Wednesday, March 16, 2016

The 50p tax rate did not raise more money for schools and hospitals

Still assimilating impacts of the budget, but it seems to have been focussed on helping small businesses which are the biggest drivers of growth.

Far better to have a lower and simpler corporation tax rate which is harder to dodge than a regime in which SME's pay a fortune and some giant multinationals pay almost nothing, which is what happened under Labour.

Also grateful to Fraser Nelson of the Spectator for this graph which explains why the 50p tax rate introduced in the final months of the Labour government was just a political trick, and cutting it back to 45% has actually helped fund schools and hospitals because a 45p rate brings in at least as much tax revenue, and very possibly more, than a 50p rate did.

Confiscatory taxes on the very people who can, if they think it is worthwhile, most easily get access to expert advice on tax avoidance simply does not bring in more tax.

We could argue for years about what exact tax level will raise most money, above which the tax is seen as confiscatory and higher rates become counterproductive. But here is the evidence that a 50% tax rate on the highest earners is above that revenue-maximising level:

Immediately after the budget which cut the top rate of tax from 50% to 45% the proportion of total income tax revenue paid by the richest 1% rose from about 25% to about 28%.

There were of course other reasons which contributed to this effect, such as the fact the government was also raising tax thresholds and taking many people on low incomes out of the income tax net. But that, of course, supports just as strongly the argument that the overall incidence of the tax policy of the Conservative-led coalition was to cut taxes on the poor and tax rates, but not necessarily tax revenue, for the rich. And the Conservative majority government is continuing that policy.

1 comment:

Jim said...

Its still something a lot of people cant understand, a lower tax rate actually can increase the overall tax take.