22 April 2009

The Budget 2009

In short - 'too little, too late', but with the 50% higher tax rate at least we have some clear blue water from the Tories.

Expect to hear more of the argument that higher tax rates bring lower revenues. Is this true?

Well, there is a little trick the Tories and press use to confuse us (its called telling porkies) and also if you allow people to easily avoid paying the tax, then obviously yes this claim could be correct (the antidote to this is simple - capital gains at 50% and close tax havens but the British establishment in particular have big problems with both these ideas, so as long as they can get away with it, they will).

My guess is that most people who are going to shift their earnings into capital gains at 18% or shift it abroad into tax havens have already done so, so this new tax rate of 50% will bring in more revenue than otherwise (and that is the Tory trick they use, whether at 40% or 50% revenue is bound to fall in this recession. This doesn't mean as the Tories argue that higher tax rates bring lower revenues. The revenue will be higher although that doesn't mean more revenue than last year when the economy (and therefore earnings) were growing - obviously the recession will mean a drop in revenue but the drop will not be so great as it would have been without this increase - the Right are clever in their disingenuousnous, you have to hand them that).

Are we really to believe that people would pay 40% when they could pay 18% or nothing, but that 50% would be beyond the pale? If the argument of the right is that high earners pay 40% out of generous goodwill and integrity then surely their integrity would stretch to 50%, otherwise it isn't actual integrity is it?

No, if this change would make no difference to the high earners then they wouldn't squeal about it - this will mean less tax to be paid by the rest of us, unfortunately, income tax (as I argue in a previous argument) is not the real problem for the poorest - national insurance, council tax, VAT and other indirect taxes take a much bigger chunk of their earnings. We need wider council tax bands (or a land value tax) and NI to apply properly to earnings above 40k, scandalously the rich get a massive discount, why?


  1. I'll agree to this bit "We need wider council tax bands (or a land value tax)" but not the rest.

    If they really wanted to increase income tax paid by higher earners, it would make far more sense to scrap a load of tax breaks, like capping tax-relievable pension contributions at £5k or £10k a year (far more than 90% can afford anyway).

    Whether you then use the increase in revenues to reduce taxes on lower earners or flatten the tax system is then up to you. I'd prefer a bit of both.

  2. "Are we really to believe that people would pay 40% when they could pay 18% or nothing, but that 50% would be beyond the pale?"

    Its not just the money. High earners, (of which I am certainly not one), will make inquiries into tax planning because blatent class warfare is bound to piss them off. Incentives matter but not all incentives come down to cash.

  3. Trooper Thompson25/4/09 12:55 pm

    The 50% tax rate is just a distraction. It gives labour's defenders something nice and easy to talk about.

  4. i can't help thinking that the sort of people who can avoid the 50% rate will already avoid the 40% rate. Those who are squealng about this probably have to pay it. Plus there is now a naming and shaming policy which might deter a few. The problem is labour should have done this in the boom not now when revenues will be lower and all you rightwingers will shriek disingenuously 'look higher rate lower take'. Theee us no bigger piece of rightwing bullshit but the press which is overwhelmingly right wing will get people to believe anything.

  5. I suspect that this tax rise has more to do with putting the Tories on the back foot. There has been an eruption of hyperbole from the loonier end of the Tory party about 'class war' which makes them look preposterous and out of touch. Some of the richest people in this land have been prevented from going belly up thanks to the largesse of the state, that is to say, the taxes of millions of ordinary people. To suggest that the rich are now 'under attack' is pretty insulting to the millions of ordinary people who have helped rescue the bankers. And not surprisingly, the Tory leadership have the nous not to make too much fuss about the 50% rate. They know that there are hundreds of things more important in the eyes of voters.