fair share and not benefit at the expense of society above your own egoistic interests – the assumption that the opposite is true is at the heart of the whole argument that if the wealthy had to pay a little extra then they'd stop working/ flee to a tax haven.

    I really feel sorry for her kid, he doesn’t stand a chance in hell of becoming anything more than another workshy scrounger like the rest of her family.

    Which is quite interesting really, because when he does grow up to be a scrounger all his neighbours will be thinking "what a lazy bastard, I tell him to get a job but he just doesn't want to, he chooses to steal off all us hardworking taxpayers, I feel sorry for his kid, doesn't have a chance" and the story never ends.

  54. <blockquote cite="#commentbody-143191">
    John B :“not an easy transfer in my line though”
    Complete lies. All British Isles tax havens plus HK and Singapore – everyone in your line is welcomed, feted and crowned with a crown of money.

    LIES!!! I've been to these places, there was no crown of money just staring people wondering waht the drunk ferang was doing.

  55. >>And could very easily be in the 50% tax bracket (ie 100k pa) if I reorganised my business in certain ways. However I will not do that because I can’t see the point of doing the extra work and getting only half of the extra profit<<

    I can help you on this – I knew that business school degree would come in handy one day.

    The point of doing the extra work would be the *other* half of the extra profit.

    Where should I send my bill?

  56. Yes, partners complain to me about the 50% rate all the time. But then get over it and enjoy their remaining several hundred thousand pounds per annum.

  57. The 50% tax bracket kicks in at 150k pa, BTW. At £100k, the personal allowance starts to get clawed back (which leads to a nasty marginal rate for people earning £100-£113k of 60%).

  58. @John B
    Almost – it was the post-revolution French Assembly.

    Have you looked at how easy it is to get residency in tax havens? There are very high barriers that, in fact, suggest demand exceeds supply – more people want to live in such places than such places can accommodate – which suggests the opposite of your conclusion.

    I'm also unsure how valid a test it is to see how many people are driven from their homes by a tax regime, because the underlying human misery that leads to people leaving the place they know and love best is a deeply callous test.

    How many people are bankrupted by tax levels, driven to suicide, lose everything they've ever worked for? I have never understood the lack of compassion for people who try so hard to pay their way in the world and are harvested like Chinese bears for their bile by the tax system.

  59. <blockquote cite="#commentbody-143202">
    Peter Risdon :
    @John B
    Almost – it was the post-revolution French Assembly.
    Have you looked at how easy it is to get residency in tax havens?

    Yes. Very. I've been offered four or five jobs in tax havens myself. Hence the point.

  60. The IFS concluded a while ago that marginal taxation on the rich and well off was just about on the limit of maximising revenue .That was why Robert Chote predicted the top rate would lose revenue over time and Nick Clegg recently confirmed this was the case.
    Further redistribution through the tax system would have to come from middling earners. So basically you are talking crap
    The reasoning you employ is,in any case, unreasonable. Suppose I repeatedly punch you in the face ( not that I would dream of it ). Does your failure to leave town imply tacit agreement ? I think not although the Fascist I have always suspected you were at heart might apply "Revolutionary morality " AKA none .
    On the other hand taking as many people as possible out of taxation is a fabulous idea. How about we simply reduce the size of the state?

  61. @John B

    You can call me a liar if you like, but its hardly engaging with my arguments. For the record every word I have written regarding my businesses is correct. If you wish to dispute any of my reading of the detail of tax law, please do so, rather than insulting me.

  62. The IFS concluded a while ago that marginal taxation on the rich and well off was just about on the limit of maximising revenue

    No, the IFS concluded in last year that a proposed 45% tax band for income over £150k wouldn't be as effective at raising revenue as a 60% tax band on income over £100k.
    Unlike you, I have links! http://www.guardian.co.uk/business/2009/apr/20/in

    You can call me a liar if you like, but its hardly engaging with my arguments.

    As already noted, it doesn't really matter whether you're a liar or a member of a tiny unrepresentative minority. And you are one or the other. Either way your account of your personal behaviour is irrelevant to this discussion.

