Empirical claims can be tested

And nor, when it comes down to it, will almost any one those who are well off enough to earn more than £80,000 a year flee the country, or even work less, as a result. First, most of those people are on contracts that do not vary pay with tax rates. Second, most people have no clue how much tax they pay. And third, most people work harder when they earn less if (as is true of many of those on high pay) they have fixed and very expensive commitments. The plan does, then, make sense. Inelastic behaviour will result in the higher taxes being settled with little issue arising.

The claim there is that the income effect is greater than the substitution at those high income levels. Which is an empirical claim, as such one that can be tested.

Ah, yes, we did, didn’t we? Ritchie’s wrong.

45 comments on “Empirical claims can be tested

  1. Waddaya mean, people don’t know how much tax they pay. It’s on the damn payslip!

    And as for not noticing, he’s claiming that somebody doesn’t think “hold on, I did an extra day’s work this week, but have less money in the bank than last week”. He has a remarkable peculiar opinion of people, not held up by observation.

  2. I realise I’m not necessarily the average man-in-the-street (as I read this blog) but my own example.

    I’ll have paid 35 years of NI contributions in 3 years time. That leaves me 15 years before state retirement age where I still have to contribute but get nothing more back.

    So, am I incentivised to continue to work and pay tax or to retire at 55 instead?

    Actually, perhaps I’m not that different – what are all the doctors who have hit their lifetime pension limits doing for example? Working harder or retiring?

    Not that there was any doubt, but Spud is an idiot.

  3. “And nor … will almost any one those who are well off enough to earn more than £80,000 a year flee the country”. Then my extended family must be unusual. A nephew explained to Uncle Dearieme that he was going to try a spell abroad in a low tax country. He formed this ambition when an almighty promotion led him into the 60% tax band and the 45% tax band and the tapered pension allowance.

    I don’t suppose that Krazy Komrade Korbyn’s proposed tax regime will tempt him to return.

  4. “And nor, when it comes down to it, will almost any one those who are well off enough to earn more than £80,000 a year flee the country, or even work less, as a result.”

    Man’s a fucking moron.

    It’s not the people earning £80k we need worry about. It’s the people earning £5m or £10m or even more.

    If one person earning £10m leaves the UK, that’s £5m+ gone in income tax, employers’ and employees’ NIC. That far outstrips the marginal extra tax you might get on 10 or 20 similarly paid individuals if the tax rises are as small as Corbyn is trying to pretend.

    So you don’t need many people to leave before it makes a difference.

    Stephen Rubin (majority owner of JD sports), paid £181.6m in tax in 2017-18. What happens if he fucks off? James Dyson already has.

    An IFS study (2019) showed 43% of adults paid NO income tax while 1% of adults pay 27% of all income tax.

    If Corbyn gets in, we’re fucked.

  5. Anyone who says “people don’t have a clue how much they pay in tax” is an utter cretin. Does he think people didn’t notice when personal allowances were taken away from 120k earners and it took about £300 a month? Utter pillock.

  6. Anecdote alert …

    My experience is that a lot of the high earners are at the older end of the workforce and have by and large paid off their biggest debts or are close to it and most of their effort is going in to saving for retirement. Its at this point that people start taking a close look at their tax bill and wonder if they might be better of taking early retirement or at least unwinding the hours worked.

    The substitution effect here is that they will be replaced by workers earning less if they are replaced or possibly the job moved abroad.

    He also seems to think these effects will happen overnight, they don’t, but it does affect medium term thinking and planning.

  7. “I’ll have paid 35 years of NI contributions in 3 years time.” It wasn’t long ago that one had to pay 44 years of NICs to get full State Retirement Pension. 39 years for the ladies.

    Different point: I have a memory of a newspaper article claiming that you had to make more than £70k p.a. before you started pulling well ahead of someone on much less income. I suspect that the assumptions included a few children, non-working spouse, and the interaction of doles and income.

    My own guess is that the value of a salary is so dependent on which part of the country you live in that hand-waving about pay is pretty useless. Also, I suppose, it depends on whether you are the sort of socialist who has wangled himself a superior council house – Frank Dobson, Bob Maxwell, and how many others?

  8. “And third, most people work harder when they earn less if (as is true of many of those on high pay) they have fixed and very expensive commitments.”

    Milk that cow, and beat her whilst you do it.

