[Closed] Removing 50p tax rate - seems to be a BBC campaign

Now if you taxed the "rich" less, what do you think they would do with the money? They would spend it and help boost the economy. Nobody sits on piles of gold like Scrooge Mcduck you know, they make their money work for them, which creates jobs, income, tax receipts etc

Actually they invest it for seemingly ever dwindling returns, at least in the terms of dividends. The whole point of shares was originally that you owned a share of the company and took a share of the profit. Now dividends are negligible for most shares and companies seem to strive to raise share value by any means possible rather than as a result of actually being good at what they do. Why? because the rich spend more money investing in companies than buying their output.
And to be honest, investing is a bad term, because it has actually little to do with investment, its just trading stocks.

JY - I sympathise with what you are saying. The download to the actual report doesn't work at the moment, so to be fair to the IFS, the Torygraph is only quoting one part. From the press release, there are plenty of other recommendations, so this is not there sole logic.

The problem is that from a categorical moral perspective I agree with you, but not from a consequential one. But I need to see what IFS is really saying about revenue generation before commenting here.

Again I am conscious that I am going to quote to RW sources here (forgive me!!) but what the quote is indicating are well known consequences that many have highlighted before:

Adam Smith: The drive to equality goes against the basic instincts of all human beings, "The uniform, constant and uninterrupted effort of every man to better his condition"...and of his children and children's children.

Milton Friedman (yes, I know!!): "When the law interferes with people's pursuit of their own values, they will try to find a way around. [stay with it, please !!], They will evade the law, they will break the law, or they will leave the country. [ok, quite objective so far...but then comes the more subjective bit...]. Few of us believe in a moral code that justifies forcing people to give up much of what they produce to finance payments to persons they do not know for purposes thay may not approve off...only fear of punishment, not a sense of jutsice or morality, will lead people to obey the law"

Ok, so there will be some debate on the last bit, but what I find much more interesting is what Freidman went on to say:

..."when people start to break one set of laws (ie evading taxes etc), the lack of respect for the law inevitably spreads to all laws, even those that everyone regards as moral and proper - laws against violence, theft and vandalism.''

So leaving judgements and bias aside, are we simply seeing a historical cycle repeating itself?

I'm surprised you can ride a bike the size of that chip mate.

Look if some richy rich buys a Ferrari rather than stick the money in the Caymans or give it to the tax man, that money pays the wages of the people who work for Ferrari, who then buy stuff from other people, who buy stuff from other people, etc etc, all the while raising income tax and VAT receipts, while creating vibrancy in the economy.

But waaah the rich are all assholes, right 🙄

RPRT

Somehow the FT managed to cover the IFS report without mentioning the 50p tax rate...And yet the Torygraph came up with the headline "50p tax rate 'costing Treasury £500m'" for its coverage...Funny that, eh?

Good point - but not surprising surely? Put the all the broadsheets together and they will all demonstrate their natural biases. The key is to understand those biases from the outset. Modern history in schools teaches kids that with their evidence questions, which is good and proper education IMHO.

adam smithis s selfish ass hat that does not mean everyone else ever borne or likely to be borne will be
Greedy avricous folk often tell us it is human nature rather than just thier nature. Human nature - ie behaviour humans exhibit- gives us lots if unsavoury bheaiour like murder or rape or child abuse .. I woul dstill rather minimise this than argue it is "natural" tbh

As for Milton he is right people who dont agree wiht laws tend to ignore them and find ways round them we tend to respond by enforcing better - speeding cameras, traffic calmin measures for example. We dont tend to capitulate to law breakers as our current drug laws will show but we should when they are very very wealthy. I dont se the principle here tbh though yes peole avoid lawsadam smith is a selfish ass hat that does not mean everyone else ever borne or likely to be borne will be
Greedy avaricious folk often tell us it is human nature rather than just their nature. Human nature - i.e. behaviour humans exhibit- gives us lots if unsavoury behaviour like murder or rape or child abuse .. I would still rather minimise this than argue it is "natural” tbh

As for Milton he is right people who don’t agree with laws tend to ignore them and find ways round them we tend to respond by enforcing better - speeding cameras, traffic calming measures for example. We don’t tend to capitulate to law breakers as our current drug laws will show but we should when they are very very wealthy. I don’t se the principle here tbh though yes people avoid laws

RPRT - just to prove your point - the Torygraph quotes, "Since 1997 Britain has dropped from 4th position to 95th in the World Economic Forum’s low tax rankings." and JY quotes, "presumably we have it about right being distinctively average - actually we are 38 ish but remeber the NHS costs 8% and low tax nations dont have that so we are really towards the bottom if you remove healthcare."

