The Daily Telegraph thinks the ‘squeezed middle’ begins at more than twice the ninetieth percentile of earners, writes Left Foot Forward’s Daniel Elton.
In yesterday’s Daily Telegraph, head of personal finance Ian Cowie echoed Ed Miliband’s concern for the squeezed middle:
“Most people imagine that only people paid over £150,000 a year suffer tax at more than 50pc but many members of the ‘squeezed middle’ earning much less than that pay marginal tax rates of 62.5pc.”
From the use of the political phrase du jour, you might think Cowie was referring to people in the middle of the income spectrum who are being squeezed.
He is not:
“The explanation is a combination of income tax at 40pc, National Insurance Contributions (NICs) at 12pc and the clawback of personal allowances at the rate of £1 for every £2 of income in excess of £100,000 a year.
“That clawback – initially announced by Labour Chancellor Alistair Darling but upheld by his Conservative successor George Osborne – means the personal allowance, which enables everyone else to earn £7,475 before they must pay tax, has been lost altogether before earnings reach £113,000 a year”
The ‘squeezed middle’, for Cowie, refers to people who are earning salaries more than twice as much as those comfortably above the ninetieth percentile of earners, that is among top ten per cent of earners in the country:
“There is nothing theoretical about the Laffer Curve, which demonstrates how tax revenues fall when tax rates rise; it is based on a common sense appraisal of human nature.”
The Laffer Curve, in its purest form, argues that although raising tax rates from, let’s say 0 per cent to ten per cent, will increase revenues, if you keep on increasing it, at some point revenues fall as individuals refuse to work as an increasing proportion of salaries are allocated to tax.
However, by arguing there is such a curve, Cowie finds himself in agreement with such rabid free-market capitalists as Nikolai Bukharin, designer of the New Economic Policy under Lenin.
What Right and Left really disagree about is where the peak of the curve is. In reality, conservatives often believe in a ‘Laffer Slope’ and not a curve at all.
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