  9. In 2008 my income tax bill was £33,240 (so excluding employees NI, employers NI, VAT and every other bloody tax paid). Since I was mostly working abroad anyway doing adhoc consultancy all over Europe for an American company, they didn’t care where I lived as long as I turned up on the client site each morning and worked diligently.

    So, I promptly moved my ass to the Isle of Man, depriving the UK exchequer of at least £40-50,000 a year and swapped it for a nice little terrace house a few miles from Ronaldsway airport (so my commutes via Manchester to Europe got a lot easier, replacing an hour long cab ride to Stansted with a few minute bus journey to a mostly empty airport).

    The tax savings alone paid the rent on the house in Port Erin and my quality of life improved dramatically and my stress reduced.

    Anecdotal, obviously, but there are more people than just me that have the flexibility to do that sort of thing if the tax bill starts become a telephone number.

  10. IFS put the tax raised with no behaviour change at £10bn and suggest a cautious middling estimate of 3bn raised. I think they are being very kind past experience suggests a loss of revenue ( which te IFS say is possible )
    If you want to see how Labour plan to finance the splurge I would take a closer look at their fiscal rules which allow debt interest to get up to 10 per cent of tax revenues. This is about £40 billion now and tax gets about £700bn in plus the £50bn of borrowing let say
    Anyway we can see that Labour are allowing themselves to take debt up as far as they like , this seems to imply they think they can carry a National Debt of 150 % of GDP
    The FT has said that ordinarily Javid`s decision to drop his 2% deficit rule would be scary , Corbyn is off the scale
    Overall then Labour are happy for people to argue about the income tax receipt . It will be negative in mu view but the point is to take everyones eyes of the truth which is debt debt and more debt
    One interesting point is there defence which is to suggest that event if this was all done it would only make the UK like Germany

  11. How many times do we have to point out that we do have factual proof that Murphy is wrong? When Geoffrey Howe reduced the top rate to 60% the receipts from top-rate-taxpayers went up – a lot. When Alastair Darling hiked the top rate, tax receipts went down (partly *but not wholly* due to the timing effect of people/companies changing dividend payment dates); when Osborne reduced the top rate, receipts went up (ditto).
    Murphy is either amnesiac or deliberately lying.

  12. Second, most people have no clue how much tax they pay.

    That’s as bizarre a contention as I’ve heard in a while. Coming from someone who actually prepared tax returns for a living, it is even more bizarre.

  13. @Dennis – I doubt anyone who murphy prepared a tax return or a set of accounts for would have a clue what their actual position was.

  14. That would have more to do with a lack of competence on Murphy’s part than a lack of interest on their own part.

  15. Anecdotal, obviously, but there are more people than just me that have the flexibility to do that sort of thing if the tax bill starts become a telephone number.

    The higher the tax bill, the more incentive to engage in tax avoidance. A shocker to no-one but Richard Murphy, tax expert.

  16. Murphy both debated and – post debate – lunched with Art Laffer a couple of years ago.

    An unimpeachable and right-thinking person (R Murphy) is on record as saying that R Murphy won the debate, but did not say whether Laffer decked R Murphy over lunch

  17. Socialists are of course living about 50 years or more behind the times. It was only in the post war period where the idea of ‘offshoring your business holding company’ or ’emigrating to work in lower tax countries’ had virtually no meaning that they could raise taxes on businesses and people and get them to pay the taxes. Even that soon began to bite when the rock stars of the 60s and 70s disappeared abroad for tax reasons, and the brain drain was a thing as long ago as the 70s. Apart from the US there probably weren’t many other places a person could go, now the world has far more prospects for places to emigrate to – now everywhere is like everywhere else, emigrating now is less hassle than moving from one end of the UK to the other in 1950. Ordinary people live and work in all manner of countries outside the UK – globalisation means there’s far more places to go, where the economies are booming, and taxes are lower, its easy to get there, its easy to get back to visit family, communications means you can live anywhere and still be plugged into ‘home’. I personally know people who have lived and worked in as variously diverse places as the US, Japan, Israel, the Gulf states, Taiwan, Bulgaria, Spain, Bali, Australia, and New Zealand, and they are just ordinary people who happen to have moved abroad because work, family or personal preference dictated it. The idea that the seriously wealthy will sit around in rainy old UK to be fleeced by a bunch of wannabe Stalinists is laughable. They and their businesses will be gone before a Corbyn government could even pass its first budget.

  18. “… most people have no clue how much tax they pay.”

