Slower than anticipated growth has seen a rush of commentary proposing changes the government need to make to ‘deliver growth’.
If there is one macroeconomic lesson which should be learnt from the 2008 crisis it is that not all growth is good. It is relative easy to manufacture a bubble, call it growth, and claim to have “abolished boom and bust”.
Sustainable growth is much harder to achieve, but one idea unlikely to achieve it is the proposal by some Tory commentators to abolish the 50% tax rate.
There are probably strong moral and political arguments for and against the abolition of this rate, but the purpose of this article is to focus solely on the economic arguments for and against.
As Liberals, we generally oppose supply side economic solutions on the basis that they don’t work on their own, and are so expensive that the usually use up all the money for the demand side solution which might work alongside them.
Supply side economics means increasing the supply of money avaialble to individuals and businesses for people to spend and invest, but ignores the fact that people may, for various reasons choose not to spend or invest in economically productive activities when you do supply it to them.
Cutting the 50% tax rate is using the tax system to increase the supply and it is likely that any growth it delivers would be very strictly short term and the prelude to another bubble.
The 50% tax rate is paid by those whose earnings are above £150K a year. The reality is that no one in that salary range should have a problem with immediate consumption, if you give them more money to spend every week, the likelihood is that they will save the money, rather than spend it on satisfying an immediate need, and if they don’t spend it then it doesn’t generate economic activity or growth.
It is also a cathch-22 that the less confidence people in all income brackets feel about the economy the less likely they are to spend money, and since higher earners have less ‘need’ to send the money they are less likely to spend it.
During the ‘boom years’ higher earners ploughed their surplus cash into acquiring ‘buy to let homes’, this forces prices up and thus rents up, contributing more to inflation than to growth.
Those who advocate abolishing the top rate of tax argue that it will help create jobs by pushing salaries downwards and help retain existing talent within the country.
However, the current rate of inflation and worldwide economic uncertainty means that investors have little enough confidence in the market to invest in it, so the relative benefit so its hard to quantify what firms are likely to hiring people on salaries above 150k in large numbers at present, A great proportion of the UK workers in the highest tax band are in the financial services sector, which is shortly to embark on a fresh round of job cuts.
Cutting the taxes of the poorest on the other hand, is likely to be of more economic benefit, as this demographic are likely to need the extra money to carry on with day to day consumption, meaning the money will go back into the economy and deliver growth, in a way that cutting the taxes of the highest earners wouldn’t.
It may well be that the economy one day gets to a position where there is economic value in abolishing the 50% rate, but that day looks to be far in the distance at present.
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32 Comments
“As Liberals, we generally oppose supply side economic solutions on the basis that they don’t work on their own, and are so expensive that the usually use up all the money for the demand side solution which might work alongside them.”
This is not generally true at all. Any liberal economist would accept that both supply and demand tools are part of any fiscal policy.
I don’t have a strong feeling on the 50% tax rate (I think I would suggest it be abolished once economic growth has returned), but you’ve not addressed the main argument in favour of its abolition – a country’s top rate of income tax is a signal within the international community as to how attractive it wants to be to international capital and talent. Whilst not entirely fair or accurate, countries which do want to be open will make an effort to have low to moderate top rates – and so the UK isn’t doing its investment climate any favours by being what I think is currently the developed world’s third highest rate (behind possibly the Netherlands and Sweden?).
Capping wealth is pointless; the 50p rate is ineffective because there are numerous ways to avoid paying into the higher rate of income tax. As another poster said, it is ridiculous to target the wealth creators in this country – plus it goes against the principles of economic liberalism.
There is zero economic justification for keeping it, purely symbolic. As the Treasury have pointed it, the top rate hardly contributes to tax revenue.
The planned increase to £10k of the personal allowance threshold IS a supply side solution.
If they don’t spend it, they are likely to save it. Which gives banks extra capital to lend/invest. We can have a debate another day about whether or not that generates economic activity or growth.
This sounds like an excuse for a Command Economy, which I don’t need to point out, isn’t very liberal.