It was ever thus.

JY - thanks for the link. I managed most of the Vickers report yesterday, so I will give this a crack. My son is studying economics at the moment, so it is very relevant!!

Here's another bit of selective editing for RPRT from page 72, just for fun:

"Second, the responsiveness of different population groups to incentives varies considerably and this can be seen quite clearly in the different levels of labour supply and changes over time for different groups....[we discussed ? this before]... and ...

"Third, there is an inevitable trade-off between redistribution and incentives. Greater redistribution will generally reduce economic efficiency. Across the population, the substitution effect—which causes people to work less hard in response to a higher marginal tax rate—will generally outweigh the income effect—which increases effort in response to an increased average tax rate."

Now I am being very biased 😕 because point 4 is:

"taking account of how different population groups respond to incentives allows any particular level of redistribution to be achieved at a minimum efficiency cost. "

But still, in their opinion (!) an efficiency cost.

JY - I wasn't necessarily agreeing with either Smith or Friedman BTW merely interested in their logic and the parallels that this has with current developments.

Bye for now - ride, reading, lunch to do!!

there is an inevitable trade-off between redistribution and incentives. Greater redistribution will generally reduce economic efficiency.

I don't take issue with this. What I take issue with is whether economic efficiency is as important as social cohesion.

But even in economic terms the argument is flawed because it fails to take into account (because it can't) the economics of things like rioting.

Unfortunately "fairness" can't be measured, but I think most people know it when they see it.

I'm surprised you can ride a bike the size of that chip mate.

Rich people do not wander round spending money to help the economy/others as you yourself noted

Nobody sits on piles of gold like Scrooge Mcduck you know, they make their money work for them

the IFS review also reccomends ending 'fuel tax' and replacing with congestion charging,

will this one be implemented?

im going to assume that the people who decide the fate of the 50p have a vested intrest in ditching it, whereas the fuel tax doesnt affect them in the same way it does us plebs

RPRT: got sidetracked before the ride but FYI:

"In doing that, we need to bear in mind throughout that it is social welfare we are interested in. That depends on much more than measured income. " (p46)

Just saying!! I agree with your point though.

Junkyard - Member

No need for ad hominems it will hardly persuade me you are right and is more likely to make me think you cannot defend your point of view without insults.

Christ the ego on it. I'm not trying to persuade you I'm right, I don't really care what your opinion is. You clearly have some issues with "the rich". Did a rich boy take your conkers? When you finish school perhaps your viewpoint will change, I don't know, whatever.

Thanks for lashing out at me again and not explaining your own view. Obviously you look both big and clever now.

Brings no money in, serves only to demotivate top earners who are the more productive for the economy.

Brings no money in, serves only to demotivate top earners who are the more productive for the economy.

No they are not.

Its all gone quiet here - is everyone reading. 😉 Joking apart, chapters 2,3 and 4 are very interesting reads as they cover many of the arguments raised here - theory, evidence and many of the real challenges that face the current, flawed system (even Rawls and Bentham get a mention!). In addition to obvious issues relating to high and rising levels of income inequality are some truly staggering statistics at either end of the income spectrum - the chilling %age of people who in the UK earn too little to pay any tax (I can't find the exact figure and have re-read several times, but I think that this was extraordinarily high eg, 20-25%. I find this hard to believe, so I will re-check) and the incredibly small of people (<300,000) who contribute the bulk of taxable revenues.