  63. <blockquote cite="#commentbody-143201">
    John B :
    @Richard J Bit confused by how that works, but at face value – at that point, you’re taking home gbp23 per hour. Libertoonians: would you stay in bed for gbp23, or work another hour?

    This just shows that you pay tax via PAYE and not Self Assessment. Its one thing to work and get X in your hand, and never see the tax element. Its another to work and get the fruits of your labours in your hand and then have to part with up to half of it to someone else. If everyone had to pay their tax in arrears, tax rates in this country would be considerably lower, as people would not stand for it. PAYE is a way for the State to fool people as to the real level of tax they are paying.

  64. Once you grow out of Internet Libertarianism, you realise that statements like "there's no point working harder because I'll have to give so much to the taxman" have a silent "at least, that's what I tell the other half."

  65. "If everyone had to pay their tax in arrears, tax rates in this country would be considerably lower, as people would not stand for it."

    How easy is it going to be to refute that one?

    Anyway, do you *really think* 'people' are so stupid that they can't divide their salary by twelve and compare that to their bank statement? If so, it explains a lot.

  66. <blockquote cite="#commentbody-143247">
    Neil :
    “If everyone had to pay their tax in arrears, tax rates in this country would be considerably lower, as people would not stand for it.”
    How easy is it going to be to refute that one?
    Anyway, do you *really think* ‘people’ are so stupid that they can’t divide their salary by twelve and compare that to their bank statement? If so, it explains a lot.

    Yes, people do behave like that. The sort of people who never keep a single bit of paperwork. Their salary is paid by direct debit, as are their bills. As long as they can make it from month A to month B without being too far in debt they are happy. What the State takes in tax is irrelevant because they never see it. And there are millions, if not tens of millions of such people. If they had their hands on the thousands the State takes from them now in taxation, and had to write a cheque every 6 months (as I do on Self Assessment) to the Inland Revenue, they would be considerably more likely to vote for a party that promised to cut the size of those cheques. IMO it is no surprise that tax rates are lower in the USA where ordinary people have to deal with annual tax bills, rather than have it removed at source by PAYE.

  67. <blockquote cite="#commentbody-143246">
    Neil :
    Once you grow out of Internet Libertarianism, you realise that statements like “there’s no point working harder because I’ll have to give so much to the taxman” have a silent “at least, that’s what I tell the other half.”

    I suppose if I reply that I have no other half to make your statement true, I'll just get abuse for being a sad lonely loser instead?

  68. @Jim
    But Jim, you also think that people voluntarily cut their own incomes rather than pay more than a certain arbitrary percentage of tax. What I'm trying to say here is that your views of "what people do" provably have very little congruence with what the vast majority of people actually do.

  69. <blockquote cite="#commentbody-143257">
    ajay :
    @Jim
    But Jim, you also think that people voluntarily cut their own incomes rather than pay more than a certain arbitrary percentage of tax. What I’m trying to say here is that your views of “what people do” provably have very little congruence with what the vast majority of people actually do.

    No, I'm saying small businesses (the ones that provide huge amounts of employment) will refuse to try to make more money,(thereby employing more people, and paying more tax) and settle for what they have, or (in some circumstances) even less, especially if they are close to the cut-off point for higher rates. The whole thing will bring in far less tax than predicted and be a massive break on economic growth. I personally have several projects on the drawing board that could make me a reasonable extra income per year (10K ish). But as I'm going to lose 40% of that 10K straight away, and possibly more if it pushes me over the 100K barrier, I don't think I'll bother. So bang goes another bit of economic activity.

    I really don't know why this is so contentious – no-one argues that high rates of benefit withdrawal (effectively high marginal rates of taxation) are not a serious barrier to work for those on benefit, so why is it so unlikely that those with lots more money anyway (the well paid) are more likely to choose more leisure time than extra work, if they can only keep a small % of any extra they can earn?