This is overly simplistic and devalues your argument
Actually the main thrust of the argument is that it would attract top talent to move to this country. See: http://ukaapti.cbi.org.uk/policy/taxation
I do agree with this however, those on lower incomes have a higher marginal propensity to consume with an increase in income, but even more so if they feel that increase is permanent. Hence why the £10k personal allowance threshold is such a good policy.
@Daniel “the 50p rate is ineffective because there are numerous ways to avoid paying into the higher rate of income tax”
Really , what are they? Gordon Brown closed most of the loopholes and the Coalition have recently put through the ‘disguised remuneration’ regulations which closed the remaining ones. Apart from paying money into pensions (capped at £50k) I am not sure how people would avoid the 50p rate, at least from earned income.
I agree with you that there is zero reason to keep it
Getting the personal allowance up to £10k is my priority, but once that is done, I think we should scrap the 50p rate.
There are sound economic reasons the rest of the world is moving towards lower top rates. This post does a bit of handwaving but has no compelling arguments, never mind compelling arguments with numbers.
As a temporary measure the 50p rate may not have done too much harm, but for it to be plausibly temporary we do have to abolish it at some point, and for best value signpost that abolition asap.
“Cutting the 50% tax rate is using the tax system to increase the supply and it is likely that any growth it delivers would be very strictly short term and the prelude to another bubble.”
That is so very wrong!
Reasons to cut the 50% tax rate:
1. It’s damned illiberal to take a 50% cut from someone else’s hard work.
2. It is neither equitable nor just to take a 50% cut from someone else’s hard work.
3. It raises very little revenue for the exchequer, and therefore will achieve no positive good for the less well off in society.
4. In achieving no positive public good, support for it is limited to its potential to create a negative ‘good’, and that kind of idiocy is best left to socialists.
That it would not prove a useful tool of supply side economics is not in doubt, of course it wouldn’t; it doesn’t raise any damned money!
The 50p rate is nothing more than a viscious and punitive tool of social of social-engineering, and i sincerely hope anyone foolish enough to support it at least has the decency to admit to the whacking great chip on their shoulder.
@Joe Otten:
There are sound economic reasons the rest of the world is moving towards lower top rates.
—
Sound reasons why those who have more should not contribute a fair share? We now have a situation where those on the bottom pay more in tax than those on the top. The gulf between rich and poor is getting larger. Markets are crashing. Wealth is not trickling down at all.
If we still had rates of taxation like we did in the 60s, maybe we would not have such a huge deficit and gulf between rich and poor. We have just spent 30 years in this country with a free market that is impovershing those on the bottom even further while those on top enjoy the lowest tax they have ever had to pay.
But I don’t expect many LibDems to understand poverty at all. You are now the party who is telling those who cannot afford heating in the winter that “the markets” will solve everything. I never, ever had to choose between heating and food when energy was nationalised and run for the good of all rather than profits for shareholders.
How many of you have experienced poverty, being unable to afford the food you need, having to skip meals to make sure your children can eat? It really does make me sick that no party really wants to do anything radical to help the poorest. I am sick of our profit-driven, me-me-me and everyone for themselves society.
Why can’t some things just be run for the public good? Why does EVERYTHING have to be a race to the bottom and fight for ever-increasing profits? How about providing some decent jobs that were never replaced when companies move overseas?
@ Simon
I heard that they could take part of their pay in shares which when sold would be taxed at the capital gains rate. It’s that one of the loonies that haver now been closed?
How much does the 50p rate raise a year? Even if it’s worth getting rid of, I still think it’s worth using to barter with the Tories for an equivalent LDV tax. 😉
@jedibeeftrix:
The 50p rate is nothing more than a viscious and punitive tool of social of social-engineering, and i sincerely hope anyone foolish enough to support it at least has the decency to admit to the whacking great chip on their shoulder.
—
That “chip on my shoulder” is working as hard as I can while disabled and still being unable to keep myself and my children warm in the winter time. I work harder than most of these bankers and politicians who are telling me it is right they should contribute less than poor people do.