But there is obviously something absurd in a situation that has a clearly regressive tax system and yet high and rising levels of inequality, where the bottom of the pyramid is forced to rely on benefits and tax for 80% of their income, where the top is forced to pay 60% of the disposable income in tax, and where low paid people face prohibitive marginal tax rates and strong disincentives to work. For me at least, the section on the reform of the tax system for people on low incomes is the most interesting section and most relevant today. It is far more insightful that the typical, "just tax the bloody rich", that tends to characterise this debate. And hopefully, will do far more good to alleviate their problems.

the incredibly small of people (<300,000) who contribute the bulk of taxable revenues.

I wonder how this figure is worked out, and if it just assumes that corporation/business taxes are the burden of the owner* and discounts the employee as just an important contributor in paying these taxes.

*and what that would make of the claim that pensions are the major shareholders.

Sorry msp, I was being sloppy - this related to tax revenues from earnings

Is it 25 % of working age adults if so that is high
i dont disagree with you re the poor and what they pay/reducing their burden. However i really dont see how you will reduce their burden without increasing someone else's burden -rich[er] people

TBH I struggle with long sentences on the report though I admire your commitment - i read most of the conclusions but , if I am honest, it is beyond my level of economics or interest. 😳

P108 - they estimate that there are 275,000 adults out of adult pop of 49 million that earn >£150,000

Top 1% of income tax payers ("just over 300,000) pay 25% of income tax (still P108)

Still re-reading to check the numbers at the other end of the spectrum

JY said:

However i really dont see how you will reduce their burden without increasing someone else's burden -rich[er] people

As I mentioned before, this is some of the most interesting stuff and appeals to the Rawls-ian logic I described earlier. I have read that section 3 times, and I still only just get my head round the details though.

I was aware of the contribution of benefits to total income for low income households but the concept of a 90% marginal tax rate for low-income earners was something I had forgotten.

Found it p105:

Note that within the tax system itself, little can be done for the very poorest. Around a quarter of adults live in households where nobody has a high enough income to pay tax

so it includes pensioners then I assume and is not working age adults so possibly written to make it sound larger??
I wonder what % of pensioners are on state benefits only?

JY - its probably there, just didn't get that far. But a key theme of the report is the importance of thinking about the impact of tax over the lifetime of an individual rather than looking at a mere snapshot. That is also quite interesting eg, what happens to those who in the bottom/top brackets - how much mobility either way.

I will try and crack "inheritance tax tomorrow" as that is always a good one for debate!!

I can't remember if it was with you or RPRT that we were debating (actaully not that polite!!) about whether raising the tax rate led to more revenue or not/elasticity of supply/why economics helps to provide frameworks but not answers etc...but this is also covered in some detail in the section on taxing high earners.

it was RPTP I am always nice 😉
What section is that - taxing rich etc as I may read that bit

I've not expressed an opinion as to whether the 50p tax rate is effective or not - I merely flagged up in my OP that the BBC appeared to be doing some good propaganda for those who want to get rid of it.

And I've not said anything about elasticity of supply.

I have said (or certainly intimated) that I am in favour of radical redistribution of wealth because the current debt based economy has an inbuilt mechanism for concentrating wealth in the hands of fewer and fewer people that has very little to do with them "earning" it.

I have also pooh-poohed the undue respect given to economic growth as a measure of progress.

Ok sorry RPRT. Forgot what we argued about. JY was spoofing me about the nice bit!! 😐

So the debate about the 50p tax continues to gather pace, but surely there is only one questions - does it work, in the sense does it actually raise any money? Its not propaganda!

Surely, the logical is that if it does, the general public would support it on the gorunds it raises money and if it dosent, than most should be happy to scrap it.

The report from the IFS yesterday is probably the best evidence we have, the report concludes 'the introduction of the 50% rate would actually reduce revenue, costing the treausury £500m a year'. The laffer curve suggests that above 40p in the £1, the more tax is raised the less revenue is received.

Surely, based on evidence, available freely to all who wish to argue to point, the questions is whether we can afford to keep it? Yesterday more jobs were lost, and the politics of envy continue to use the 50% rate in order to satisy the lust to punish the rich. Why should the lower incomes pay higher taxes to make up the shortfall?

If the government scraps the 50% rate, they could use the money to lift more lower earners out of tax? Who could argue with that?