  70. [But as I’m going to lose 40% of that 10K straight away, and possibly more if it pushes me over the 100K barrier, I don’t think I’ll bother.]

    if you had some projects that could make you £6K tax free, would you bother with those?

  71. <blockquote cite="#commentbody-143301">
    dsquared :
    [But as I’m going to lose 40% of that 10K straight away, and possibly more if it pushes me over the 100K barrier, I don’t think I’ll bother.]
    if you had some projects that could make you £6K tax free, would you bother with those?

    You show me some way of making tax free income & I'll consider it. I can see exactly what point you're trying to make and it doesn't fly. Generally speaking the greater the effort, the greater the reward. So the 6K return project is less work than the 10K one. If I have to do 10K worth of work I end up with 6K after tax. If I do 6K worth of work I end up with 3.6K after tax. And so on and so forth. I can't charge more just because I pay higher rate tax. I have to charge what the going rate is.

  72. <blockquote cite="#commentbody-143304">
    Neil :
    Shorter Jim: The World doesn’t work as my theories suggest it should. Therefore, it needs re-education.

    Fine. Just wait and see in a few years time if the 50% tax rate brings in any more or less revenue. Then we'll see whose views on how the world works is correct.

    If this article (http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8038276/Treasury-will-lose-hundreds-of-millions-of-pounds-in-tax-as-hedge-funds-move-abroad.html) is anywhere near the truth then I think I'll be proved right. Time will tell.

  73. http://www.independent.co.uk/opinion/commentators

    AJAY -Link right back-atcha and a somewhat more pertinent as it directly quotes the Head of the IFS at that time Robert Chote who agrees not with you but with me .

    In this context the salient points are….

    1- The IFS calculated that the Government would maximise the revenue it collects from those earning over £100,000 by imposing a marginal rate – the additional tax paid on each pound of increased income – of 55.6 per cent. This, however, is perilously close to the current marginal rate of 53 per cent charged when income tax, national insurance contributions and indirect taxes are all included.

    2 The IFS concluded that "there is not a powerful case for increasing the income tax rate on the very highest earners, even on redistributive grounds."

    3 head of the IFS, Robert Chote, observed, "These findings have important and perhaps uncomfortable implications for would-be tax and welfare reformers of all parties".

    Also the Guardian Article is quite misleading the bottom line conclusion on the top rate was that it would lose money although there were a range of possibilities . Politics of Envy merchants pointed to this uncertainty at the time as a sort of justification but it was only an ordinary exercise with competing probabilities not certainties .
    Still you can quibble about the detail if you like no-one thinms we are far from the edge of our own Laffer curve with the wealthy if not over it . This rendrs this entire thread an academic excecise exercise. Sorry about that
    John B is somewhat off the pace here in other ways .Some on the left ( like Peter Kellner ) have already noticed that post bubble socialism will not be able to obtain the support it has done because it would have to levy politically impossible burdens on the middling to do so. Followers of the deluded Red Ed ( elected on the basis of sectional interest ) will have to redefine the left in ways they are yet to imagine and as we see taxing the rich is not a way out.

  74. @Jim
    "as I’m going to lose 40% of that 10K straight away, and possibly more if it pushes me over the 100K barrier, I don’t think I’ll bother. So bang goes another bit of economic activity.
    I really don’t know why this is so contentious "

    Jim, once again, it's contentious because you're describing your own actions as though they were typical. They aren't.

    And, also, why are you suddenly talking about small businesses? I thought we were talking about personal taxation.

  75. <blockquote cite="#commentbody-143350">
    ajay :
    @Jim
    “as I’m going to lose 40% of that 10K straight away, and possibly more if it pushes me over the 100K barrier, I don’t think I’ll bother. So bang goes another bit of economic activity.
    I really don’t know why this is so contentious ”
    Jim, once again, it’s contentious because you’re describing your own actions as though they were typical. They aren’t.
    And, also, why are you suddenly talking about small businesses? I thought we were talking about personal taxation.

