So why is it a good idea to tax people with a higher income at a higher rate? Why, when you get to a threshold of, say, £100,000 or £150,000 per year is it a great idea to introduce a higher rate of tax for the income above that level?

And molgrips – yes I am worse off. Fact. I pay more tax and have fewer allowances to mention 2 specific things. I am by no means rich. I agree, I can't tell how much worse off I am compared to how I might have been with an alternative government these past 13 years. I can speculate that had the Conservatives won I would be paying less tax than I am now (but possibly more than I was 13 years ago) and if Lib Dems had won 13 years ago I would be paying more tax.

bikingcatastrophe – its a purely philosophical point – you either believe in the redistribution of wealth or you do not.

Wealth is grabbed by those with the most power – so governments need to attempt to reverse this or we end up back in serfdom – the few with all the wealth and the many who have nothing.

there is not must or fact tho – its a purely philosophical point about what you think is right

The government runs the country, we run our lives.

And everytime thet screw it up or miscalculate growth / spending, we get stung by either cuts in services or increase in taxes if not both.

I see this asserted constantly that if we increase tax we get less money. Now this argument is only ever used by those who earn the most and need the money the least the very rich.

It's based on the Laffer curve, which is fairly well known idea. It wouldn't really help your average left of centre party to refer to this idea as it rather damages several ideas which are central to their policies.

You cannot really be comfortable with a person of that wealth paying a lower % of his earnings in tax as aminimum wage single mother cleaner working 50 hours a week can you?

No, I'm not. Neither are the Tories or the Lib Dems (reduce marginal rates of tax for low earners and the £10k income tax threshold respectively as manifesto pledges).

I'd personally like to see a move towards flat tax – set a high income tax threshold, perhaps £10 to £15k, and then tax above that at relatively low rates – perhaps a top band of 40%. Now, the last time this idea was around, it was jumped on by the left as tax cut for the rich, ignoring that it also considerably cuts tax for the poorest in society. And also ignoring the fact that we are currently specatularly ineffective in collecting tax from the very rich – they simply do not pay the headline rates of income tax.

The key advantage with flat tax systems is that they're simple. You provide far fewer allowances, write offs and so on. As a result, you have something of a win win situation – because the tax is simple, it is easy and cheap to collect and difficult to avoid, which is good for the government. From the perspective of the taxpayer, it is far easier to calculate payments, and the wealthy can stop paying their tax advisor fees.

For the lefties present, I do believe that the wealthy should pay higher rates of tax, but I don't believe that punitive rates of tax are effective. A middle ground where the rich pay more tax than the rest of us, but not so much that it's worth their while actively avoiding it would result in ultimately, a larger total tax take.

But you can't simplify taxation, think of the job losses!

bikingatastrophe …do you wonder why we have free helathcare and welfare state? You know the reasoning and logic for taxing rich people at higher rates dont you as TJ states the rich and powerful wont give their wealth away will they., Was the 19thC version of millowners owning the houses, the shops and effectively the workforce a fairer model? Is serfdom fairer? Is a huge disparity between the rich and poorer more desirable and fairer?

tron I asked for research and evidence not the thought experiment that is the laffer curve. It is hypothetical construct and questionable. It is not reasearch or evidence based. For example [assuming for a second it is true and I dont] what is the exact shape of the curve for the uk…who did the research? Can you publish it?. As I said it is just an oft repeeated piece of right wing BS to make us think that taxing the rich at a higher rate will leave us worse off. As a country is a relative monopoly [ye syou can move but you can cut off your gas supply too but it is not very easy or practical to do]what does economic theory say is the effect of a company with a monopoly increasing prices[taxation]? more or less profit?

Right so you are not against the rich paying a lower percentage of their tax than the poor and the you give a flat rate tax. If you add up the fixed costs a poor person has – tax , housing food etc you will find they are paying a higher % of their income to be alive than a rich person under your simple flat rate system.
I agree with raising the threshld to a reasonable level and tax more heavily above that though. I think there should be an upper threshold as well above which we tax much higher and keep going as there is only so much monety a person can spend /need. How many homes/cars/yachts/planes etc do these people need?

ignoring the fact that we are currently specatularly ineffective in collecting tax from the very rich – they simply do not pay the headline rates of income tax.

