The 50% Tax Rate

RJP33

Just reading this piece from Danny Alexander about the 50% tax rate – http://www.guardian.co.uk/politics/2011/jul/31/danny-alexander-lamont-tax-cuts

On the one had his argument is that we should be cutting tax for the poorest which I agree with, and it’s the one excellent thing the Lib Dems have done in government (moving the personal allowance up to £10k and taking millions out of tax).

However if you can cut taxes without decreasing takings by making this a more attractive country for the wealthy to live and pay taxes, then why wouldn’t you do it?

Seems a classic case of thinking with the heart not the head.

StevieJ

(moving the personal allowance up to £10k and taking millions out of tax)

Must have missed that one

shop-to-drop

It sounds good reducing tax for lower paid but I'm not a fan of taking people out of paying tax altogether. I think lowering the rate is better. To me it's a matter of pride to be paying tax and contributing to society.

abaxas

I would prefer a flat tax rate on bandings.

Eg <5k a year £50 tax
5k-7.5k a year £150
7.5k to 10k £300
then standard %ages beyond.

That way everyone feels like they have contributed.

RJP33

StevieJ wrote: »

Must have missed that one

Well it's by the end of this parliament

In fairness, it's gone up drastically already and the richer have had theirs removed.

Pete111

The 50% rate is almost entirely political. There are strong arguments that it gathers very little in revenue as it actively discourages weathly people working (and spending) here

Having to pay 52% (inc NI) was one of the factors in my DW quitting her very well paid job last year. She has now set up as Ltd company and, despite still earning a significant amount pays far less tax to UK PLC.

RJP33

shop-to-drop wrote: »

It sounds good reducing tax for lower paid but I'm not a fan of taking people out of paying tax altogether. I think lowering the rate is better. To me it's a matter of pride to be paying tax and contributing to society.

If only there was a lower rate band of tax where people still contributed but not as much.

Oh wait.

Pennywise

Have to agree that high taxes are just political gesturing and do nothing to bring in more tax.

Just look at the proposed removal of family allowance for HR taxpayers. How many threads on these forums alone from people who are just a few hundred/thousand above the threshold, finding ways to get themselves below it again to avoid losing FA, i.e. paying more into pensions, cutting back on overtime, not taking promotions, etc., etc. This is because it's regressive - the removal of a couple of thousand in FA for being just a few hundred over the threshold - complete nonsense!

How about stamp duty on property. People will do whatever it takes to get the official property purchase price below the next "step" threshold, i.e. pay the sellers legal fees, buy the F&F separately, or whatever. Again, to avoid say 3% on the full price when it can be just 1% if a few K less. Complete nonsense again.

The classic is now the CGT rate increase to 28% for HR taxpayers. That's guaranteed to bring in less revenue, because people will take steps to avoid it. When it was just 18%, that's bearable and for a lot of people, not worth the hassle of tax reduction strategies, but 28% is a lot, especially with no provision for taper relief or indexation/inflation, so people will take steps to avoid it. That doesn't mean doing it illegally - it could be something as simple as deciding not to sell the asset at all and simply keep it!

The 50% tax rate HAS to go - it will bring in nothing. Just like the withdrawal of the personal allowance above £100k of taxable income, creating a marginal tax rate of well over 50% - it has to go - it won't bring anything in as people with incomes between £100k-£115k will take steps to make sure that their taxable incomes fall back to below £100k - they'd be crazy not to.

The thing is that once you've got someone whose earnings are well above average, or who has assets well above the average person, a lot of their income, spending, investments, etc will be discretionary. With that comes a lot of scope of changing behaviour. I'm not meaning dodgy tax planning schemes or tax evasion. I'm meaning simple things, like working less hard, to earn less money, or putting more money into tax-efficient savings, or planning purchase and sales of investments over several years to take advantage of each year's rates/allowances, etc. They only need to do this when tax rates reach beyond what the person regards as acceptable. When you get high rates, perception is that they're not acceptable and people's behaviour changes to avoid them, often meaning that HMRC get nothing whereas otherwise with a lower tax rate, they'd have got maybe 20-30%!

StevieJ

RJP33 wrote: »

Well it's by the end of this parliament

In fairness, it's gone up drastically already and the richer have had theirs removed.

If RPI remains at 5% for the duration of the parliament, what does that do to the £10k allowance by the end? or is that £10k inflation adjusted?

the_flying_pig

I think the 50 top rate was a fairly good idea from a fairness/sending-out-the-right-signals point of view.

I think it very likely does raise money [this is an entirely empirical question but most sensible guesstimates I've seen of where the laffer curve peaks are around 60% plus - Pete 111's example is quite interesting but, I'm sure, fairly atypical. I know a fair number of people who earn in the 50% band & the overwhelming majority of employers don't give you any scope at all to evade or avoid the tax, even in the financial sector] but probably not all that much to be honest just because, well, not all that many people pay it.

As it says at the end of the article, though, a mansion tax would be far more difficult to avoid and have much better incentive properties.

RJP33

StevieJ wrote: »

If RPI remains at 5% for the duration of the parliament, what does that do to the £10k allowance by the end? or is that £10k inflation adjusted?

Wasn't the 10k number just an arbitrary target for the Lib Dems? Not sure it was inflation adjusted.