Tax Rate damages UK?

[LazyGun]

So, according to some economists, the 50% tax rate on earnings over £150,000 pa should be abolished. 1% of taxpayers fall into this bracket, and the IRS are looking at revenue generated ( I thought I read somewhere that it generated around £2 billion pa, but I might be wrong).

So, do you think that such a tax, affecting such small numbers, really does discourage job creating entrepreneurs, hence harming the UKs economic outlook ?

What kind of message would removing such a tax for the richest 1% have on the rest of society in this age of austerity, when we are all having to contribute to paying down the national debt? Does it feel fair ?

http://www.bbc.co.uk/news/business-14810323

[jake-the-peg]

Sqad

Do you suppose these wealthy individuals who've built up their businesses are paying themselves over £150K in salary and paying 50%?

Or do you suppose they are taking dividends from their companies and paying 42.5% in tax?

[jake-the-peg]

Suggestion

Set top rate of income tax and tax on dividends both to 45%

See how long it takes them to decide that the top rate is fair after all!

[Sqad]

Jake...........I would do both.

I would pay myself a salary of about £30,000, keeping me well below the maximum tax rate and take a dividend ( providing that i didn't want to reinvest or expand the company) and pay 42.5% tax on that dividend.

I am not an accountant and not up on UK taxation, so excuse my answer if tit sounds naive.

[ichkeria]

Sqad: the point I was trying to make (badly) is that some wealthy people may be wonderful or they may be complete b******s but that doesn't really say anything about whether getting them to pay higher tax helps or harms the economy.

[Sqad]

ichk....point taken, but b@stards or not. as long as they give employment to the unemployed and providing this adds to the economy.....does it matter?

[ichkeria]

"chk....point taken, but b@stards or not. as long as they give employment to the unemployed and providing this adds to the economy.....does it matter? "

Of course not. That is my point. The question is is the higher tax thing bad for the economy

[Sqad]

ichk....I have made hard work of this haven't ?

I don't know the answer to this and could only guess, which I do not intend to do ;-)

"Out of my depth " comes to mind.

[Gromit]

From a recent article in the New York Times that argues that if the high earners acquire too large a % of the available weleath, that the middle clsses cannot afford to spend (without going into debt) and that the whole economy goes into depression.

// When so much income goes to the top, the middle class doesn’t have enough purchasing power to keep the economy going without sinking ever more deeply into debt — which, as we’ve seen, ends badly. An economy so dependent on the spending of a few is also prone to great booms and busts. The rich splurge and speculate when their savings are doing well. But when the values of their assets tumble, they pull back. That can lead to wild gyrations. Sound familiar? //

http://www.nytimes.co...l?_r=1&pagewanted=all

An interesting graphic accompanies the article...

http://graphics8.nyti...ich-graphic-popup.jpg

[ichkeria]

""Out of my depth " comes to mind. "

I wouldn't worry about that: I don't think anyone knows the answer!

[sandyRoe]

It wouldn't discourage foreign entrepreneurs. I believe they don't pay much tax here.

[New Judge]

It’s difficult to say whether the 50% tax rate “damages the economy”. Very often those individuals who threaten to leave the country because of various government policies fail to do so. However, there is no reason why they should have an additional burden placed on them just “because they can afford it”. I can afford to pay more tax, but I certainly don’t believe I should.

These people are not all Fred Goodwins or Rupert Murdochs. And, jake, they don’t all own their own companies that means they can pay themselves dividends instead of salary. Many of them are just employees and it is unlikely that an employee on £200k employs an army of accountants to avoid paying tax. They may get advice to reduce their tax bill to the minimum, but so do I.

Earnings of £150k attract tax of £53,000. Earn an extra £50k and you pay £78,000. The taxman takes half of your additional £50k earnings. (As an aside he also takes an extra £2k in so-called “National Insurance”, taking the total deductions up to £85,381, or 42.7%). He would take £5k less if the 50% tax rate did not exist. This £5k would almost certainly be spent on goods that attract VAT if it were to be retained, so the loss to the Exchequer is nearer £4k.

It is doubtful that this employee would up sticks as a result of this but there is little incentive for him to increase his earnings when he will see over 50% of any increase taken from him. There seems to be a number of contributors to this question who seem to think it is perfectly reasonable to take a greater percentage of money from people simply because they have more to give.

We should not blur the issue by suggesting that all those earning £150k or more are the “Super Rich” who avoid taxes almost entirely. That is a completely different matter. Many people who now pay the 50% tax are not in that category but simply successful employees. They don’t deserve to be hammered just because “they can afford it” and I have a suspicion (and it’s only that) that the 50% tax band gains little for the government’s coffers.

But it might make some people feel good to see the “rich” given the pasting they seemingly deserve.

[LazyGun]

Some interesting responses, and thanks for the contributions. I do not have an idea either about whether or not the 50% tax on earnings over £150,000 pa harms the economy - I suspect not, since only 1% of current tax payers fall into that bracket, and it does seem rather strange to be proposing tax breaks for the super -rich (and I take NJs point about not everyone in that bracket being tycoons, but still, earning over £150,000 pa when median UK salary is around 25K pa or so says super rich to me) doesnt really seem fair at all.

And the analysts all talk about the revenue it raises ( approx £2billion pa) as a paltry sum, but anything with that many naughts after it still would leave a hole in the spending plans which presumably would need to be filled from somewhere.

I shall await the HMRC review of the 50% tax rate with interest......

[New Judge]

Removing the 50% band is not really a "tax break" is it, LG? It's not that they are being excused taxes altogether, but simply that they would pay the same in percentage terms as everybody else (and considerably more in absolute terms).

I agree that, if the sum is indeed correct, £2bn is not be sniffed at, but it's only about a quarter of one per cent of the total tax take. Furthermore, it's said to affect just 1% of taxpayers - about 320,000 people - so it averages out at about £6k for each of them. By contrast, if the same sum was to be raised from all taxpayers it would cost each of them £62 (£1.20 a week). It also indicates (if my quick calculations are correct) that the average pay of this 1% is around £212k. Very well paid, yes, but not millionaires.

All in all, bearing in mind the numbers (which I have only just examined) it seems to me that this is more of a political stunt than a properly considered fair method of raising revenue. I too await the review with interest.