We are spectacularly ineffective at catching beneift cheats do you propose we alter the law reflect this or should we go for more enforcement,better policing and longer prisons ?. Only with tax do the right wing [you seeme sensible mind] suddenly want to alter the law to let law breakers/avoiders amoral types able to continue to do so but legally.

Hang on, these goalposts seem to be mounted on wheels.

Almost nothing in economics has been proven empirically. I'm sorry. That's why they call it the dismal science. There have been empirical studies, and they've been broadly supportive of the idea from what I know.

Right so you are not against the rich paying a lower percentage of their tax than the poor and the you give a flat rate tax.

I would be really grateful if you could finish words. I can't make much sense of this.

What I said was that I would like to see the rich pay rather more tax than the poor as a percentage of their income.

I think you will always find that the poor spend a higher proportion of their income on the fixed expenditures required to maintain life. The only situation I can imagine where they wouldn't would be is if we were to provide everyone with free housing and heat, and food stamps.

I think there should be an upper threshold as well above which we tax much higher and keep going as there is only so much monety a person can spend /need. How many homes/cars/yachts/planes etc do these people need?

That simply wouldn't work. As I've pointed out, once tax rates become punitive, it becomes very desirable to avoid paying tax. So these people find ways around it.

The only way to force high earners to pay tax is to borrow a method that the Russians used for the likes of Tupolev – imprison them and force them to work. Otherwise, they will always find a way, even if we have a hundred percent watertight tax code, they can always leave.

If you start taxing the big earners they will take their money elsewhere, i dont get this idea of taxing someone because they are sucessfull, lets start by getting rid of the waste, tighten up on free handouts to lazy ****, cut the management in the Health Service and Education.etc etc

The threat of cuts and associated dip back into recession is stupid, it is private investment that will turn the tide not a Government borrowing money to pay a workforce to work in inefficient Departments.

I think there should be an upper threshold as well above which we tax much higher and keep going as there is only so much monety a person can spend /need. How many homes/cars/yachts/planes etc do these people need?

Woah, hello Communism!

I agree re ecomonics asan aimpirical science but I did ask for research/evidence initially. Laffer is a theoretical construct/thought experiment – it is contentious to say that a 100% tax rate would equate to zero income the laffer curve is simply an unsubstantiated assertion so it is meaningless to use it in an argument unless you can prove/demonstarte/show it has some basis in reality ….like this

. As I've pointed out, once tax rates become punitive, it becomes very desirable to avoid paying tax. So these people find ways around it.

agains assettion on your part. Criminals find ways of beating car alarms should we stop trying to improve security then as it is pointless? I notice you just dont want to use the same logic/principles against benefit cheats do you?

I am toot tired/ill informed too bicker for the day on this issue.
HOb NOb redistributive taxation is some way short of Communism I did not mention the means of production did I. Perhaps you should look up Communism via Google or read some Marx. I am not a communist but I do beleieve in redistributing wealth. I find it hard to stomach the lifestyles of the unbber rich whilst other people her and abroad struggle ot feed their children and stay alive. Not sure why you think someone should have/need/require a personal wealth of billions or how exactly someone works that hard to get that much…they do it by exploiting the labour of others [ there that last bit was communism 😉 ]

i have a few of mates who are IT contracters in the city

they earn rather large amounts of money but pay an accountant to quite a lot to set up a company based in croatia i think

basically they pay about as much tax as me but earn vastly more

apparently what they do is all perfectly legit

whatever tax system was in place they would probably just pay another accountant lots more money to find away around that

and fwiw they are all tory supporters as they think that their tax will be less under them

TJ – I reckon your tax proposals are even less well costed out than the (published) deficit reduction proposals of the major parties. You really don't know how much money what you're suggesting will make do you? I'll give you a clue – it won't get anywhere near filling the black hole.

Growth will reduce the debt.

