Interesting point

In the interests of full disclosure I should say that I\’ve paid tax at the 50% rate ever since it was introduced.  I may not do so in the 2012-13 tax year.  I can tell you that there\’s a psychological impact from direct taxes exceeding half your marginal earnings: it\’s OK for you not to care.

11 comments on “Interesting point

  1. I’m assuming he means that once the State takes half or more of your marginal effort, you stop caring about your fellow man around you, because they (in the form of the State) are getting more from your efforts than you are. Thus your reaction to a charity box becomes ‘I’ve given enough already, thanks’, rather than ‘Here’s a pound’.

  2. Reading his article might help to throw light on his final para. After a learned and over my head analysis, he comes to the conclusion that the optimum tax rate is 67%. Having established this, he demolishes the whole construct with this final para. ( I think…)

  3. Jim,

    I think he is meaning that it has an impact on him but it is absolutely fine that other people don’t care, given that the underlying cause is that he earns a more than reasonable wedge.

  4. I think that surreptitious evil’s interpretation is the right one but I have no idea what the sentence is doing in the article unless it is to confirm the Laffer effect.

  5. PaulB – I did try to comment over on your blog but failed as attempting to post from a Google Account got the response that I wasn’t allowed. Reproduced below:

    Hi, PaulB,

    One thought from the decision to exclude employers contributions to payroll taxes (which is a valid stance – if people don’t see the money until after it’s left the employer, it won’t be on their minds): Does this imply that behavioural effects such as the Laffer Curve could be largely avoided by taxation at source rather than receipt?

    That is – if you increased the Employers NI by 70% (taken to extremes), the effective rate would be:

    £100 increase.
    1/1.838 left (Deduct £45.593; leaves £54.407)
    2% Employee NI on remuneration (Deduct £1.088, leaves £53.319)
    50% tax on employee remuneration (Deduct £27.2035, leaves £26.1155)

    Tax rate (omitting VAT effects) of 73.885% or so.

    I’d rather not suggest it to Ritchie, but is that reductio ad absurdum or a valid statement? (ie, have I broken the premise of excluding Employers NICs or found a way around the Laffer Curve?*)

    *NB – I had no real intention to “find a way around” the Laffer Curve but am interested to find out the reality of the matter – if the Laffer Curve can be bypassed this way, we really should know. My personal view is that a percentage of the employers contribution to payroll taxes should be included, but this might be a variable dependant on the overall tax burden and the relative proportions of employers contributions to the overall take.

  6. Of course the Laffer curve applies to Employer’s NI!!
    Remember the fuss about banks paying employees in gold bullion to get round it a few years ago. It was true even when NI was much lower which is why Luncheon Vouchers, on which NI was not paid, got frozen at 3 shillings a day and in the end faded away when that would not even buy a cheese sandwich.

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