UK 50p Tax Rate for High Earners

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Ed Balls of Labour claims he will increase the tax rate for those earning above £150,000 from 45p to 50p in order to ensure the rich contribute to easing the deficit.

Labour to increase tax on high earners

But what is behind this policy?

Is he saying this to force the issue into the open and make the Conservatives justify their position on taxing high earners? Or is it because he believes this is a fairer way to tax?

Will this ensure rich people contribute to the deficit reduction?

There are claims from opposition that this policy will punish those who earn high salaries and will not help tax revenues. They are of the opinion that successful people who earn more will not be attracted to the UK.

What do people think?

There are people out there who deserve 150,000 £. The social differences between a plumber and an engineer in Great Britain are small enough as it is; a tax system should not be used to discourage people from working hard. Mass millionaires could contribute more, but stealing from the upper-middle class is not the answer.

The European working class seem to have an entitlement complex that states that if they do not get to buy a PS4 shortly after the release, do not get to buy a late model BMW and do not get to travel to Crete every summer, then they're poor, which is not the case.

Last edited by Kurgan on 25 Jan 2014, 1:24 pm, edited 1 time in total.

I clicked on NO.

I don't really understand about tax properly though yet. I don't even know about my own tax.

This is only them saying they will do something that, when they get to power, they won't do.

There are multiple issues that may influence the desirability of a tax increase. Here are a few (from an economic perspective):

1. Revenue Effect:
Where on the Laffer Curve is the current marginal tax rate in the UK? Depending on the slope, tax increases may generate high or low government revenues. And if the tax rate proceeds beyond the peak, a tax increase will reduce, not increase, government revenue.

2. GDP Effect:
What is the dead-weight (excess burden) loss from taxation of high-income earners in the UK? Given the current internationally competitive environment, the competitive advantage of the UK is likely - just as many other Western countries - dependent on highly educated professions. Even if a tax increase generates substantial revenue, the economic loss to the economy as a whole may exceed the revenue, thus resulting in a net loss in GDP. The dead-weight loss can be influenced by factors such as preferences for income vs. leisure, wage differentials between high/low education occupations and international labour mobility of the taxed individuals.

3. Expenditure Effect:
What will the revenue (if any: Note the extreme Laffer Curve case above) be used for in the UK? If the revenue is used in a manner likely to generate economic growth (Investment in STEM education and research, for instance) the benefits of these initiatives could very well surpass the individual losses from increased taxation. If the revenue is used for wasteful spending, however, the UK economy will probably be better off if the money stays in the pockets of the citizens.

Isn't this the marginal tax rate instead of the effective tax rate?

Not understanding the difference between marginal and effective tax rates can cause a lot of confusion. Marginal tax rates are a way of making sure that lower-paid people are not paying more in tax than higher paid people. For example, they help ensure that a person making £149,999.99 is not taxed higher than a person making £150,000.01.

Marginal tax rate means that only the earnings over a certain set amount are taxed at a particular rate, so, for example, in a hypothetical situation, if the marginal tax rate for 0 to £150,000 was 0% and above £150,000 was 50%, a person earning £150,001 would be taxed nothing for the first £150,000, and 50% of that last £1(so £0.50).

In that hypothetical situation, their effective tax rate would be £0.50/150,001, or .0003%. 50% and 0003% are very different figures.

Yes.

As a result, I think this will have a negligible impact. In order to lose £1000 to this tax increase, someone would have to make £170,000. In order to lose the amount it would cost to move abroad, they'd need to earn even more. I might be being naive, but I don't think too many people will bother.

It also probably won't earn the government much money, but when they're cutting useful programs that have negligible costs then I think it is right that they don't continue to target the poorest.

I think the UK of all countries should know the consequences of a high marginal tax rate on the top earners.

To me, the issue is that the lions share of people earning grossly in excess of this pay band cravenly DO NOT deserve this sort of sum.
Cavalier bankers and other baron opportunists of the pay day loan mafia for example.


In what way?

I really doubt such a tax change would create the massive deterrence in working hard you claim.

It is, if it redistributes wealth and increases the spending power of those farther down. That is good for the greater economy.

The problem will come in other ways if the money saved is then wasted on white elephants like millenium domes, eurofighter jets, trident defence systems and Olympic games.

The alternative to not taxing the upper class a very high amount is to tax everyone else a disproportionately high amount, which is unfair on the working and middle classes.

If it was up to me, no household recieving less than £20 000 a year would pay any tax at all and anyone earning over £500 000 a year would pay 60% with a 5 percent increase for every £100k there after.

You do that, you will easillly balance the books plus some.

The European working class believe they as the workhorse of the economy, deserve a slice of the cake rather than the crumbs which is a good thing.

These are always marginal tax rates... it was when it was 90%... no one ever paid 90% on all income! That this is frequently suggested strikes me as being dishonest. Higher marginal tax rates reflect the fact that the first unit of currency of income has far greater value than the millionth... also with corporate taxes, operating costs are not taxed; they don't tax all the money made, they tax the profits. It's the same with people. There are operating costs, and that should be subject to a very different tax rate than the surplus.

That's why 50% is being pushed for, rather than 95%. Combine that with closing the loopholes exploited in the 60s by bad apples (OK, that's not been done enough) and you avoid most of the pitfalls of previous extortionate taxation.

I think well before they think of increasing tax for the honest wealthy, who do at least pay their taxes, they should first fix the system so that the dishonest wealthy are forced to pay their share, instead of simply avoiding it.