    Broken clocks being right once a day, and all that. It is a fair point that many people focus on their take-home, and do not recognize how much tax they pay. If more people really felt the sting of taxes, it might be beneficial for the political process.

    A real Conservative Party would be committing to eliminate PAYE (withholding in the US). Let everyone share the self-employed person’s delight in writing those large tax checks to the politicians.

  19. @John Galt

    Port Erin and Port St Mary are lovely. Almost all IoM is, actually. I was working and living in Castletown in 2006/07, commuting back “across” every other week as we lived in Manchester at the time. I think I only flew once or twice and mainly used the ferry from Heysham (unrestricted speed limits and 323i).

    One fond memory was going into a pharmacy in Douglas to the startled query “You came all the way from Castletown?!” (A journey of about 6 miles).

  20. @Justin – Yes, my extended family have lived in Port Erin, Port St. Mary and Castletown since the 1960’s since my mother and her brothers fled their farm near Newtownards after get caught between Republican and Nationalist terrorists in the early 1960’s.

    Given the family history, the Isle of Man has always been a place of personal peace and tranquillity for me. I wish I could live there permanently, but job and finances currently require me to be elsewhere.

    I sometimes put the Port Erin webcam up on the TV while reading a book or listening to the radio.

    https://www.bushys.com/webcams/the-bay/
    https://www.gov.im/webcams/

  21. “… most people have no clue how much tax they pay.”

    Whatever it is, it’ll only go up under comrade Corbyn and his puppet masters. Not least cos tax revenues will crash with the loony left, but freebies for all have to be maintained. The definition of ‘rich’ will quickly reduce and mean that anyone earning over average wage will soon be fleeced rotten.

  22. @GL

    “Broken clocks being right once a day, and all that. It is a fair point that many people focus on their take-home, and do not recognize how much tax they pay. If more people really felt the sting of taxes, it might be beneficial for the political process.”

    For Joe Public he might be right to be fair.

    I suspect higher earners are more acutely aware of it than others, though, and it’s them we’re mostly talking about. I’m not exactly a squillionaire but I do keep good records and engage in financial planning spreadsheetery, which means I could tell you to the penny how much tax I’ve paid in my life and have a decent idea what my next tax bill will come in at. I would like to think that doing these things doesn’t make me a total freak…

  23. @Jim

    +1

    UK lost 20,000 non-doms in 2017/18(?) Tax year due to Brown, Osbourne and Hammond ramping up their tax bills.

    Portugal, Malta and more changed their tax laws and advertised “Non Doms Welcome”

    @John Galt

    As an Ulsterman, I’m sorry you mum was driven out. Also shocked as I thought Bangor, Comber, Newtownards and rest of North Down was/is fairly harmonious.

  24. Milk that cow, and beat her whilst you do it.

    Yes, he has a remarkable view of people – part contemptuous, part ignorance. He’s a Quaker, apparently.

  25. I earn >80k per year.

    All my friends earn >80k per year.

    Due to tax on pensions we are all cutting back on work.

    Richie is an idiot.

  26. Yes, he has a remarkable view of people – part contemptuous, part ignorance.

    And given the number of people here suggesting that working class types don’t pay attention to (or cannot understand) the role taxes pay in their finances, I’d say his view isn’t singular.

  27. As an Ulsterman, I’m sorry you mum was driven out. Also shocked as I thought Bangor, Comber, Newtownards and rest of North Down was/is fairly harmonious.

    Yeah, but not in all places, especially back then. It wasn’t helped by my grandfather being one of the few Catholics that served in the British Army in North Africa in WW2 and worked as a civil servant at Stormont until his death in 1971.

    Whilst he was a gentle man who just wanted to live his life and hated extremism of both sides they just wouldn’t let him be. So he ended up moving into downtown Ards and the rest of the family called it a day and left Northern Ireland for good. None ever returned and they live all over the world, but the southern part of the Isle of Man is more of a spiritual home for them than the Ulster they left in the 1960’s.

  28. So who is this Kirk fella in IoM? Many towns seem to be named for him.

    Being a long time IoM TT fan, the NE end of the island is quite familiar to me. The SW end is virtually unknown.

    Bucket list item to get over there to look about.