If it is “socialist” to want the rich to pay more into the country that allowed them to become rich via our infrastructure, then I am guilty as charged. If it is socialist to want an equally strong public sector to protect us against the excesses of capitalism, then count me in. And, sir, if it is “socialist” to see the moral bankruptcy of letting the rich get off lightly and make excuses for their tax evasion, then you’re even behind what people at the Torygraph now think:
http://blogs.telegraph.co.uk/news/peteroborne/100100708/the-moral-decay-of-our-society-is-as-bad-at-the-top-as-the-bottom/
How very dare you tell us we should let those with millions pay even less tax while I can’t afford all the food I need. Have you ever had to choose between heating and food in wintertime, sir? I will not take any lectures from people who have plenty telling me I should have less and be thankful for it.
I actually hope the markets do crash. I’ve nothing to lose. And then maybe we can build a society that is more fair and where the rich do not act as if they are immune from all social obligations that both Tories and Labour have released them from.
The most important factor in determining whether to keep the top rate at 50% is seeing what other countries are doing and whether people can avoid this easily. Very many people on this kind of money set themselves up as a company and avoid most of this tax quite openly. There is no point setting a rate of tax so far away from what a company pays and allowing people to avoid the rate so easily.
I definitely agree that the 50% income tax rate should stay and am concerned about any more quantative easing. Please can those more experienced in economics start thinking the unthinkable as we are in unchartered waters. I would like the party to seriously explore raising inheritance tax rather than reducing it as some Tories would like. If care was taken over tax avoidance I believe that this would encourage the wealthy to spend their money and that this would help economic growth. We should still reduce income tax for those on lower incomes. If this raised more revenue can I put in a plea for social housing as not only would it help address inequalities in society but also provide many training opportunities for those who need jobs. I also believe that it’s time to do away with universal benefits. If the tax system was better administered it should be possible to implement a previous Lib Dem policy of an integrated tax and benefits system without the horrors of means testing.
I find it flabbergasting that, when many people on low incomes are suffering hardship, LibDems are suggesting cutting the top tax rate. Shouldn’t the priority be to cut tax for the less well-off?
As for Jedibeeftrix’s claim that “anyone foolish enough to support it at least has the decency to admit to the whacking great chip on their shoulder”, presumably this applies to Danny Alexander, who said the other week that anyone suggesting cutting the top tax rate was in “cloud cuckoo land.”
Whilst I actually agree with lowering the higher tax rate, purely because it doesn’t raise any additional revenue, I do think that capital gains tax and land value taxation should be uncreased. The real problem of inequality in this country which stifles social mobility is that of hoarding of wealth, usually unearned, and typically in the form of land and property. That drives up prices.
Still, seeing some of the knee-jerk supposedly ‘lib dem’ posters above, lowering the tone of debate, railing against social democracy and descending into tribalism, it frankly isn’t suprising that the polls suggest the party doesn’t command more than 9% of the vote.
with reference to land value taxation, I meant it should be introduced.
In equality Income, per se, isn’t a massive problem. Where levels of income are massively unequal, as in our modern societies, there tends to be deeper problems at work causing the inequality. In our case it is the fact that corporations and markets are essentially allowed to hold our governments hostage and make ever increasing demands of them. You are not allowed to tax the ‘wealth creators’ (i.e. wealth shifters) as jedibeeftrix calls them, whilst corporations demand that they should be allowed to pay their employees less and less and that they shouldn’t be expected to train them either. We are competing with slave economies such as China and the ‘wealth creators’ are using this fact to extort what they want from western social democracies. That is why there is an increase in income inequality, because anything which would counteract this is immediately vetoed.
Inequality of income is also dangerous for the economy from a demand perspective. If all the wealth travels upwards then eventually we reach a crisis of demand… which is exactly what we are seeing at the moment. For ten years prior to the crash cheap credit was substituted for rises in wages, meaning that demand was boosted in the short term by encouraging borrowing.
Those who hate the idea of wealth redistribution are usually ignorant from both an economic standpoint and also ignorant of the chief moral argument, which is that of dimishing marginal utility and has, in fact, long been held laissez faire capitalists. As a rule the more of something that someone can afford, the less use they get out of it, meaning that wealth is more beneficial from a utilitarian perspective for the poor than the rich. it also means that the rich tend to spend less, which in the long term lowers demand and in fact endangers the whole economic system- which is where we are right now.