But, im sure people will - with increasingly emotive irrationality (bash the bankers, tax the f****rs). They may use the argument that people (really rich) want to pay more tax, but I suspect Mr Buffet would be a little more cautious with his words when asked to pay 15% more than he is paying in the US.

Politics of envy is making a comeback which is bad for us all, look what happened in the 70's. The policy of "squeezing the rich until the pips squeak" to quote then Labour Chancellor of the Exchequer, Denis Healey.

Celebrate success, it will breed success.

The treasury say it will bring in 12 billion - thats the best evidence. If by the IFS you mean the institute for fiscal studies thats a right wing propaganda outfit.

Of course it brings in money.

why economics helps to provide frameworks but not answers etc

about whether raising the tax rate led to more revenue or not/elasticity of supply

JY was spoofing me about the nice bit!!

The laffer curve suggests that above 40p in the £1, the more tax is raised the less revenue is received.

The questions is whether we can afford to keep it?

If the government scraps the 50% rate, they could use the money to lift more lower earners out of tax? Who could argue with that?

Even if i were to accept that higher tax rates lead to reduced incomes [ I dont] the answer is to close the loopholes they exploit rather than to capitualte to them and alter the law. We do not do this in other areas - drugs law, speed limits, prostitution etc - we increase enforcement.
This argument that you want to do it to increase tax returns is BS as closing loopholes and other methods would achieve the same result.

Politics of envy

If by the IFS you mean the institute for fiscal studies thats a right wing propaganda outfit.

EXCUSE ME??????? WHAT DID YOU JUST SAY???????

The most respected, impartial economic watchdog in the country. Famously described the 2010 Coalition budget as "regressive", caused huge headaches for Osbourne.

Totally shameless. Go hang your head.

Is the 50% tax rate immoral, "interesting" stuff from the moral maze

[url= http://www.bbc.co.uk/iplayer/episode/b014gcmm/Moral_Maze_The_morality_of_income_tax/ ]Moral Maze[/url]

Sometimes I get the feeling people use words like 'propaganda', 'fairness', 'right wing' and so on, not becuase they know their definition, but because they have heard it through the socialist worker!

mcboo

The most respected, impartial economic watchdog in the country.

[img] [/img]

Sometimes I get the feeling people use words like 'socialist', 'left wing', 'worker' and so on, not because they know their definition, but because they have read them in the FT!

Sometimes I get the feeling people use words like 'propaganda', 'fairness', 'right wing' and so on, not becuase they know their definition, but because they have heard it through the socialist worker!

Is that right?

And which "people" did you have in mind specifically?

What a stupid comment.

TJ - you seem very quick to jump to a conclusion which is odd for someone whose mantra seems to be, "show me the evidence."

Please use the link and read who the authors of the the IFS study are, the breadth of organisations they represent, and the quality of their analysis. You may alter your pre-conception.

You will also find that the report provides support for both JY and mashie in a way that is refreshingly free from dogma!!

JY - you asked about taxing the rich. The relevant section begins on p104 and then 108-11 are particularly interesting. Some of the key points are (although I may be unintentionally biased in my selection here!!):

1. The income tax rate applying to the very highest earners has an importance out of proportion to their numbers, simply because they are such an important source of revenue (p104)

2. One pound in every four collected by the income tax system comes from just 1% of income tax payers. Of course, this largely reflects just how much more pre-tax income the top 1% of taxpayers earn than the bulk of the population do. (p104) (hardly biased TJ!)

3.the responsiveness of taxable income, and hence tax receipts, to tax rates may be quite high at the top of the earnings distribution—not because high earners’ employment decisions or hours of work are particularly responsive [there is some confusion on this point in the report], but because they may find other ways to minimize the amount of tax they pay:

by reducing their effort per hour worked;
changing the form of their remuneration;
contributing more to a pension or to charity;
converting income into capital gains;
setting themselves up as a company;
investing in tax avoidance;
illegally hiding their income;
leaving the country altogether (or not coming here when they otherwise would have).

(p109)

4. it is not clear whether the 50% rate will raise any revenue at all. (p109).There are numerous ways in which people might reduce their taxable incomes in response to higher tax rates; at some point, increasing tax rates starts to cost money instead of raising it.