😆 – when the projected economic growth rates are outstripped by the debt growth rates? Or were you proposing the more basic debt reduction measure of hyperinflation?

whatever tax system was in place they would probably just pay another accountant lots more money to find away around that

Surely that is an argument for better laws [ or more moral mates I mean Kimbers IT,the city and Tories please tell me they don’t singlespeed] rather than for lower taxes? Odd we don’t see other people avoiding the law and think we should change the law to encompass there law breaking [ yes I know avoidance is legal and evasions is not before corrected but you know what I mean]. As I said with benefit cheats why not change the law so what they do is legal ,allow a bit of cash in hand work as it will always happen, turn a blind eye to illegal immigrants as we cannot stop them etc. Just an argument for better laws IMHO. No other area where we have avoiders we argue we change the law so they don’t have to avoid their responsibilities do we?

No other area where we have avoiders we argue we change the law so they don’t have to avoid their responsibilities do we?

Because, as I pointed out, we cannot stop somebody leaving the country, which is the last resort for someone who wants to reduce their tax bill.

bikingatastrophe …do you wonder why we have free helathcare and welfare state?

Er, yes. From the taxes I and others who work pay. Although it's not technically free, really, is it? But that alone is no justification for charging a higher rate of tax on a porrtion of someone's income over some arbitrary level. People who earn a higher income pay more tax because the tax is a percentage of what you earn. The 40% rate for "high income earners" feels bad enough – especially as it hits those who don't particularly earn a vast amount, but to then stick in another tax band just doesn't sit as a "fair" thing to do. I can assume it's fairly safe to say that the majority of people who think it's a great idea are those who won't be affected by it and have to pay it. So it becomes something easy to have a view on. And you talk about the wealthy being selfish? But our tax system also goes towards paying for lazy, workshy numbnuts who have no intention of working at all and with no incentive to do so because the state comes along every week with a handful of cash. Is that fair? So why is it fair to penalise people who have invested in their education, their career, their life – taken responsibility for it and pay their way? Wealth distribution for the sake of it doesn't make sense. I would agree that it is not ideal that the very wealthy accumulate serious wealth without paying a fair contribution to society via tax. As others have said what we need to do with these people is find a way through legislation that obliges them to pay a fair contribution. Vindictive and jealous targeting of them to pay an increased or unfair share is not the way to do it and will only fuel the politics of envy and protection.

So for those who are so keen on wealth redistribution – do you do the lottery, and if so, what do you plan to do with your winnings if you were to hit the jackpot?

I don't do the lottery – and if I did I would give away most of it.

Tron – let them go – just keep the money here – money earned in the UK taxed in the UK – so what does it matter if they go. Good riddance I say.

The 40% rate for "high income earners" feels bad enough

Does it? I don't think so (and I'm in it). Consider that National Insurance drops at a very roughly similar level and it's really 31% (20% income tax plus 11% nat ins) against 41% (40% IT + 1% Nat ins).

So a 30% increase in tax on that portion. A fair bit but not really extortionate.

I'm sorry, but TJ and Junkyard, you just do not understand business or economics in any kind of depth. The top 1% of people who pay income tax contribute 24% of the total income tax receipts! And a great deal of the world's jobs can be done in almost any country in the world.

Take an investment bank as an example (finance as a whole contributes around 9% of the UK's GDP):

Even if businesses within the sector prefer to work within an enclave, in order to benefit from knowledge transfer and so on, there are a number financial centres around the world.

There are some geographically specific parts to the industry – specifically, high speed trading platforms (which buy and sell in intervals of milliseconds) require that your servers are closed as close as possible to the market, and preferably co-located. But that is about it.

All a hypothetical investment bank has to do in order to remain competitive is to ensure that they have some machines located in the UK, and perhaps an office to meet regulatory requirements.

The rest of the staff could be in Frankfurt or another european finance centre and work quite happily to the same hours as people working on GMT in London.

The end result is this:

The UK gets the revenue from the rent of the few locations the firm has in the UK.
If the firm is listed in the UK, then HMG will get corporation tax, and the CGT paid by the firm's customers.
The firms' staff, who are earning a lot of money (I would suspect are almost entirely in the top 50% of earners – more than £25k or so), aren't spending any of it in the UK.
All of the firm's staff can be paid under the rules of whatever jurisdiction they're in. So no income tax.

When you are talking about people who are earning wages in the hundreds of thousands range, then the UK is missing out on a lot of receipts. The firm is in effect exporting financial products to the UK. If they're within the EU, there's no way we can place tariffs on that.