It is frankly worrying to see such liberal Keynesian views, widely held amongst economists, derided by supposed liberals here as ‘socialist’. It appears theshort-sighted and selfish are beginning to wheel out the old tired and rebutted pre-Keynesian arguments yet again.
All that said, going back to the beggining, raising taxes on income is usually both inefficient and less productive than raising taxes on wealth. Taxes on wealth are less easy to avoid (although there are often loophole), they do more social good (they reduce the social advantages given by wealth as well as act against the distortions of the market created by the concentration of wealth), they encourage people to spend (increase demand) and wealth on the whole, in this country at least, is largely unearned or earned with exceedingly little effort (it is also mainly not ‘created’ but tends, through property and rent, to be distributed from the poor to the rich) whilst for the most part income is earned with effort.
@Daniel “@ Simon I heard that they could take part of their pay in shares which when sold would be taxed at the capital gains rate. It’s that one of the loonies that haver now been closed?”
Daniel -definitely can’t do that, indeed has been closed for a long time. If you make someone a grant of shares when they ‘vest’ ie become there’s they pay income tax and NI. After that individual would pay CGT on any gains (when they sell the shares, but that’s no different from anyone else who buys those shares.
@Alastair “Very many people on this kind of money set themselves up as a company and avoid most of this tax quite openly”
There are a vast array of anti avoidance measures to stop this.
thanks to allf or the comments.
@ kjed
I have some sympathy with the argumenst you out forwrad, but they are moral rather than economic in nature, and the purpse of this article was just to focus on the economic.
@ peter
your right there always need to be an element of supply side in any policy, and there is some in the current policy, the purpose of this article is tro discuss the option to achieve growth from where we are now, and many have put forwradscrapping the rate as part of that, which means an additional supply side method, which I think would get the balance wrong between the amount of supply side and the amount of demand side needed.
@ alaistair
you are correct that lots of peoplpe do use avoidance measures such as that, but I think that enough of them would could to do that @ 405 as do it at fifty, rendering the economic benefits very slight indeed because ht e main way to minimise your tax is to defer consumption, which is the very thingw e need to avoid now
@
john
no one is parlaiment is suggetsing it….the priority is to lift the lower earners out first.
in relation to argment made about attracting talent, as I mention in the original article…….much of the talent the uk has attracted has been in the finaincial sevrices sector, which is cutting jobs, not creating them, so I dont know where the pool of talent is going to coem from to move here.
AS for attracting people with those sorts of earnings in other sectors…..other sectors are less economically mobile than fiancial sevices and therefore need many other things to happen to makje them want to come to an economyt, they havent been coming to britian for years in any sector other than financial sevices and we need to address thew reasons for that rather than simply assume that its the tax rate that keeps them away…..
@ thyechristophe
ist not an excuse for a command economy, what you need to do is create the demand, rather than the supply, yous till arent making people spend the money rather you are creating the conditions in which they are more likley to have the confeiidence to spend…..just giving them the money and hoping they will spend it…or utting taxes to drive wages down and employment up doesnt work…as was shown by the great deporession by Keynes who created the concept of demand side stimulus…and he was a liberal peer rather than an advoacte of a command economy
@ Rob – “seeing some of the knee-jerk supposedly ‘lib dem’ posters above, lowering the tone of debate, railing against social democracy and descending into tribalism, it frankly isn’t suprising that the polls suggest the party doesn’t command more than 9% of the vote.”
What you, and squeedle as well, apparently missed was that my objection to the 50p is focused 100% on the fact that it achieves NO USEFUL PUBLIC GOOD!
I have no objection to the principle that those who are able to pay more, because they have a comfortable income, should pay more in order to help those who struggle through no fault of their own.
I am delighted that the Lib-Dem’s are about to achieve their goal of the tax-free £10k personal income allowance, and i am quite content that the 40p rate exists for those who earn over £35k.