    If you are a sole trader (ie not trading through a limited company) its pretty much the same thing. As a sole trader your income is the sum of all the taxable profits from all your businesses and other sources (investments etc). Huge numbers of businesses are sole traders and partnerships. Being in business does not necessarily mean you are a limited company.

  76. And the majority of sole traders, surprise surprise, don't have any employees.

    Still waiting for the evidence that significant numbers of sole traders – or any other sort of business – are deliberately restricting their growth, and thus their income, in order to avoid having to pay higher rate tax.

  77. <blockquote cite="#commentbody-143389">
    ajay :
    And the majority of sole traders, surprise surprise, don’t have any employees.
    Still waiting for the evidence that significant numbers of sole traders – or any other sort of business – are deliberately restricting their growth, and thus their income, in order to avoid having to pay higher rate tax.

    So partnerships (which are just a collection of sole traders) don't employ anyone? Solicitors, accountants, architects, estate agents, land agents, surveyors, lawyers, stock brokers etc etc – none of those employ anyone do they?

  78. I can honestly say the partners of the LLP I used to work for did not cut back their work based on taxation, and wouldn't have done even if marginal tax rates had been 60%. 60% of a million quid is still better than 100% of being fired for not bringing in the accounts…

  79. @Jim
    "So partnerships (which are just a collection of sole traders) don’t employ anyone?"

    No, that isn't what I said.

    Still waiting for the evidence that significant numbers of sole traders – or any other sort of business – are deliberately restricting their growth, and thus their income, in order to avoid having to pay higher rate tax.

  80. @Alex"“I’m currently “managing” to pay the bills, whilst one particular person just sits on their arse and collects benefits, whilst getting free housing and all bills payed.”

    So your problem isn’t actually anything to do with public policy, but rather with your resentment of your family member, right? Perhaps you could see a counsellor?"

    Yes your right. I don't have any issue with someone doing no work ending up with more spending money than a working person (me).

    I shall see a counsellor forthwith!

    @Ajay You're asking for the impossible and you know it.

    You can't gather statisits on what people are not doing. You can only see cause and effect.

    I.E if we lower taxes and see more business or the same will we then know who's right.

    The next best thing we can do is look at past occourances with similar circumstances, something either you or jim can do.

    "I should point out that there are over half a million people in Britain who earn £100k or more. Every single one of them is another datum indicating that you do not know what you are talking about. All 545,000 of them see the point of working harder and getting more money, even if it does mean 50% taxation of their marginal income. "

    The questions you should be asking are.

    How many of those 545k are paying the full tax

    Would there be more than 545k of them if the tax was lower, have any left, have we discouraged more from coming.

    How much of the money that is taxed would instead be ploughed back into investment = more net wealth and tax (bearing in mind that past occourances of lowering taxes as a % increased tax income).

    Again this information doesnt exactly exist. So you can again only look at past sitiations and occourances, other similar economys, and extrapolate from that.

    Then there is of course anecdotal evidence (always dodgy). But from my own, i know of sole traders who won't expand (take on employees), because even if they double their business it won't then cover the raft of new taxes they would have to pay for them and the employee.

  81. But from my own, i know of sole traders who won’t expand (take on employees), because even if they double their business it won’t then cover the raft of new taxes they would have to pay for them and the employee.

    That's a completely separate issue. I'm quite prepared to believe that could happen, and the traders are acting entirely rationally from an economic point of view in doing so.

    But Jim believes that there are people who will refuse to expand their business because, even though it would increase their own net income, because they can't bear the thought of edging up into a higher tax bracket. This doesn't happen to any significant degree. Jim claims to do it himself, but he's adduced no evidence that anyone else thinks the same way.

    I don't think it's impossible to prove, incidentally;
    you could have
    a poll of business owners in which a majority say they won't increase their incomes, even though they could do so, because they don't want to go into a higher tax bracket;
    or an observable "bulge" with incomes just below the higher bracket.

    If it is impossible to prove, then Jim should stop claiming it's true!

