The 50% Tax Rate

dtsazza

the_flying_pig wrote: »

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

That depends on what you consider to be "fair", or the right signals.

From a devils' advocate perspective, is it fair that someone who's working hard in a presumably successful business is paying a marginal income tax rate of 50p in the pound, when someone who is less successful pays just 20p for each pound they earn?

Doesn't that potentially send out signals that you'll be penalised for success, and rewarded for mediocrity (to the point of infinitely negative "tax" rates if you're on the dole)?


It's not black and white in either direction; personally I think the 50% tax rate sends out the wrong signals, to an extent which isn't compensated by the revenue it brings in. Broadly speaking, profitability and high salaries are what accompanies growth of companies and of employment, which is what we need right now. Putting dampeners on that for the sake of some political "anti-fat cat" points, and what is probably a trivial amount of revenue, seems short-sighted.

RJP33

Especially if dropping the rate to 40% actually increases takings by making us a more attractive proposition to live/invest in.

dtsazza

RJP33 wrote: »

Especially if dropping the rate to 40% actually increases takings by making us a more attractive proposition to live/invest in.

True - the only real benefit to increasing tax rates is the greater income, with every other effect being negative. So if the rate isn't bringing in any more money, then it's a universally unappealing proposition.

(Of course it's impossible to prove exactly how much would be brought in under different tax rates, and I'm sure you could prove it either way depending on what set of reasonable assumptions you decide to use for your calculations.)

System

shop-to-drop wrote: »

To me it's a matter of pride to be paying tax and contributing to society.

Funnily enough I can't recall ever having met anyone who said that.

Jegersmart

shop-to-drop wrote: »

To me it's a matter of pride to be paying tax and contributing to society.

Well that is what our whole system is built on so it is not surprising that you have picked up and grown with this notion:)

olly300

dtsazza wrote: »

That depends on what you consider to be "fair", or the right signals.

From a devils' advocate perspective, is it fair that someone who's working hard in a presumably successful business is paying a marginal income tax rate of 50p in the pound, when someone who is less successful pays just 20p for each pound they earn?

Doesn't that potentially send out signals that you'll be penalised for success, and rewarded for mediocrity (to the point of infinitely negative "tax" rates if you're on the dole)?

It is fair.

Our tax system is progressive so once your salary is enough to have paid for lifes basics then you should be taxed more as the rest of your salary will be spent on things that aren't essential.

Plus you forget that the people who get to that tax band often can sort out their bonuses and pension, so while they may lose out in the short term they don't lose out in the long term.

And while I'm not a 50% tax payer I know a few of them and I can easily say while they work hard they don't work harder than some of the people I know who earn less.

Oh and raising the personal allowance at the lower end is to try and encourage more people that it's worth working. When the 10% tax rate was introduced I benefited from it. I was temping at the time, and the tax rate made it worth while working extra hours.

dtsazza

olly300 wrote: »

It is fair.

Is it, though?

One of the most fundamental principles of fairness would be that you pay for what you use. If you consume twice as much of a good/service as someone else, you pay twice as much. Therefore it is fair for those on lower incomes to pay a greater amount in total in taxes, as on the whole they tend to use more public transport, use more healthcare, claim more benefits, live in more council houses etc.

You could claim, however, that everyone has the same access to these services, the same right to use them, and it's this that the taxes pay for. (If everyone were to exercise that right then taxes would have to be much higher, but let's overlook that). In that respect, it is fair that everyone pays the same fixed amount each year for the right of access to these services.

Then you could argue that those that earn more have more to give than others, even though they're getting the same (or less) benefits for that money. In that case, you might argue that it's fair for everyone to pay a set percentage of their income in taxes.


So there's three alternative schemes to raise revenue for public expenditures, all of which are arguably fair. It's not inherently obvious which one is the "most fair" - and while one could assume that the current system is obviously correct, that's rather disingenious.

dtsazza

olly300 wrote: »

Our tax system is progressive so once your salary is enough to have paid for lifes basics then you should be taxed more as the rest of your salary will be spent on things that aren't essential.

Citation needed. Obviously this is the crux of the issue, but the only argument here is that "you should be taxed more", to which the obvious counterargument is "er, no you shouldn't."

As the devil's advocat, it's hardly outside the realms of plausibility that if you earn twice as much, you should have twice as much to spend?

Plus you forget that the people who get to that tax band often can sort out their bonuses and pension, so while they may lose out in the short term they don't lose out in the long term.

I'm not sure what you mean by "sort out" here. If their tax rate is higher they lose out. If they don't lose out, it's because the effective marginal tax rate wasn't actually higher, accounting tricks or no.

And while I'm not a 50% tax payer I know a few of them and I can easily say while they work hard they don't work harder than some of the people I know who earn less.

Payment isn't based solely on physical/mental effort, it's based on how much useful output you produce. Someone who earns £200k, unless their employer is a lunatic, has created stuff that end consumers value at over £200k. And I'd contend that's not true about someone on £20k, or else they're terrible at negotiating their pay.