However, and I want to read very carefully here, the 50p rate is damned illiberal because:
a) It raises very little revenue for the exchequer, and therefore will achieve no positive good for the less well off in society. I.e. taking that money from the rich will have no benefit to the poor.
b) In achieving no positive public good, support for it is limited to its potential to create a negative ‘good’ (i.e. redistribution of wealth from rich to poor), and that kind of idiocy is best left to socialists.
The aim of the Lib-Dem’s should NOT be to create a more equal society by punitively taxing the rich, just for the purpose of making them less rich, that area of rank stupidity in the political spectrum is already dominated by the Labour party in British politics.
The aim of the Lib-Dem’s MUST be to create a more equal society by using a progressive taxation system to ensure that public services can be maintained at a level which allows the weakest and most vulnerable in society to prosper and advance their condition.
The 50p fails this test, because it fails Adam Smiths final dictum that a good tax must be an efficient one, therefore I reiterate my previous conclusion:
“The 50p rate is nothing more than a viscious and punitive tool of social of social-engineering, and i sincerely hope anyone foolish enough to support it at least has the decency to admit to the whacking great chip on their shoulder.”
If you can claim that I am not ‘caring’ enough to be a real Lib-Dem, then I would equally charge that those who believe in punitive social-engineering likewise are out of place in the Lib-Dem’s, and might find a more fitting ideological home within the Labour party.
How much DO we raise on the 50p tax rate? People keep dating it doesn’t raise much but I’d like to see figures.
It so happens that I have a lot of contact with wealth creators. They are the small businesses who take on one or two extra staff because they are successful & none of their directors earn £150k plus, or anywhere near. Banks & big business are not wealth creators. Banks are shedding staff like mad & not lending to the little man who is creating wealth except at silly rates & after making them jump through hoops. The big five supermarkets are screwing their producers & destroying local community wealth. Along with many others who make [seldom truly earn] £150k plus the 50p rate is no hardship at all. Arguments about it being a deterrent to inward investment & initiative are nonsense. If it doesn’t raise much money perhaps it should be raised. In these hard times there is certainly an argument for an 80p rate of tax [temporary at this level I would agree with] on any greedy individual who is remunerated by any method at a rate in excess of half a million a year. Then we might get a little closer to ‘all being in it together’ .
Daniel Henry – “How much DO we raise on the 50p tax rate? People keep dating it doesn’t raise much but I’d like to see figures.”
Exact figures are unknown at this point, but it is assumed that Osborne will reveal the extent of its revenue failing failure at the pre-budget review (?) in October or thereabouts.
, at this stage of the economic cycyle and bearing in mind what the opportunity costs of abolition are, it is an efficient tax.
The Treasury reckons it brings in about 2.4 billion but exact figures won’t be known till they conclude their review. I happen to know a lot of entrepreneurs in tech startups – wealth creators if you will – not one of them is concerned about the 50p rate, what they care about is securing investment. A large proportion of people paying this rate are bankers – wealth destroyers. We’ve spent 30 years trying to make the top 1% of the population richer. Doesn’t seem to be making for a good or indeed wealthy society.
Ah, this old chestnut.
Nobody seems to have answered Daniel Henry’s very pertinent question: “How much DO we raise on the 50p tax rate?” The answer is “not very much”, though we can’t say how much until the Treasury figures are published along with the next budget.
Three things should be considered, however.
Firstly, if it raises very little it is not justified under any circumstances, as it represents a huge rise in the marginal rate for some (a rise of 25% of the rate) with little benefit for others. My understanding is that the predictions for how much it raises is in the high hundred millions or possibly slightly over a billion. That’s really paltry in government spending terms and therefore puts a massive question mark over its value.
Secondly, what effect does it have on economic activity? I disagree with David’s premise that there is a link between the marginal tax rate and “bad growth.” If a surgeon earning £175,000 is deterred from doing an extra day’s work becasue they consider the additional net income to be too small an incentive, and instead opt for an extra days leisure, that’s not only valualbe economic activity that is lost, but also a patient spending longer in pain or distress. If a business owner is deterred from additional work, s/he may as a result employ fewer people. If high marginal taxes affect economic growth/activity (and let’s be in no doubt that they do!) then they are more trouble than they are worth – and it’s those stuggling to find any job who suffer most.