You simply cannot say "We will bleed the rich white" because they will not stand for it, and we cannot afford to have them leave!

Tron – let them go – just keep the money here – money earned in the UK taxed in the UK – so what does it matter if they go. Good riddance I say.

Some wonderful Trotsky thinking there. FWIW I'm well below the 40% band, and given I don't feel that poor, I reckon people earning that much are well enough off to afford it. Don't even have an issue with 50% tax at 100k – though I suspect you may already be into the point where such taxation doesn't raise anywhere near as much as you expect due to the side-effects. Still nowhere near filling the black hole, and any taxation beyond that really does become ideological politics of envy rather than an effective method of revenue generation.

If you want examples, high levels of taxation have been tried before (under Wilson/Callaghan?) – go and check just how much revenue they really made.

Tron – like your posting about the flat rate tax and the wotsit imaginary curve this is more bunkum.

This is a myth put about by people that don't want to pay taxes. There is no evidence this has ever happened or would happen – and you really think the entire financial sector is going to go to Frankfurt where they are regulated and taxed much more than they are here if we dare raise taxes on them? Remember we are still a low tax economy paying less taxes than in Germany. Significantly less.

Really – you swallow this bunkum wholesale. You need to get a bit more sceptical.

I am not talking about the return to the punitive 95% of tax but just getting people to pay their fare share. Remember NI has a upper limit so that 9% does not get paid on top earnings. I'd like to see tax rates similar to Germany and Holland. They manage to tax top earners at 60+% without a brain drain. And people have to pay for healthcare on top of the taxation.

Pointless debating with you tho as you have swallowed the neocon myths wholesale.

any taxation beyond that really does become ideological politics of envy rather than an effective method of revenue generation

It is not envy I simply think that the wealth of the planet belongs to all and should be more equitably shared out. I find that an easier position to justify than to defend individuals vast personal wealth [ often inherited] in the billions. To call it envy is another right wing slur many have bought in to like the claim if we tax more we will get less.

Tron how many bankers left when we taxed their bonuses this year and did we get less money for it than if we had not done it? I just don’t agree that if we tax more we will get less because everyone will leave. Certainly some will but most people are just not that mobile. They have houses, families, friends , hobbies, children in schools etc that also affect where they live. The laffer curve is theoretical and not been tested in the real world. Probably should have chosen a better example than Germany as both their personal and corporate tax levels are higher than ours but I beleive Frankfurt still is a financial centre. In fact most other countries tax rates are higher than ours in EU as well – the USA has higher corporate tax than us but stil does a fair bit of finance iirc. Given the current crisis some may see it as beneficial to not be so heavily reliant on the financial sector as it is unpredictable and f@cked us all up so may be happy to see them leave – I dont hink that will happen despite you saying it will over and over again.
I see little point in insulting each others grasp of the topic because we disagree on this and have a different moral code /set of ethics/philosophical outlook.
I have a B at economics A level and an A at O level from 1988 and 86 respectively can you beat me in an economics Top Trumps? 😆

The rest of the staff could be in Frankfurt or another european finance centre and work quite happily to the same hours as people working on GMT in London.

I hear Basel is pretty popular.

There is no evidence this has ever happened or would happen

.

Surely the number of people who go to the effort of non-dom status, umbrella companies, and any other number of complicated tax avoidance schemes are evidence? Or what about the big tax incentives offered to attract investment?

As I pointed out – the top 1% pay 24% of the income tax. You only need to have a few leave / take up tax avoidance, or convince a few more to pay / take up residency here, to make a relatively large impact on total receipts.

I couldn't give a monkeys about the tax rate, so long as it's not regressive. The important thing is maximising the total tax take, not some ideological grab at the rich.

Tron how many bankers left when we taxed their bonuses this year and did we get less money for it than if we had not done it?

I'm told that a good number of bankers were signed up for the golden handcuff treatment before the 50% tax rate came in, and were paid several years wages in advance. They're determined not to pay it.

If you want examples, high levels of taxation have been tried before (under Wilson/Callaghan?) – go and check just how much revenue they really made.

Different world, different ballgame.

I hear Basel is pretty popular.

Can't think why, I've been there, it seemed like a bit of a dump to me.