  29. @John Galt

    Ah, Gov’t employee explains a lot – RC Judge next but one to us murdered by ira scum; family sold up and left NI

    IOM – I remember in 60/70s my father’s business in Bangor happily accepting IOM money

    @Gamecock

    Attend the Southern 100 next year

  30. Pcar: The mayor has nothing to do with taxi licensing, and he would be maladminstering if he interfered. It’s the London Transport licensing board, just as in any other council.
    Uber is just another taxi radio control company as has existed since the invention of the messenger box, and in the presence of the existence of laws that regulates public transport for public safety they have to obey the law like anybody else.

  31. @Dennis

    “And given the number of people here suggesting that working class types don’t pay attention to (or cannot understand) the role taxes pay in their finances, I’d say his view isn’t singular.”

    A lower earner in the UK simply won’t pay any income tax at all, and most low to middle earners will be in jobs where tax is deducted at source and will have insufficient income from bank interest or dividends for that to be taxed either. So the taxes are pretty invisible, and even if you could be bothered tracking them there isn’t much point since there isn’t much you can do at that level to mitigate them. Even basic financial planning tips like “put your savings in a tax-free ISA every year” are pointless for the millions of people who will never pay tax on their savings (though good precautionary advice in case their financial situation improves in future). And at the marginal tax rates applicable here, there is seldom any point in self-employed people adjusting their rate/hours purely for tax purposes.

    I’m not saying lower earners are universally financially ignorant (though a scary proportion of people are financially illiterate and that is concentrated among lower earners). Many lower earners are very good at budgeting and financial planning, maybe by necessity even better than middle earners. But tax isn’t a major issue for them, particularly as what they can do to avoid it is very limited. On the other hand, many of them are experts at the issue of benefits withdrawal – which serves as a kind of parallel tax system among lower earners – and are experts on how many hours they can work and what money they can make before the pain begins. They follow their incentives just as the over 80k earners do – it’s just that they’re benefits incentives not tax ones.

  32. A lower earner in the UK simply won’t pay any income tax at all

    Sure, but that is largely thanks to the move to raise tax allowances to the point where no-one earning minimum wage gets taxed. It also removes the problem whereby minimum wage effectively equals the living wage once you remove the taxes paid, so two birds with one stone.

    One point I would make though is that very low earners (< £166 a week) do pay Employees National Insurance AND Employers National Insurance, for both of these (despite the name of the second), the actual tax incidence is on the employer, not the employee.

    I firmly believe that the thresholds on all of these taxes on income (if not explicitly "income taxes"), need to be raised to an equivalent threshold and maintained in real terms going forwards. The last thing we need is taxation being a barrier to entry level employment.

    If that means Whitehall needs to spend less than it steals? All the better.

  33. @JG

    Yes fair play, I said IT rather than “taxes” for the reason you spotted!

    Not really sure there’s much practical benefit to the parallel NI / IT systems but can’t see them being scrapped now. At least aligning the thresholds in a logically consistent manner would be sensible but not even sure that’s going to happen.

    I would be interested to know what proportion of low earners are minimum wage and how many are in decent paying jobs but working part time eg because of child care or semi retirement or living with a full time working partner.

  34. Second, most people have no clue how much tax they pay ….

    Well my 26 year old daughter seems to. As she said a few days ago, “I think I’m paying too much tax” – she went from 4 days/week to full time and her salary went up by about £30. It was a tax code error, apparently. I never thought of her as an economics obsessive before.

  35. “I think I’m paying too much tax”

    Which is usually the point where youngsters go from supporting socialist policies to more economically liberal ones (where they pay less tax)

  36. @JG

    Related to that is just how complicated the tax system is (one of the main reasons so many people end up paying incorrect taxes). It doesn’t take much exposure to the system to want it replaced by a much simpler one – not that any party has a great record on tax simplification but the Tories at least talk about it sometimes.

  37. “not that any party has a great record on tax simplification”: Krazy Komrade Korbyn plans a simplification of Inheritance Tax, does he not?

  38. @Tim Worstall November 27, 2019 at 7:37 am

    Thanks. You should resume Timmy Elsewhere posts

    @jgh on a tablet November 27, 2019 at 2:41 am

    You should stop taking those mind-dumbing tablets

    @MBE

    +1 iirc Brown more than doubled the pages of tax legislation in his 10 years as Chancellor. He also admitted he could not complete a Self-Assessment Tax return without paid-for professional help

  39. @ Pcar
    Yes. But it wasn’t just twice as much stuff as in a previous budget – that was doubling the number of pages in the tax guide covering all extant tax legislation for hundreds of years. He wrote more complications to the tax system than had accrued since Parliament granted tunnage and poundage to the Stuart monarchs.

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