Thirdly, what effect does it have on revenue as a whole? Obviously some people will work on, and they will pay an extra 10% on earnings over £150,000. But if (as outlined above) there is overall less economic activity, the gain from taxing people an extra 10% must be weighed against the lost taxes of people who swap work for leisure but would previously have paid 40%.
Frankly, this is all a bit academic until the figures are published in six month’s time, but it seems highly likely that tax receipts on earnings over £150,000 will be lower in the year following the introduction of Labour’s punative and counter-productive Super-Tax than they were in the year before it was introduced, and that meantime it will have contributed to slowing economic growth, with all the job-creation and rise in standards of living for low earners that that creates.
@ Simon
Cheers for the info about the “shares as payment” loophole being closed.
Hmmm…
I’m still open minded as to whether we need this tax or not. So far the biggest argument against it is that it doesn’t raise a significant amount. Wouldn’t that be solved by lowering the threshold even further so more people pay it? Or by raising the rate on particularly high earners?
@ Tom
Even if it provided the disincentive that you claimed it does, I’m not sure I adhere about the negativity of the effects.
E.g. If that surgeon cut their workload, wouldn’t that open up the market to other surgeons? Wouldn’t that mean there read an increase in job opportunities?
There’s a limit of the money available through market demand. Surely if a few have exceedingly high shares of it then it’s st the expense of others having the opportunity?
I don’t see how it’s a survey on businesses either. Income tax is on individuals rather than businesses. It will only affect the wages or drawings/dividends of individuals. I don’t see how the excessive payment of individuals is necessary for good business.
Wasn’t there a study that showed earnings beyond £50k have no effect on happiness? (or was it £70k?)
Either way, salaries of over £150k are unnecessary and also take away from the opportunity of others to earn.
For that reason, isn’t the 50p rate at worst pointless, but at best giving us an extra 1-2bn? (funding the cost of the pupil premium)
@Daniel: “If that surgeon cut their workload, wouldn’t that open up the market to other surgeons? Wouldn’t that mean there read an increase in job opportunities?”
Only if one assumes that there is a set amount of labour required, and if one person stops working another can take up the slack. In fact, one person working less is merely one person working less – an overall decline in economic output.
This is true in any market, but in the market for extremely highly trained professional (e.g. surgeons) this is especially true. It’s not like you can just pop along to the dole office and put a card in the window saying “Surgeon wanted.”
“There’s a limit of the money available through market demand.”
Now here we have one of the biggest problems with macroeconomics as a whole: the supply of money responds to political rather than market signals. In a free market, the supply of money would expand or contract to meet demand; in reality, its expansion or contraction is a response to interest rates set by central bankers. This is not the place to have that discussion, but George Selgin has done a lot of recent work on it, but Hayek wrote about it in the 30s and the 70s (both periods where the supply of money didn’t respond to market signals and crashed the economy).
“Wasn’t there a study that showed earnings beyond £50k have no effect on happiness?”
Plenty. And plenty of others that suggest those studies are flawed. More pertinently, there’s plenty of studies that suggest that aggregate happiness does not change much over time. I’m a liberal, not a utilitarian: I do not believe that we should be seeking to maximise happiness; we should be maximising people’s freedom to pursue happiness by whatever means they wish.
“Either way, salaries of over £150k are unnecessary and also take away from the opportunity of others to earn”
This bit just goes too far, I’m afraid. If that were the case, why not charge 100% on incomes over £150k? Why not just tell every high-value worker to down tools and get an allotment? Can you not see that they’d all just leave and earn millions in the USA and Europe, leaving us with a country full of poor people who can’t afford to emigrate and have no entrepreneurs creating job opportunities?
Oh, and the Premier League wouldn’t be much fun, either.
” Only if one assumes that there is a set amount of labour required, and if one person stops working another can take up the slack. In fact, one person working less is merely one person working less – an overall decline in economic output.”
In.’m not sure about that. The current economic climate has more workers than there are opportunities. We now get graduates having to fight for jobs that only require GCSE’s (where I live anyway)
There might be one or two areas where there aren’t the skills to fill the gap but I expect they’ll be on the minority.
