Higher taxes or higher tax revenue?

[RonJeremy]

Yes, the ONS figures include benefits in the gross income. According to them, the average cash benefits paid to the top quintile in 2013/2014 were £2,900 per household, compared to £7,400 for the bottom quintile. [i suspect that was before the cuts to child benefit for rich people kicked in, however.]

 

According to the standard economics textbook that I quoted, the evidence is that revenue goes up when the rate goes up. Most of the studies reported in your Wikipedia link also place the maximum of the Laffer curve at a tax rate of around 70%. Even if that's too high, the actual maximising rate is well above current rates. The paper by Hsing is an outlier (to put it kindly).

 

A more nuanced view is that total tax revenue is determined by several factors, including the income tax rate. It's logically possible that reducing tax will increase revenue under certain circumstances, but more typically the revenue will go up as you increase the tax rate, up to 70% according to the studies. Marginal rates could be higher than this of course, as indeed they were in the UK up until 1979.

This is not borne out in reality. It also isn't fair to tax people until the pips squeak. As an entrepreneur, I decide whether to invest in something with my hard earned based on whether it gives me a return AFTER tax. The higher the rate, the lower the likelihood of me starting a new venture, employing people and paying even more tax.

High rates of tax discourage investment and make everyone poorer and destroy the economy and the country as a whole.

The nasty vicious jealous types on here who would tax people who earn more than them are unpleasant people. These haters are always going to hate.

[sgtkate]

Surely the issue here is around tax avoidance techniques. If the higher rate of tax was 80% and all tax avoidance was illegal (over-simplified I know). I.e. any assets given to you in the year would be liable for tax (a house given to you or given to you at a rate less than it's market value etc).

 

Majority of top earners have tiny salaries but receive their 'wages' through trust funds or shares or property which avoids tax. Totally legal mind you, but I think the law is wrong as the Laffer curve proves. If you tax someone more then there is a higher incentive to avoid it and so they use more aggressive avoidance techniques. Make all of these illegal and you see taxes rise in line almost directly with each percentage point increase.

 

Or those people would leave, but this is seemingly a myth otherwise why would you already have so many foreign nationals based here when the Cayman Islands or Monaco offer zero tax rates?

[unbeliever]

Surely the issue here is around tax avoidance techniques. If the higher rate of tax was 80% and all tax avoidance was illegal (over-simplified I know). I.e. any assets given to you in the year would be liable for tax (a house given to you or given to you at a rate less than it's market value etc).

 

Majority of top earners have tiny salaries but receive their 'wages' through trust funds or shares or property which avoids tax. Totally legal mind you, but I think the law is wrong as the Laffer curve proves. If you tax someone more then there is a higher incentive to avoid it and so they use more aggressive avoidance techniques. Make all of these illegal and you see taxes rise in line almost directly with each percentage point increase.

 

Or those people would leave, but this is seemingly a myth otherwise why would you already have so many foreign nationals based here when the Cayman Islands or Monaco offer zero tax rates?

 

An awful lot of rich folk left France to come to the UK when they raised their top rate to 60%. Tax rates are not the only factor in determining where to live for these people, but they are a big one.

[Cyclone]

Surely the issue here is around tax avoidance techniques. If the higher rate of tax was 80% and all tax avoidance was illegal (over-simplified I know). I.e. any assets given to you in the year would be liable for tax (a house given to you or given to you at a rate less than it's market value etc).

Tax avoidance by definition CANNOT be illegal. If it's illegal, it's called tax evasion.

 

Majority of top earners have tiny salaries but receive their 'wages' through trust funds or shares or property which avoids tax.

Property? Who gets paid in property?

Depending on what kind of high earner they are they might receive dividends, share options, or regular salary. The really rich will own companies all over the world and can have pay routed to wherever it's most beneficial for tax reasons.

Totally legal mind you, but I think the law is wrong as the Laffer curve proves. If you tax someone more then there is a higher incentive to avoid it and so they use more aggressive avoidance techniques. Make all of these illegal and you see taxes rise in line almost directly with each percentage point increase.

 

Or those people would leave, but this is seemingly a myth otherwise why would you already have so many foreign nationals based here when the Cayman Islands or Monaco offer zero tax rates?

Lots of sports stars move to Monaco or other low rate tax locations.

[L00b]

As an entrepreneur

So, do you pay yourself a high-ish wage taxed at 40% like most senior-level employees, or minimum wage income taxed at 0% throughout the year and a cut of the profits taxed at 20% like most entrepreneurs/owner-directors?

[sgtkate]

The nasty vicious jealous types on here who would tax people who earn more than them are unpleasant people. These haters are always going to hate.