Re Tax: Common myth Rich get taxed more than poor folk. Incorrect!

We actually all get taxed in the same way except the rich.

So in theory I get a tax free allowance, and so does a rich person
I pay different rates on my income, ie X for the first £10,000, then Y for the next and so forth…. and so does rich person
If I earn what they earn I will also pay what they pay.

But in fact that is not the case at all. What actually happens is that most people pay their taxes without any real input on the subject. Rich people employ vastly expensive accounting snakes to find ways to weasel out of paying their dues, then they offset that cost against…. yes thats right tax! Generally the annual discussion with the accountant will be along the lines of "how much do we need to pay to keep the taxman off my case?"

No one ever paid 95% on their entire income. It was a top rate of income tax of 83% on earned income over £20,000. In 1974 £20000 was worth something like £249,000 now. So only earnings over the 1/4mill would get taxed at that rate. If you were also getting unearned income over that level, i.e. interest or dividends for example then there was an additional 15% surcharge on those only. Same for me when I earned over that level!

However what the Trons of this world singularly fail to understand is that those people rarely, and only if stupid pay that tax. There are a 1001 ways to avoid it.

So fair for everyone …..Right?

Tron – thats why we should be putting a lot of effort in to fighting tax avaoidence – they will try to minimise tax yeas – of course – but leave – no.

Absolutely no evidence to back up your assertions again. The very fact Frankfurt remains a financial centre despite much heavier taxation is a strong indicator you are wrong.

However what the Trons of this world singularly fail to understand is that those people rarely, and only if stupid pay that tax. There are a 1001 ways to avoid it.

I've spent quite a bit of time in this thread explaining that the rich seek to avoid tax, and so the best way to collect is to not charge them horrendous rates, and use a simple tax code to remove loopholes.

Tron – thats why we should be putting a lot of effort in to fighting tax avaoidence – they will try to minimise tax yeas – of course – but leave – no.

Have a read about the Swedish wealth tax and its abolition in 2007.

yes when people avoid the law we should change the law to reflect their behaviour a principle you apply solely to this area and to no other law avoiders. TJ and I suggest we enforce the law more adequately which is waht we do in all other areas wher epople avoid the law say ike benefit cheats or criminals etc. We dont say they are cunning and will try and avoid it so lets accomodate them do we.
BB Tron has never said that FWIW I dont think any one has we accept avoidanc eoccurs Tron want sto be symapthetic to the ubber rich avoidanc epaying tax TJ and I want to tax them [ not till they blled like Tron thinks] but farily as they are very rich and have mor emoney than they could possibly need or spend
No point carrying on Tron you give no evidence it is all like this

I'm told that a good number of bankers were signed up for the golden handcuff treatment before the 50% tax rate came in, and were paid several years wages in advance

Which is anecedotal at best and BS at worst – I am sure there is some truth in it as people do try and avoid tax but can we not just make it very difficult for them to do this and keep closing the loopholes till there are none left?

Have a read about the Swedish wealth tax and its abolition in 2007 by the newly elected right wing government …fixed it for you !!!
Politics not evidence

I am not talking about the return to the punitive 95% of tax but just getting people to pay their fare share.

Right TJ, I really can't let you get away with that comment without a response. I'll be honest and say that last year I earned over £100000 which is about 4x the national average and by anyone's definition makes me "rich". I've done the sums using the online on the HMRC site and it says that for that year I paid a total of around £36500 in combined income tax and NI contributions which corresponds to about 35% of my wage. For comparison I also calculated the income tax and NI for someone on the average wage which came out at about £6100 or 23% of their wage. Can you please explain to me how I have not paid my fair share because as far as I can tell I paid more than my fair share?

I should point out that I could pay significantly less in tax and NI than I currently do by using methods that tron has pointed out but I choose not to as I believe in paying my way. I do however object to comments that somehow imply that I don't pay my fair share of tax.

Tron – The best way to collect tax is not to have any loopholes – not to reduce rates – we are already low tax! More tax inspectors with more powers and punative action on avoidence. You have asserted plenty – you have explained nothing.

Its like saying that we should leave all cars unlocked so thieves can take them easily as they are going to steal them anyway

There is no evidence at all to back up your assertions.