” I do not believe that we should be seeking to maximise happiness; we should be maximising people’s freedom to pursue happiness by whatever means they wish.”
I sort of agree with this and if leaving excessive pay had no impact on the freedoms and opportunities on the rest of society, and if the taxes weren’t required to uphold freedoms then I’d be happy for people to earn as much as they like tax free. But I don’t think that’s the case.
” If that were the case, why not charge 100% on incomes over £150k?”
I’m not against it in principle butt for the reasons you gave it’s entirely impractible.
I’m having a bit of difficulty reconciling the claims that the 50% tax rate does not raise much income for the Treasury, and that the loopholes which stop 50% tax rate-level earners from avoiding the tax have been closed. If they’ve been closed, why does it not raise much income?
It seems to me that people who oppose the 50% tax rate purely because it doesn’t raise money are tacitly approving of the ease of tax avoidance still practiced by those eligible for it. Let’s fix the loopholes so it actually raises money, then we can argue whether it’s raising too much.
My personal opinion is that I’m happy to raise taxes on higher earners (and I’d be happy to raise the 22% as well) in exchange for cutting taxes on lower earners until earnings below a “living wage” aren’t taxed.
one person working less means less economic activity and theregore less growth and less jobs for someone else…….quite simply there is a fixed amount of labour that is essential and will happen one way or another……then is more discretionary labour…where people try somehting new or different….and generate fresh economic activity that way……
@ andrew r if it brings itn 2.4billion thats an enormous amont..not all the loopholes have been clsoed…….but several have
@Daniel: As I hope my surgeon argument made clear, you can’t just replace one worker with another. If Mr. Smith doesn’t want to do an extra days surgery, you can’t just promote/transfer Dr. Jones to surgery. It takes time to train a surgeon. The same is frankly true of (at least) most people who earn in excess of £150,000. These aren’t people with easily replicatable skill sets.
In fact, I’m not sure that it’s even true of low-earners necessarily. The notion that we’d all be better off if we worked 5% less and the slack was taken up by the unemployed is flawed: far better that everybody (be they unemployed or highly paid) is incentivised to work and produce things of value for one another.
@Dave: It’s not “loopholes” that cause the 50% tax to raise very little revenue (possibly less than a 40% would). It’s perfectly legitimate things that we would not want to “close” even if we could. The most significanct examples include swapping work for leisure (why do an extra day’s work if I only get half a day’s pay?), retiring early, moving abroad or changing jobs to something that is easier but less valuable (to everybody).
“My personal opinion is that I’m happy to raise taxes on higher earners” is something that one often hears from people who are not high earners. I’m rather a low earner, but any sentence that can be paraphrased as “I’m happy to raise taxes on people other than me” concerns me.
@David: “quite simply there is a fixed amount of labour that is essential and will happen one way or another”
No. That’s simply not true. Type “Lump of Labour” into Google and it will offer you “Lump of Labour fallacy” as the first choice. Follow any link and it will explain why there is not a fixed amount of labour, “essential” or otherwise.
Tom, if there was a shortage of surgeons, or any other skilled employees then you’d be right, but the impression I get at the moment is that, especially with the economic climate being as it is, that there is a surplus of skilled workers and a lack of opportunities for them.
You might be able to find a minority of areas where there’s a shortage in skilled workers but I suspect that the bigger picture has the opposite trend.
@ Dave – “It seems to me that people who oppose the 50% tax rate purely because it doesn’t raise money are tacitly approving of the ease of tax avoidance still practiced by those eligible for it. Let’s fix the loopholes so it actually raises money, then we can argue whether it’s raising too much.”
No Dave, I oppose it because i believe it to be unjust and illiberal to take 50% of anything earned by another person.
By all means close inequitable tax loopholes, but i doubt that would in any significant measure make the 50p rate an efficient tax, and even if it were to become so i would still consider it an unjust tax.
@ tom
Im afraid I used clumsy languagwe., a better way of saying it might be, there is a fixed amount of demand for labour….in an economy