Would you support a 50% tax rate – even if it didn’t raise extra cash?

We have a higher rate of tax than 50%. You effectively pay 60% tax on any amount over £100k up to £100k plus twice your personal allowance, because for every £2 earned over £100k you lose £1 of your personal allowance. I've recently had to start paying a lot into pensions to keep my taxable income below £100k.

stevemcol wrote: »

Can't believe anyone with ambition would turn down promotion

A lot of people don't have any great ambition to be a manager. For most people, it's a lot of extra hassle, stress and responsibility and too far removed from the work that they actually enjoy.

becuase they'll have to pay a lrger proportion of tax on the increased income.

The extra money is the carrot that's used to get people to take on all of the extra work of management, but if HMG swallow 60%+, then there isn't really enough carrot left to do the job.

I run a multi-national team across four continents, and I have to understand and motivate people from many cultures, who have to enjoy./endure many different taxation systems, and the UK system is the one that demotivates people the most.

The question is probably based on a false hypothetical, but even assuming its validity, i.e. that in current terms a 50% top tax rate would raise no more tax in comparison to a 45% rate, there are long-term reasons for raising rates.

Why does raising rates not necessarily increase tax take? One reason for this is very bad - higher taxes can undermine the wider economy, reducing demand and causing / prolonging a recession. But this is unlikely to be a problem with tax on people who, on any measure, have a great deal of disposable income - it was far more of an issue when VAT went up.

The other reason, which is more likely with the well off, is that tax take doesn't increase because tax is avoided. Simple maths suggests that if £1 in £10 of income over the threshold is taken out of income tax, the tax take won't increase when rates go up from 45% to 50%. If this is done by criminals lying to the Revenue, that is clearly bad and should be properly dealt with by resourcing prosecutions and HMRC investigations. However legal tax avoidance per se is not necessarily a bad outcome for the economy - most legal tax avoidance is through doing things that the Government wants to encourage because it is good for the economy in the long run - so people increase their pension contributions, which are invested in companies now and provide for them in old age - people give to charity, which improves the country, sometimes reduces the strain on the state, or sometimes helps the third world - people invest in start up companies and claim tax relief through venture capital trusts or the enterprise investment scheme - lots of people lose their money on this but the government encourages it through tax relief in the hope the successful ones will provide jobs (and so tax income) in the future. That £1 in £10 is therefore probably going to the good of the economy, while the £9 remaining as income over the threshold suffers a higher tax rate.

Philosophically it's hard to explain why risk-taking capital (dividends and capital gains going to owners of companies) is generally taxed at lower rates than wages and savings income, but pragmatically a lot of business owners will still see the UK as a low tax country and stay.

There is also the fact that employers may look at the value of incentives differently - maybe a modest bonus to the whole of a well-performing team (who may be paying lower rates of tax) is more effective than a big bonus to the big boss (where half is swallowed up in tax) - we can but hope! Certainly New Labour's longstanding policy under Blair's leadership of sticking to the 40% rate to encourage all the big bonus bankers to be in London didn't look so clever with the crash being in part put down to focus on sales rather than risk.

That is not to say that 50% is the optimal tax rate, just that the question of where to land is harder than just a question of how much money it brings in the short term.

stevemcol wrote: »

If government expenditure was completely efficient and free from corruption would you be OK with the 50% tax rate?

If we are talking ideal worlds I would prefer to slash the role of govt to be much smaller and ideally turn Blighty into a tax haven.


But that will never happen so I will just have to lump whatever tax rate I am assigned, and make some very strategic career decisions in the future.