So we don\’t know yet but we will do soon

Does the 50p tax rate actually increase total revenues?

The Treasury received £10.35 billion in income tax payments from those paying by self-assessment last month, a drop of £509 million compared with January 2011. Most other taxes produced higher revenues over the same period.

Senior sources said that the first official figures indicated that there had been “manoeuvring” by well-off Britons to avoid the new higher rate. The figures will add to pressure on the Coalition to drop the levy amid fears it is forcing entrepreneurs to relocate abroad.

The self-assessment returns from January, when most income tax is paid by the better-off, have been eagerly awaited by the Treasury and government ministers as they provide the first evidence of the success, or failure, of the 50p rate. It is the first year following the introduction of the 50p rate which had been expected to boost tax revenues from self-assessment by more than £1billion.

We don\’t quite know yet, not all returns are in and accounted for. But we might well be looking at real, live, evidence of the Laffer Curve in the wild.

It wouldn\’t be a terrible surprise if we did in fact see it either. The various calculations that have been done looking at where that Laffer Peak is (Peter Diamond and Saetz for example) seem to indicate that what with the way the NI system works etc, the peak for income tax is in the 40 – 50 p range. Quite possibly a little lower in fact, given that they were calculating for the US, where tax is levied on a passport basis and here we levy on a residence basis.

Which is one are where Ritchie is in fact correct. If we were to move to a passport basis for taxation then we would in theory move the Laffer Curve peak upwards. Something which I regard as a good enough reason not to move to a passport basis. The residence based taxation system places a limit on the amount that government can squeeze out of us. Something which I regard as desirable: something that he does not. For I tend to think that we are not helots to one state or another purely based upon the accident of birth whereas he seems to think that we are.

Tehre is one further amusement in this. We know that Ritchie has an Irish passport because he\’s told us so. We don\’t know whether he\’s a UK one as well: I would assume so but don\’t know. But wouldn\’t it be amusing if he didn\’t and thus the passport based system which he is urging upon all would not actually apply to him?

8 comments on “So we don\’t know yet but we will do soon

  1. One years’ figures won’t prove very much – in so far as income timing is possible for high earners, it will have much more effect in the first year than in subsequent years.

    Your claim about the Diamond and Saetz analysis is disingenuous: it all depends what parameters one feeds into the calculation. I lay it out in this post (which you’ve linked to previously)
    http://pb204.blogspot.com/2011/12/optimum-tax-rates.html

  2. With so many non-UK people working in the UK, might a passport-based system actually be catastrophic for tax revenues? For example, how many of the super-rich bankers who we are all supposed to hate with ice-cold venom are foreign?

  3. Blue Eyes, Murphy wants a source AND residence AND passport-based system.

    So we’d tax foreigners who earn money here, and tax foreigners who are resident here, and tax Brits who are not resident here.

    So he wouldn’t lose tax from the foreign bankers and soccer players.

    For the Brits who are not resident here, he’d hopefully give credit for tax paid in the country where they are resident. But he might not, since if Christie Malry is right Murphy includes double tax relief as part of his “Tax Gap”.

  4. The more interesting question is whether Murphy should (on his own principles) be paying Irish tax because of his Irish passport.

    Even if he allowed himself double tax relief, there would still be some Irish tax to pay because the higher rate kicks in earlier (and the higher rate is 41% rather than 40%).

    If Murphy’s income is £60,000 (see another of Tim’s posts today), that means he’d owe over £3,000 a year to the Irish taxman. That’s an expensive second passport.

  5. The US tax system is what Ritchie wants: all residents are taxed, as are non resident citizens and non resident green card holders. The IRS also wants non US citizen spouses of non resident citizens to file returns jointly with their US spouse, but they can’t force you so can go hang.

    As a UK expat living in CH, if Ritchie got his way I wouldn’t be able to survive here, even with no double taxation. Living in CH is only possible due to the lower tax rates and deductibles.

  6. Everybody seems to be ignoring a third method of escaping the tax increases. Leave. I’ve done it, and I wont be the only one.

    Admittedly, tax was not the only reason. There were several other government initiatives that broke the camels back.

    The creeping socialism that rules the EU and is taking effect, albeit at a slightly slower rate, in Britain is just too appalling.

    We just had a 70 year object lesson that this doesnt work. Will these people never learn.

  7. We just had a 70 year object lesson that this doesnt work. Will these people never learn.

    No, they won’t learn. The EU is in the process of recreating the great soviet experiment all over again.

    As Vladimir Bukovsky famously said when comparing the USSR to the EU

    “I have lived in your future and it didn’t work”.

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