Right and wrong

One Telegraph headline:

Tax rise looms for poor already paying higher rates than millionaires

Yes, this is correct. Another Telegraph headline

Poor families pay more tax than millionaires

No, this is not correct.

Marginal tax rates on the poor, when you combine income tax, NI and benefit withdrawal rates, are indeed higher than marginal tax rates upon the rich. Amounts of tax paid are of course not higher for the poor than the rich.

We can imagine what some people will say about this: therefore we must raise the tax rates on the rich.

Yet those marginal tax rates faced by the poor are of the order of 73%. We would definitely be well into Laffer Curve territory if we were to impose such rates on all. Indeed, while I wouldn\’t actually want to have to prove it, I\’d argue that we\’re in Laffer Curve territory with such rates upon the poor. We are managing to discourage people from taking marginal work because doing so just isn\’t worth it to them and thus tax revenues decline as a result of such high rates.

The correct answer therefore is not to start soaking everyone, but to stop soaking those poor. A very good start would be to raise the income tax and national insurance starting points to be equal to the minimum wage. Around £11,700 a year.

As both UKIP and the ASI urge: and that I am associated with both might be a clue that that joint support is not a coincidence.

1 thought on “Right and wrong”

  1. If you’ve managed to keep the effective marginal tax rate for poor people down to 73 %, you have don quite well. In the Nordic countries figures around 100 % are a norm on some income levels: anything you make as your own salary is deducted directly from your welfare support. Your additional cost (e.g. commuting cost to work) is your own loss.

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