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Tuesday, November 16th, 2010

Time Event
12:03p
Eat the rich
A few days ago, I tweeted a criticism of a Spectator article. Specifically, the article stated:
The Taxpayers’ Alliance did the figures for us, and put the cost of the 50p tax1 at £4.5bn.

I've since looked into the detail of this claim.
cut for economicsCollapse )
In summary, it seems very unlikely from published research that the 50% tax rate will cost £4.5 billion, and it's disingenuous of the Spectator to base an article on such an extreme value. However, I've now a better appreciation of the considerations around raising money by increasing tax on the rich, there does appear to be a rather delicate balance to strike to optimise income, and relatively little hard data to make this decision on.

Of course, none of that takes into consideration any social effects of higher rate taxes for the rich. I can imagine that some people may act in an economically irrational way and support higher taxes for the rich even if it cost everybody else more. Obviously, there will be opposing views to that too, and the overall social effect of all that is rather unknowable.
further referencesCollapse )
4:41p
Coincidentally, the Guardian has a CiF post on the 50p tax rate, commenting on its popularity with voters.

From what I read this morning, it's rather debatable how much the 50p rate is likely to raise in tax revenue, and it is plausible that it would even cause a net loss. However, I suspect that many people would support taxing the rich more, even if it cost them money.

The Treasury estimate that the 50% rate will gain £2.4 billion, the IFS forecasts suggest it could be as bad as a £800 million cost. The Taxpayers Alliance claim it could be as bad as a £4.5 billion cost (though I think that very unlikely). In context, overall government receipts are £548 billion (after the June budget), so these figures are a fraction of 1% of overall income either way. Taxing the rich a bit more, or not, isn't going to either save the country from ruin or give us a land of plenty. On the other hand, the difference between IFS worst-case and treasury could pay for the whole Legal Aid program (as it was before yesterday), so it isn't completely without real relevance.

So, a poll, within the bounds of above expectations of the amount raised or cost being relatively small:
Poll #1645240 50p tax for people earning > £150,000

Would you support 50p income tax rate for the rich if it raised money overall? (i.e. increased income or services for everybody in the country).

Yes
21(100.0%)
No
0(0.0%)

Would you support 50p income tax rate for the rich if it cost money overall? (i.e. reduced income or services for everybody in the country).

Yes
3(17.6%)
No
14(82.4%)

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