  82. Just to note that Jim's other point is also nonsense. If you're a sole trader and hire a new employee, every penny you pay in employer NI and the cost of having them in the office (computer, phone, physical space, etc) is deducted directly from the taxes you pay. It's simpler to do this as a limited company (which is why most LLPs over a couple of partners employ their staff through a wholly-owned limited company which contracts staff to the LLP), but completely legal and *the whole damn point* to do it through your personal tax bill if you are a sole trader.

  83. (which is why most LLPs over a couple of partners employ their staff through a wholly-owned limited company which contracts staff to the LLP), but completely legal and *the whole damn point* to do it through your personal tax bill if you are a sole trader.

    *Embarrassed cough* Not quite. Service companies were, in the main, a legacy of profit related pay (an early 90s tax dodge years before my time). Post 1 April 2004, and the introduction of UK-UK transfer pricing, they acquired a useful new advantage. I leave it to the reader to guess what this may be.

  84. It is entirely possible that I'm the only person who will act in this manner in the UK – ie to reduce my taxable profits in response to higher taxes, or reduce my activity so as not to enter a higher baracket. I don't think I am from my experience of the people I meet in business. But I can't prove it. As I have said, time will tell who is right, when the 50% tax rate kicks in and we see what revenue it brings in.

    On a slight tangent there is plenty of evidence that small businesses go through all sorts of contortions to ensure their turnover doesn't go over the VAT limit (making the client buy materials for example, plus the obvious 'cash jobs'). Its not a massive stretch to think they might do the same for income taxes as well.

  85. *****"If it is impossible to prove, then Jim should stop claiming it’s true!"****

    I would argue that neither of you can "prove" your point, and neither of you can point to the other and say "well stop claiming that".

    ahem

    ***""This doesn’t happen to any significant degree.**""

    **""Jim claims to do it himself, but he’s adduced no evidence **""

    and your evidence is…..

    I've already said that you can look up statistics from elswhere/other times for tax and extrapolate from that as to the likely effect of higher taxes.

    I don't know why you mention taking a poll on something, polls are extremely dodgy when it comes to obtaining reliable un-biased results.

    There are historical statistics pointing towards lowering taxes = higher tax intake both here and the UK. Whether that's because lower taxes = less tax dodging or more business or both is up for argument.

    Why don't you go look up the stats, and then come back and tell us were all wrong if that's what you find.

    ***"Just to note that Jim’s other point is also nonsense. If you’re a sole trader and hire a new employee, every penny you pay in employer NI and the cost of having them in the office (computer, phone, physical space, etc) is deducted directly from the taxes you pay."***

    It wasnt jims point, it was mine, and i admitted it was anecdotal.

    I am however talking about people that work from home with a van (handymen basically). So no offices phones etc, and simply people who don't get the complexity of the tax system, all they see is that if they take on an employee, double their business, they end up worse off.

  86. Why don’t you go look up the stats, and then come back and tell us were all wrong if that’s what you find.

    I'm not the one that's making a weird and counter-intuitive assertion here; I'm the one that's expressing doubt. Jim's making the claim, Jim can provide the evidence.

    There are historical statistics pointing towards lowering taxes = higher tax intake both here and the UK.

    We know where those statistics are. They're in the area of Baghdad, north, east, south and west of it.

  87. "I can honestly say the partners of the LLP I used to work for did not cut back their work based on taxation, and wouldn’t have done even if marginal tax rates had been 60%. 60% of a million quid is still better than 100% of being fired for not bringing in the accounts…"

    Also many partnerships have arrangements where the more you bring in relative to the other partners the better your bonus, (or equivalent). Again, taxation isn't the only incentive but it is a big one and suggesting that it will have no, or so small as to be insignificant, effect on the effort anyone puts in can only rely on counterinduction.

  88. Also many partnerships have arrangements where the more you bring in relative to the other partners the better your bonus, (or equivalent

    Many, if not most, sole traders also have some sort of arrangement whereby your remuneration is linked to the amount of business you bring in.