Oh and raising the personal allowance at the lower end is to try and encourage more people that it's worth working. When the 10% tax rate was introduced I benefited from it. I was temping at the time, and the tax rate made it worth while working extra hours.

It's always worth working, because if you don't have a job you won't have any money to spend on things like food and shelter.

Oh, wait. :cool:

(Also, if lowering the tax rate at the bottom is meant to be an incentive, one can only conclude that raising it to 40 and then 50% is meant to be a disincentive to work?)

Procrastinator333

dtsazza wrote: »

Is it, though?

One of the most fundamental principles of fairness would be that you pay for what you use. If you consume twice as much of a good/service as someone else, you pay twice as much. Therefore it is fair for those on lower incomes to pay a greater amount in total in taxes, as on the whole they tend to use more public transport, use more healthcare, claim more benefits, live in more council houses etc.

You could claim, however, that everyone has the same access to these services, the same right to use them, and it's this that the taxes pay for. (If everyone were to exercise that right then taxes would have to be much higher, but let's overlook that). In that respect, it is fair that everyone pays the same fixed amount each year for the right of access to these services.

Then you could argue that those that earn more have more to give than others, even though they're getting the same (or less) benefits for that money. In that case, you might argue that it's fair for everyone to pay a set percentage of their income in taxes.


So there's three alternative schemes to raise revenue for public expenditures, all of which are arguably fair. It's not inherently obvious which one is the "most fair" - and while one could assume that the current system is obviously correct, that's rather disingenious.

As you note, there is not one correct answer. What is fair to one is not fair to another. At the end of the day we are a democracy and if sufficient people wanted it changed it could be done.

My 2 pence is a reference to something called the "veil of ignorance". Just say you woke up tomorrow and were told that in a short while you were about to be born again. You are not told if you are going to be born to drug addict, a food technician, a marketing manager, solicitor, btl king, entrepreneur, landed gentry, or even royalty. You also don't know how you will fair in this world, you might be the bright spark who invents bubble wrap, or you may be struggle to string 2 sentences together. Now, before you are born you can set the rules of the tax and benefits system (if you really want to complicate it). Try to detach yourself from your current position and what would you do.

Do you think it is fair for all to fend for themselves, should the rich contribute most, or the really rich have everything confiscated? If you had no idea where you would end up or what you would become, how would you design the tax system?

Personally, I think re-distribution is fair. The rich should pay more, significantly more than the lower earners. Both in absolute and % terms. But I think there is a line. For me, 40% is about right. It is a significant % of tax, but if you are earning enough, it hopefully shouldn't cause more than a grumble. But 50% and 60% are just too much imo. When you lose over half your income in tax I do think people start to ask what is the point and do anything they can to avoid those tax bands. But that is just me. There are countless other perfectly valid opinions on what is "fair".

olly300

dtsazza wrote: »

Citation needed. Obviously this is the crux of the issue, but the only argument here is that "you should be taxed more", to which the obvious counterargument is "er, no you shouldn't."

As the devil's advocat, it's hardly outside the realms of plausibility that if you earn twice as much, you should have twice as much to spend?


I'm not sure what you mean by "sort out" here. If their tax rate is higher they lose out. If they don't lose out, it's because the effective marginal tax rate wasn't actually higher, accounting tricks or no.


Payment isn't based solely on physical/mental effort, it's based on how much useful output you produce. Someone who earns £200k, unless their employer is a lunatic, has created stuff that end consumers value at over £200k. And I'd contend that's not true about someone on £20k, or else they're terrible at negotiating their pay.

Your argument ignores the fact that some jobs are more useful to society than others. For example compare a headteacher of a secondary school to a city lawyer who deals with company takeovers.

Who would you say work would benefit society more in the long run?

dtsazza wrote: »

It's always worth working, because if you don't have a job you won't have any money to spend on things like food and shelter.

The benefits system unfortunately due to it's design is such that if you are at the lowest pay level you actually can lose out in income by going out to work.

For example I've known single mothers who calculated that they would be better off if they didn't work economically at this current point in time due to the cost of childcare. However mentally and in the future they realised they are better working.

dtsazza wrote: »

Oh, wait. :cool:


(Also, if lowering the tax rate at the bottom is meant to be an incentive, one can only conclude that raising it to 40 and then 50% is meant to be a disincentive to work?)

In my case I was living in cheap accommodation with few outgoings. So all the money from the extra hours did was allow me to save up to go on holiday. The holiday was abroad so didn't help the UK economy. I could have happily spent the extra hours I had not working doing other things that I enjoy.

There is a point - and that depends on things including the cost of your accommodation and the number of children you have - where the extra money you earn goes on things that aren't essential.

Off course this point is different for everyone.

BTW our current tax system has so many loopholes that it's easy for private firms who have high salary earners to work out ways of getting round them.