 

The vast majority of people who are 'rich' have not earned it, they simply inherited it. A different topic, but I wondered what would happen if all assets in your name upon death are taken by the state. This would encourage people to spend all their money before dying therefore massively increasing the economy and removing 'fake wealth' from the next generation. Just a musing, feel free to rip it apart.

 

I wish we could find a way to reduce tax burden on small businesses that employ others (so as to remove single operators who use a business as a tax cover) as I agree with you that they almost always offer more benefit to society than without them. Vast majority of small business owners are not 'rich' (difficult to define what that means), at least not grotesquely so and they have almost their entire wealth tied up in the business. My parents owned a petrol station and spent most my childhood almost bankrupt, just one overdue account would mean they couldn't afford the next tanker of fuel and that was that. Their house would have gone, everything...but if you looked on paper we were technical millionaires, and while I didn't have a poor upbringing in anyway, we couldn't afford more than basics really.

 

But the flip side of the coin is that big businesses can make profits of billions of pounds and then still pay their staff minimum wage. That just isn't on. We cannot continue to put shareholders above workers ad finitum and there has to be a better middle ground that can be struck.

 

I have long advocated a living wage set in law, just like the minimum wage now but with a different setting mechanism. Small/medium businesses that can prove financial difficulty in paying those wages can get subsidies/loans/grants etc to assist them. This allows smaller businesses to benefit whilst stopping the 'bad guys' i.e. FTSE100 businesses from creaming profits at the cost of it's workers and other tax payers.

 

---------- Post added 29-07-2015 at 11:56 ----------

 

Tax avoidance by definition CANNOT be illegal. If it's illegal, it's called tax evasion.

Property? Who gets paid in property?

Depending on what kind of high earner they are they might receive dividends, share options, or regular salary. The really rich will own companies all over the world and can have pay routed to wherever it's most beneficial for tax reasons.

Lots of sports stars move to Monaco or other low rate tax locations.

 

Good lord, I quite clearly meant that any tax avoidance that is currently legal should be made illegal...surely it wasn't that hard to understand was it? And yes, I include ISAs in that even though that would hurt me financially too..

 

And there are all sorts of tax avoidance schemes that invest in property to avoid tax. Perfectly legally.

Edited July 29, 2015 by sgtkate

[Cyclone]

A cut of the profits that is then taxed at the dividend income tax rate of 32.5%

 

It's not that big a saving...

 

As companies have already been taxed on their profits (Corporation Tax is levied at a rate of 20% for small companies), a notional 10% tax credit is applied to dividends.

 

For dividends which fall within the basic tax band (income up to £31,785, on top of the personal allowance for the 2015/16 tax year), there is no further tax to pay at all on dividends, as the 10% basic dividend tax rate is cancelled out by the 10% tax credit.

 

For dividends falling in the higher rate tax band (income between £31,786 and £150,000), a 32.5% tax rate applies. However, after taking into account the 10% tax credit, you only pay an effective 25% rate of tax on net dividends falling within the higher tax band.

 

Dividend tax is levied at 37.5% on all income falling in the additional tax band (over £150,000); 30.56% after the tax credit has been included.

 

The main saving comes from dividends not attracting NI at 12% up to around 45k.

 

Pay enough salary to make enough NI to qualify for state benefits, but no more, avoid the rest of the NI cost, and pay slightly less income tax generally.

But on the other hand, risk your capital investing in your own business, and as you're self employed, don't get paid for holidays, don't get sick pay, don't get paid if your company has no work.

[unbeliever]

 

Good lord, I quite clearly meant that any tax avoidance that is currently legal should be made illegal...surely it wasn't that hard to understand was it? And yes, I include ISAs in that even though that would hurt me financially too..

 

Shall I be required to buy cigarettes so that I'm not avoiding the tax on them?

I should probably also buy a less efficient car as I'm currently avoiding quite a bit of road tax and fuel tax.

I should probably also think about drinking more.

Of course I'll also need to start working a higher paying job as being employed in the public sector, where I thought I was doing a service, I'm apparently avoiding income tax as I could get more pay in the private sector.

[Cyclone]

 

And there are all sorts of tax avoidance schemes that invest in property to avoid tax. Perfectly legally.

 

Yes there are, but you were speculating about people being 'paid' in property.

[sgtkate]

Shall I be required to buy cigarettes so that I'm not avoiding the tax on them?

I should probably also buy a less efficient car as I'm currently avoiding quite a bit of road tax and fuel tax.

I should probably also think about drinking more.

Of course I'll also need to start working a higher paying job as being employed in the public sector, where I thought I was doing a service, I'm apparently avoiding income tax as I could get more pay in the private sector.

 

Why do people find it so hard that if you earn £100,000 a year you should pay just under £35k tax on it?

Why should you not pay tax on interest earned?

Why should you be allowed to claim you are a private company to allow you to only pay 20% corporate tax on profits?