  89. True but in a much more analogue form. When you have a bonus scheme that awards 10X to the top place but only 2X to second there is a great drive to try and reach that top position. The reward structure being different will cause different effects which is what the whole "how high and how flat should taxes be?" debate is all about.

  90. It looks as though the Left's favourite tax consultant, Richard Murphy, agrees with me:
    http://www.taxresearch.org.uk/Blog/2010/10/06/chi

    According to him the very high marginal tax rates created by the withdrawal of Child Benefit from higher rate tax payers will be an incentive to reduce ones income below the cut-off point by all sorts of means, including (dunt dunt dahhh) reducing hours worked!!!

    Who'd have thought it eh? High marginal tax rates make people change their behaviour. No, I'm sure it'll never catch on. People earning just over the £44K cut-off wouldn't even consider trying to reduce their earnings in order to continue to qualify for CB. They'll just continue as before, with no changes whatsoever.

  91. Congratulations:

    a) you've picked an example *where marginal rates are over 100%*, which everyone admits is a ridiculous and crazy disincentive to work.

    b) you've picked an "ooh, the left's favourite person" character who everyone here – being mostly actual economists, professional tax accountants, etc – thinks is a blustery blowhard idiot. Imagine if I'd cited Sarah Palin to bolster my argument to moderate British right-libertarians…

  92. For exactly the same reason they bring on Matthew Sinclair (TPA) – even though he's the leader of a tiny, irrelevant organisation with no serious credentials and which everyone involved in the field, irrespective of ideology, thinks is a hack, a) they've created organisations with apparent credibility to non-experts – ie a nice website and some CV repositioning b) unlike real academics, scientists and even think-tanks, they produce nice friendly conclusions that suit the journalist's stereotypes of "one side or the other of the argument" without worrying about even attempting for truth.

    So if you're a BBC hack working up against a hideous deadline and trying not to get fired for handing in something that's [late / made up by you / made up by someone obviously ridiculous when your editor gives it a cursory glance], then "ooh, I need a leftie pro-tax, anti-cuts quote, Murphy will say something interesting that doesn't need clarifying or editing", and "ooh, I also need a rightie, anti-tax, pro-cuts quote, Sinclair will say something interesting that doesn't need clarifying or editing" is an obvious thought process.

    The Grauniad and Times do the same, but with obvious leanings to Murphy and Sinclair respectively. The non-serious press actually quote those guys less than the serious press, because they don't even *need* to look balanced or have a quote from someone spuriously credible to run with a story.

  93. "made up by someone obviously ridiculous when your editor gives it a cursory glance"

    This condition should surely disqualify the knave.

  94. @Jim
    Jim, do you understand the difference here?

    Murphy's saying "if working longer hours will mean less take-home pay, people won't do it", which is economically rational and entirely unsurprising.

    What you're saying is that "if working longer hours will mean more take-home pay, but will also mean a marginal tax rate of over 50%, people won't do it" which is economically entirely irrational and unbacked by any evidence at all.

  95. <blockquote cite="#commentbody-143730">
    ajay :
    @Jim
    Jim, do you understand the difference here?
    Murphy’s saying “if working longer hours will mean less take-home pay, people won’t do it”, which is economically rational and entirely unsurprising.
    What you’re saying is that “if working longer hours will mean more take-home pay, but will also mean a marginal tax rate of over 50%, people won’t do it” which is economically entirely irrational and unbacked by any evidence at all.

    So you deny the existence of the Laffer Curve entirely then? That people will always work more even if the State takes 90% of that extra income, because they get to keep a little bit more? Until presumably at 100% tax they stop? Or do they keep working even then?

  96. So you deny the existence of the Laffer Curve entirely then?

    Oh, no, I have implicit faith in any economic theory drawn up on a cocktail napkin and first espoused by people who were clinically mentally ill.

