Here\’s a nice little admission from Ritchie:
Now we can argue forever about whether tax is a disincentive to work, or not. I happen to think it probably is – but only when tax rates persistently above 50% at higher rates of income, although accept that this can also be the case at lower tax rates when income is lower. In other words, the disincentive effect is related to rate and income, and the disincentive effect may well be greater when income is lower. There’s nothing radical in saying that – this is an argument for steadily progressive taxation and I stress, this is based on observation and my interpretation – nothing more.
So, marginal tax rates above 50% are a disincentive to work. He\’s right of course, there\’s nothing very surprising or radical in this. It\’s a common enough supposition.
What makes this admission interesting though is that there was a report for Compass, \”In Place of Cuts\”, which argued that by raising marginal tax rates to 75% we would get an increase in revenue.
And after a lot of faffing about we were able to discover the assumption which led to this quite remarkable argument.
Which was that such high marginal rates would be an incentive to work, not a disincentive.
The Compass report was written by one Richard Murphy.
Remarkable how the effects of marginal tax rates vary dependent upon what conclusion Ritchie wants to reach really, isn\’t it?
High marginal tax rates caused by student loan repayments will have the most appalling effects. Even higher marginal tax rates caused by Ritchie imposing even higher marginal tax rates will have entirely beneficial effects.
I really do wish I could be as inventive in my use of facts, theory and logic as our favourite retired accountant from Wandsworth.