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March 06, 2012

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Botzarelli

Very interesting and pleasingly non-partisan. The problem with it is a political one. In the uk the main parties have all to some extent pushed the line about the squeezed middle. It is pretty obvious that the middle are always the easiest and most productive ones to squeeze but they also form the largest part of the electorate. It would take some bravery to attempt it when even small and poorly conceived squeezes like withdrawal of child benefit get howls of anguish and outrage from both ends of the spectrum.

Jon

I think it's honestly getting to the stage where we should consider using the military to take down tax havens.

When sovereign nations undermine the interest of the majority of the population of the world in such an upfront way it's only fair and reasonable to fight back.

I think that's probably also interestingly also the one argument in favour of retaining the nuclear deterrant - while an invasion of Caymen might not be cost-effective, a single warhead - or the threat of one - would probably do the job fairly well.

doug

This surely is why we need wealth taxes and not income taxes?

Andreas Tirez

What about the fact super-rich people can use their wealth to skew legislation-making to their own particular interest? If this is a serious problem (and I'm not sure if it is, but it is not unlikely), you would encourage the super-rich people facing higher marginal tax rates to retire.

Chris

Academic research may show that this method is one way of reducing tax avoidance by the wealthy. However, this approach seems to simply accept that, and make everyone else pay, or rather a vast swathe of people in the middle who have little choice but to accept whatever tax rates a government imposes. This is grossly cynical and unjust.

This method is _not_ consistent with progressive average rates, as above the maximum at an income of £150k here (at 48%), the average rate starts to drop, such that our happy banker on £1m would face an average rate of 32.7% - the same as a manager on a shade under £66k.

Tinkering with marginal tax rates in an attempt to make the revenue raising system itself redistributive is a waste of effort. Do that with the revenue raised instead!

Incidentally, the suggestion that the UK should tell other countries to vote for higher taxes or be nuked is perhaps the most sickening comment I've ever read on a blog. Incredible.

Sean

I like this, but isn't it worth adding that we have this already? Currently, the personal allowance is withdrawn once income reaches £100k (see:http://www.hmrc.gov.uk/budget2011/rates-allowances.pdf) means that people are paying a higher marginal rate between £100k and £115k(ish) then they are above that amount.

Paolo Siciliani

That the super-rich should be spared because they are footloose or whatever is frankly ridicolous. You say past evidence proves that, but past evidence is based on past political mainstream. It is also nonsense to argue that civil servants wouldn't be able to track down the super rich were they given the necessary political backing to do so. It's only about political will Chris, there is no hiding/dodging if Western economies for example signed up to a mutually beneficial cartel agreement to raise taxes uniformly on the super rich and back each other up. Look at what is happening in Italy right now for example, as soon as Monti's govt gave the go-ahead to the department responsible for tax collection a flurry of activity (surprise inspections and so on) has scared the hell out of everyone there, and this is just the beginning....
This idea that expensive private lawyers & accountants can systematically out-smart civil servants is not only defeatist but frankly strongly ideological.

Strategist

How many of these people on over £150k are really genuinely wealth creators?
If we took a different approach to your proposal here and simply had these people shot and their assets confiscated and redistributed, how much productive potential would the economy really lose? Not as much as these people would have you believe, I'd wager.

Steven Clarke

Very interesting. Like you though, I think we need to find other ways of taxing the rich than just increasing income taxes.

I'm a fervent believer that we need a Land Value Tax, which should be our major source of revenue; and wish our politicians and opinion-formers would start talking about it.

We also need to reform those various reliefs and allowances that end up being very regressive (such as pension tax relief).

As an earlier commenter noted we need to get serious about tax-compliance - closing down tax havens etc.

Jim

Nice to know that the Left is still quite fine with mass murder and theft, just as long as its rich people who are being murdered and having their property stolen.

Its as if the Cold War never ended. Oh my Stalin and my Mao of long ago!

Account Deleted

I think some commenters have missed the irony that we already have a system that allows the wealthy to pay a lower average rate of tax than the middling sort, through a variety of dodges such as income disguised as capital gains or corporate profit. Chris's suggestion of a lower top rate of income tax just makes this unpalatable truth visible.

As regards the nuclear option, I think the collateral damage should we flatten the City of London, not to mention the Channel Islands and the Isle of Man, might be too great to consider, particularly in an Olympic year.

More seriously, the key focus should be taxes on land and other forms of non-portable wealth. These are less vulnerable to "tax optimsiation".

Mike

An alternative study would be on the effectiveness of income as an incentive. I suggest a Laffer curve for Incentive verses Income. Once you achieve a comfortable income, further increases are no longer an incentive.

How much control does an individual have on how much work they do anyway? Employees have little or no control, limited to the availability of overtime. And even then, the private and public sectors rely very heavily on unpaid extra hours. Which makes working-to-rule an effective form of industrial action. Even on commission schemes, opportunities are limited in practice.

Speaking as a lowly cog in the machine, I've never met anyone whose work-rate was affected by the tax-rate. Affected by many other factors, yes. Tax-rates simply do not work as incentives to work.

Rick

Shooting and nuking? It's getting as bad as Worstall's blog on here!

Isn't another argument that there simply are not enough rich people, even if you could make them all pay tax at 80%, to cover the additional costs of demographics, climate change etc which will hit the state during the next decade.

The larger group in the middle will end up having to pay more tax too.

ChrisO

@Mike
"Speaking as a lowly cog in the machine, I've never met anyone whose work-rate was affected by the tax-rate."

I'd suggest that you talk to a taxi driver, builder, plumber, IT contractor or pretty much anyone who is self-employed.

Mike

@ChrisO
I've worked alongside very many IT contractors & other self-employed for the best part of thirty years. I've discussed with them their tax arrangements, their motivations and the state of the contracting market, etc, and never once did they claim that the tax rate made one iota of difference to them. I suggest you try it.

Apply some elementary logic. If the tax rate affects the amount of hours worked, people would work longer hours under a higher tax rate to compensate for the shortfall. A higher tax rate doesn't make peoples' mortgages and families magically disappear. A higher tax rate would be a greater incentive to work.

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