On the effects of high marginal tax rates

As The Guardian tells us:

Now, I love Adele. But that doesn\’t exactly endear you to her, does it? Let\’s look at it again.

\”I\’m mortified to have to pay 50%!\” The Beatles had to pay 95% – as did all the highest earners under two successive governments (Wilson and Heath) in the mid-60s. George Harrison wrote a song about it, can\’t remember what it\’s called, sorry.

Erm, yes, but I\’m pretty sure the top income tax rate never went above 83%. The 95% comes from the lyrics to the song, not reality.

However, the more important point is, well, what actually happened to all those rock type people who should have been paying those tax rates? The Stones, Led Zeppelin, Rod Stewart, Elton John and so on: they all buggered off didn\’t they? Mansions in France and Ireland and……

No point in hanging around to collect some pittance so they didn\’t.

There really is a Laffer Curve you know?

13 comments on “On the effects of high marginal tax rates

  1. IIRC (or more accurately, if I remember what my dad said about it years ago) there was a 15% Investment Income Surcharge on top of the 83% for those lucky ones qualifying, which took the theoretical top rate on gross income to 98%.

  2. Top income tax on investment income was 98% and one year Wilson added a surcharge which put the marginal rate above 100%.

    Tim adds: Not quite. It was Roy Jenkins as Chancellor who imposed a retrospective tax on the previous year’s investment income of over 100%. 130% if memory serves.

  3. No doubt practically everyone earning enough to be exposed to 83% income tax had some investment income, so 98% is a reasonable figure to quote. Retrospective taxation was a Labour speciality – Healey managed a retrospective pounce on inheritance.

  4. AFAIK, the 83% rate didn’t arrive until the early 1970s.

    There was something called the ‘surtax’ which was levied on top of income tax

    http://www.hmrc.gov.uk/stats/tax_structure/surtaxrates_1948to1973.pdf

    leading to such wonders as…..

    http://www.hmrc.gov.uk/history/taxhis7.htm

    “In 1967-68, the special charge was imposed. For investment income over £8,000, the rate was 45% which – with income tax at 41.25% and surtax at 50% – meant a total rate of 136.25%.”

    Add insanity such as selective employment tax for those who had the temerity to provide employment in a service industry and it’s little wonder that the UK reached it’s post war nadir not long afterwards.

  5. I don’t even follow the first thing he says. Do you think he understands how the word “endear” works’ in English?

  6. There is aalso the point that a singer such as Adele might well make a fortune for a year or two- then go onto minimum wage. Same applies to sportsmen. It seems a bit unfair to take a high rate of tax off someone whose lifetime average income is low.

  7. wasn’t there supertax just after the war. So you got sixpence back for every pound earned – or something like that.

  8. BenM

    what would you accept as proof? we can’t do randomized control trials, you know.

    how would you respond to careful empirical analysis? ah – you ignore it

    N.B. I reckon Sunny was wrong – consumption taxes in he UK are nowhere near the laffer turning point – he just pulled that out of his arse.

    also I reckon must people who argue “for” the Laffer curve omit the affects of public expenditure on economic activity from their thinking, a basic error. See, I think, here: <a href="http://www.frbatlanta.org/filelegacydocs/becsi.pdf"pdf

  9. @ Pat – Hayek makes this point about progressive taxation in The Constitution of Liberty.

    The comments on that Grauniad piece were awful. I don’t know who came up with the ‘politics of envy’ phrase, but in their case it hits the proverbial nail.

    What always gets under my skin is how they describe themselves as ‘liberals’. Even the Guardian describes itself as such. Most of their opinions are the precise opposite of liberal. Unless liberal now means ‘bitter sanctimonious hysterical hypocritical socialist’?

  10. I believe I’m right in saying that Elton John didn’t join the others in becoming a tax exile.

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