    Note also that everything about the Curve is either unproven or a truism. We don't know what shape it is. We don't know where the peak is. We don't know which side of the peak we're on. We don't know how many curves there are – maybe revenue's different if you're cutting back to a 25% rate rather than increasing up to it. We don't know how many peaks there are – why assume there's a smooth curve with only one? We don't know what kind of multipliers should be accorded to different types of tax (consumption tax/income tax, for example).
    We do know that at 0% tax, tax revenues will be zero. (No kidding. If you don't have a government, you won't have any taxes.) But we don't know that at 100%, revenues will also be zero; and in fact that rather goes against everything we know about human behaviour. (People don't work at all unless they're paid? Really?)

  97. @Ajay: I don't know about you but if taxes were 100% I wouldn't be working (legally) full stop. In fact if you aren't sure about this fact for yourself, perhaps you'd like to come and work for me for free? After all if you don't mind doing a few extra hours when the State takes 100% of your extra income, you won't mind working for nothing will you?

    It is self evident that the Laffer curve exists, the shape is of course open to conjecture, it undoubtedly changes from individual to individual. But as an aggregate there will be a tax rate that maximises revenue, and beyond which revenue falls. The argument is what that rate is. I posit that we are pretty much on it now, and any increases in tax rates will result in lower tax revenue. You may disagree. We will see over the next few years.

  98. I don’t know about you but if taxes were 100% I wouldn’t be working (legally) full stop. In fact if you aren’t sure about this fact for yourself, perhaps you’d like to come and work for me for free? After all if you don’t mind doing a few extra hours when the State takes 100% of your extra income, you won’t mind working for nothing will you?

    Like most people in Britain, I don't mind working for nothing, and have done so quite a bit. I wouldn't work for Jim for nothing because I don't like him very much, but I've worked for (for example) Oxfam for nothing.
    The fact that Jim would never work for free for anyone puts him, once again, in a small, unrepresentative, bitter minority of the population.

  99. <blockquote cite="#commentbody-143977">
    ajay :
    I don’t know about you but if taxes were 100% I wouldn’t be working (legally) full stop. In fact if you aren’t sure about this fact for yourself, perhaps you’d like to come and work for me for free? After all if you don’t mind doing a few extra hours when the State takes 100% of your extra income, you won’t mind working for nothing will you?
    Like most people in Britain, I don’t mind working for nothing, and have done so quite a bit. I wouldn’t work for Jim for nothing because I don’t like him very much, but I’ve worked for (for example) Oxfam for nothing.
    The fact that Jim would never work for free for anyone puts him, once again, in a small, unrepresentative, bitter minority of the population.

    Given I was roundly condemned for making an unsubstantiated statement that I thought many people would reduce their income in response to higher tax rates, I think I'd like some evidence in favour of the statement 'most people in Britain don't mind working for free'. I know people from all echelons of society, and none of them will WORK for free. They may donate their labour to good causes of their choice (charities, local community organisations etc etc), but none in my experience are prepared to labour for nothing when their labour will enrich someone else they have no connection with.

    You say you wouldn't work for me for free because you don't like me – fair enough, its your choice. I don't like the State so not only am I not going to work for it for free, I'm not going to work if it takes more than half my efforts. Thats my choice.

    For the record I have indeed worked for free for many years – I was the (unpaid) groundsman at my local cricket team for over 10 years. During that time I did 10-15 hours a week during the summer months so others could play on a well maintained facility. I also worked in the winter on ground improvements. All in all I reckon I did over 3000 hours of free labour in 10 years. Thats about a year and a half of work at 40 hours a week, 52 weeks of the year. Does that count?

  100. Jim, you seem to think that you're disagreeing with me here, but you're backing up my point. Most people are prepared to work for free – including you.

  101. They may donate their labour to good causes of their choice (charities, local community organisations etc etc), but none in my experience are prepared to labour for nothing when their labour will enrich someone else they have no connection with.

    Nearly every salaried employee in Britain has, at least once in the last year, worked beyond the bare minimum needed to remain in employment.

  102. none in my experience are prepared to labour for nothing when their labour will enrich someone else they have no connection with.

    Ahem. Oxfam. And I've never even been to the Horn of Africa.

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