5. The question is, where is that point? Brewer, Saez, and Shephard (2010) addressed precisely this question for the highest-income 1%. Their central estimate is that the taxable income elasticity for this group is 0.46, which implies a revenue-maximizing tax rate on earned income of 56%.29 This in turn (accounting for NICs and indirect taxes) corresponds to an income tax rate of 40%. So, according to these
estimates, the introduction of the 50% rate would actually reduce revenue. [one view]

6. [b]However, there is no escaping the uncertainty around the estimate of a 40% revenue-maximizing income tax rate [my view and others'].[/b] It was based primarily on what happened to incomes when tax rates changed in the late 1980s; but people’s ability to respond to tax changes may well have changed since then. Increases in international mobility and in the availability of complicated financial products may have increased people’s scope to respond, while a succession of anti-avoidance measures may have reduced it.

So economics gives us tools but not always the easy answers!!

TJ - a supposedly RW propaganda outfit is unlikely to present a balanced view?

[b]Take this - start with an observation[/b]

Whatever the precise revenue-maximizing tax rate, it seems unlikely that much additional revenue can be raised simply by increasing the income tax rate for the very highest earners.

[b]Throw in the complication[/b]

But it is important to realize that this is not the only tool available for extracting money from this group. [RW propoganda approach????] Widening the income tax base—removing reliefs and clamping down on avoidance—not only raises money directly but also reduces the scope for shifting income into tax-free forms and thereby makes tax rate increases more effective revenue- raisers. And there are, of course, other taxes aimed at the wealthy (notably inheritance tax), which might have the potential to raise revenue.

[b]And then add another balancing view:[/b]

In addition, we should not forget that the revenue-maximizing rate is itself not necessarily the rate that we should impose on this group. If we value their welfare at all, or have concerns over long-term behavioural effects, then we might want a rate below the revenue-maximizing rate in any case.

I don't want to butt in to what is a very entertaining argument, but this politics of envy thing is such a load of b*llox. You really think those of us who believe in a lower differential in wealth between top and bottom are simply envious? It's not the politics of envy, it's the politics of fairness and common sense. Sure the figures may well tell us that the tax take is less with higher top rate tax rates, but there's a moral element to this too, and I reckon most 'normal' people would probably accept a slightly lower total tax income as a price worth paying to protect the principal of fairness.

whilst we are all getting very serious and emotive about this subject, I got my daily dose of silly humour from reading this

http://www.thedailymash.co.uk/news/society/britain-may-contain-up-to-60-million-slaves-201109134294/

I have known of the IFS for years - yes of course calling it a rw propaganda outfit is hyperbole - but it does have a clear and consistent rightwing bias in its analysis. Thats why it agrees with you so much.

Dazh - this may or may not be aimed at me, but for sure I have used this term. So let me answer.

1. I believe strongly in reducing the differential in wealth between the top and bottom
2. I disagree that a one-dimensional "tax the rich bas****s" approach is the optimal solution
3. This is where envy can/may/does (delete as appropriate) gets in the way of rational debate
4. Most normal people would seek a solution that delivers the required result - there remains considerable confusion over how to do this. Putting the tax rate up is not the answer in itself (although it may be!!)
5. What is fairness? Is this a utilitarian concept (maximise overall happiness), is it respecting individual liberty (the more libertarian approach) or is it promoting a virtuous society? These will often conflict. The problem with the whole "what is fair' issue is that people will always have different opinions on what this means. Just look at this thread?

TJ - its funny how you assume that I am RW?

On the hyperbole issue - the word "envy" is also slightly inflammatory I suppose, but I was quoting Immanual Kant!!

What is fairness? Is this a utilitarian concept (maximise overall happiness), is it respecting individual liberty (the more libertarian approach) or is it promoting a virtuous society? These will often conflict. The problem with the whole "what is fair' issue is that people will always have different opinions on what this means. Just look at this thread?

Indeed! [b]fair[/b] could quite easily be argued to be everyone paying an [b]equal[/b] proportion of their income as tax. I'm yet to see anyone explain why this would be [b]un[/b]fair...