MSE News: Budget 2012: Top rate tax to fall to 45%

Former_MSE_Helen

This is the discussion thread for the following MSE News Story:

"Anyone who earns over £150,000 a year will pay less tax from next year, Chancellor George Osborne has announced..."

Read the full story:
Budget 2012: Top rate tax to fall to 45%

marvellousaunt

What POSSIBLE justification is there for this? Is it helping the economy in some way? Please tell me if I'm missing something.

thelawnet

marvellousaunt wrote: »

What POSSIBLE justification is there for this? Is it helping the economy in some way? Please tell me if I'm missing something.

People don't want to pay 50% tax. It's too much.

If you are very rich then you have a decision to make every day. Do I work? Do I move to New York? And what of the ones that aren't here, but considering moving here?

If you are going to tell the richest that they are going to be taxed till the pips squeaked, they won't come here.

If you are running a business employing high earners, who pay lots of tax, then setting up business in London (let's be honest here) is expensive, because the staff will demand higher salaries than they would in another location. So maybe you go elsewhere.

It is much better to get 30% of £50 billion than 50% of £5 billion, for example.

thelawnet

thelawnet wrote: »

It is much better to get 30% of £50 billion than 50% of £5 billion, for example.

On this point:

There are forecast to be around 330,000 tax payers with taxable incomes of over £150,000 in 2013–14.7 There are a number of measures announced at this Budget that will principally affect this group but cannot be modelled in Charts B.1 to B.4. Taken together, it is estimated that the reduction in the additional rate of income tax to 45 per cent, the 25 per cent cap on income tax reliefs above £50,000 and the increase in stamp duty rates for high value properties will result in an expected average contribution to the Exchequer from those with incomes of above £150,000 of an additional £1,300 a year

In other words, the people you are moaning about will actually pay more tax.

Scarpacci

marvellousaunt wrote: »

What POSSIBLE justification is there for this? Is it helping the economy in some way? Please tell me if I'm missing something.

The best justification is that at a higher rate, for a whole host of reasons, does not necessarily lead to a higher amount of tax being paid. I thought this country figured that out decades ago when punitive taxes were tried and failed. Unfortunately, it's a difficult message to get across that a lower rate might bring in more money.

So this 50% rate, a purely political move thrown in to try trip up the then opposition, was born. It was never about what was best for the treasury or the economy.

TheSandman

I don't understand how nobody else understands this?

1. The highest rate in the G-20 meaning any overseas business opening here has to pay any employees it brings, MORE, to leave them with the same in their pocket as in any other developed nation.

2. A great many of these rich people are employers. They employ people. Get it? They provide jobs for ordinary people. Punitive tax rates not only encourages these people to leave but discourages people from coming, a double whammy!

3. For those who aren't employers, sport stars like Lewis Hamilton, they just leave. 45% of something is a lot more than 50% of nothing!

4. If it was kept for longer than beyond 2013 it would keep doing damage. You're testing the mettle of these people, they'll perhaps take it for a year, two, maybe three but sooner or later they'll upsticks and get out (especially with the scorn that is aimed towards them by the very people they're subsidising)

TheSandman

Not 100% consistent but here you go marvellousaunt


Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

• The first four men (the poorest) would pay nothing.
• The fifth would pay $1.
• The sixth would pay $3.
• The seventh would pay $7.
• The eighth would pay $12.
• The ninth would pay $18.
• The tenth man (the richest) would pay $59.

So, that’s what they decided to do.
The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. "Since you are
all such good customers," he said, "I’m going to reduce the cost of your daily beer by $20." Drinks for the ten now cost just $80.
The group still wanted to pay their bi ll the way we pay our taxes so the first four men were unaffected. They would still drink for free.
But what about the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’
They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so:

• The fifth man, like the first four, now paid nothing (100% savings).
• The sixth now paid $2 instead of $3 (33%savings).
• The seventh now pay $5 instead of $7 (28%savings).
• The eighth now paid $9 instead of $12 (25% savings).
• The ninth now paid $14 instead of $18 (22% savings).
• The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.
"I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man," but he got $10!"
"Yeah, that’s right," exclaimed the fifth man. "I only saved a dollar, too. It’s unfair that he got ten times more than I!"
"That’s true!!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"
"Wait a minute," yelled the first four men in unison. "We didn’t get anything at all. The system exploits the poor!"
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!
And that, ladies and gentlemen, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

u704446

Dollars ?! hmmmmmmmm.

Presumably we can't crack down on tax avoidance either, else these high earners will just move abroad! There always seems to be some excuse.

... and you can't get a nice pint of Timmy Taylor's abroad either.

Randvegeta

TheSandman wrote: »

Not 100% consistent but here you go marvellousaunt.............. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

This is perhaps THE BEST explanation of how tax works I've ever heard. And you wrapped it up so humorously too!

:beer: You've made my day!

euronorris

The argument that we charge more tax than any other country in Europe just doesn't wash with me. Neither does the fact that having a high tax rate will drive people away.

The higher rate tax in the Netherlands is 52% and the threshold is lower. The tax bracket below that, is also higher than in the UK - 42%, then 10.8%. Germany, Belgium, Austria and Portugal are all more than 45% for the higher rate also.

Funnily enough, companies still do business in these countries and even set up headquarters in them, because it is still profitable for them, the demand is there. Employees also chose their location on far more than just a tax rate! For example, regardless of how low the tax rate is in the US, I'd NEVER move there. Healthcare is a BIG concern in that country.

thelawnet

euronorris wrote: »

The argument that we charge more tax than any other country in Europe just doesn't wash with me. Neither does the fact that having a high tax rate will drive people away.

The higher rate tax in the Netherlands is 52% and the threshold is lower. The tax bracket below that, is also higher than in the UK - 42%, then 10.8%. Germany, Belgium, Austria and Portugal are all more than 45% for the higher rate also.

The Netherlands offers a 30% tax exemption for foreign talent.
So the net top tax rate is only 36.4% for these people.

It's also only 30% on investments, and 25% for people who own more than 5% of a company.