Can you please explain to me how I have not paid my fair share because as far as I can tell I paid more than my fair share?

The argument as I understand it is that people on low income spend a greater proportion of their income on VAT chargeable goods and other taxes (Road Fund Licence, Fuel Duty, VAT on heating etc.). Not to mention booze and fags, which are generally consumed most by the working and upper classes, but less by the middle classes.

Which means that they actually end up handing over a greater proportion of their wages to the treasury than a higher rate taxpayer.

gonefishing – I doubt your calculations as I am less than average wage and pay around 30% of my income. However I accept your point.

Its all about how you define fair – I would say yours is about right – maybe could pay a point or two more but not much.- I'd like to see people richer than you pay more – you are probably in the area where people pay most – higher earners are paying less as the NI ceiling takes effect.

Good job you are not in germany where you would be paying 60% on twice national average wage.

As I say – Its all about how you define fair – I would like tax to be much more progressive. Less at the bottom but more at the top. neutral point around twice average earnings – so folk on £50 000 pa pay around the same, people earning more pay more, people earning less pay less.

Because, as I pointed out, we cannot stop somebody leaving the country, which is the last resort for someone who wants to reduce their tax bill.

People supporting tax cuts are always saying that, but it is hard to know how much evidence there is in support of it – the threatened massive exodus after the 50% tax rate never seemed to actually materialise. Realistically, we would have to have very very high personal taxes to convince anyone who wants an interesting life that they'd rather live in Frankfurt / Basel than in London.

Joe

I'm astonished to see that I seem to have out lefted TJ on regressive tax in the UK.

More tax inspectors with more powers and punative action on avoidence.

On the other hand, a simple tax code (the standard text on tax has doubled in size over the last 10 years or so), would allow us to inspect more thoroughly with the same number of inspectors, and reduce money used to pay for tax avoidance, which is a rather unproductive industry.

by using some random web tax calculators

if you earn 200000k in the UK you get an annual income of 101k a year

and in germany 137K a year

http://www.parmentier.de/steuer/incometax.htm
http://www.pru.co.uk/guides_tools/calcs/income_tax/

depending on cost of living and whatever other taxes- uk VAT is 17.5 % germany is 19%
i believe german inheritence tax is somewhat higher too, and you have to take out medical insurance but im not sure what that is?

germans seem to be better off

Having worked in the tax industry in both the Netherlands and the UK, my own experience is that there is much more tax avoidance in the Netherlands than the UK (and certainly more tax advisers as a proportion of population). It is also misleading to look at headline tax rates, there are far more tax reliefs in the Netherlands and Germany than there are in this country. For instance, mortgage interest is still fully tax deductible.

I also think the assumption huge amounts can be gained from cracking down on tax avoidance is flawed and this was supported in the election campaign by the former head of the anti avoidance unit who wrote as follows

Dear Sir,

Savings from closing tax avoidance loopholes are likely to produce rather less tax than Nick Clegg’s Liberal Democrats suggest. If there were a simple solution to the tax avoidance problem one would have been found over the last few years.

Despite the efforts of HMRC, no one has yet produced a “silver bullet” which will wipe out avoidance of direct taxes “at a stroke.” The best HMRC can do is to rely on the tax avoidance scheme disclosure rules to sniff out avoidance schemes, and then legislate to close them down.

Even when there is a case which HMRC considers is worthy of challenge, it has to be brought before the Courts where it can be many years before the final outcome is known. And, crucially, that depends on convincing the Judges of the correctness of HMRC’s arguments.

The idea that tax savings of the size promised by Nick Clegg are achievable is, to my mind very doubtful, and really does not stand up to close scrutiny.

Yours faithfully

Chris Tailby CBE
Director, HM Revenue and Customs Anti-Avoidance Group, 2004-2009.

TJ i think it is your maths that a wrong. Use this website http://www.listentotaxman.com/index.php

It comes out as being pretty accurate when you compare it to your p60 (I think that it the right one?). Someone on 20k pays about 22% tax (NI and income) someone on 25 pays about 24% someone on 100k pays about 35%. I have assumed no SAYE or pension payments. Obliviously someone on the higher rate is going to see more relief on pension payments but I doubt it will be much.