Left Foot Forward’s Declan Gaffney explains that, despite the media spin, there is nothing exceptional about the UK’s 50 per cent top rate of tax.
Twenty economists writing to the Financial Times (£) state:
“We are concerned that Britain’s 50p income tax is doing lasting damage to the UK economy.
“It gives the UK one of the highest personal tax regimes in the industrialised world, making it less competitive internationally and making us less attractive as a destination for both foreign investment and talented workers.”
In reporting this, the BBC website presents a table which seems to show the UK’s top marginal income tax rate is a lot higher than in all but two of the UK’s top eight trading partners, as well as Japan and Switzerland.
Why the top eight rather than the top 10? Well, China, which is number nine in the ranking of UK trading partners, isn’t in the OECD so consistent data on taxes may not be available. But the absence of Sweden, which is number 10, is harder to understand.
In any case, this doesn’t really matter because the data the BBC is using, while accurate, doesn’t show what it seems to be showing.
First of all, it reports only central government top marginal rates, when several of the countries involved have sub-national income taxes as well.
Indeed, had the BBC included Sweden on the same basis as the other countries, it would have had to report that for all its famously high social spending, Sweden’s top marginal rate is a postively Hayekian 25%, at which point people might have started to get confused. That’s the central government rate, but local rates range from 29% to 34%.
Secondly, the rates cited take no account of payroll taxes such as National Insurance contributions. In several countries these are still in play at the earnings level where the top marginal rate kicks in, and are obviously crucial in any assessment of the economic impact of marginal rates.
Fortunately the OECD also publishes an ‘all-in’ series on top marginal rates taking account of sub-national and payroll taxes. In Table 1, we’ve matched this data up with the BBC’s figures and included Sweden. Note that the top rate in the UK is 51%, reflecting the 1% National Insurance Contribution above the Upper Earnings Limit (2% since April 2011,but these figures are for 2010).
Table 1:
From this table, six of the UK’s ten main trading partners have top marginal rates at or above 50%, or 49.8% if we want to be pedantic about France. Low top marginal rate countries are the exception among the UK’s main trading partners – Spain and the US – and even here top rates are 43%, considerably higher than the rates reported by the BBC.
As for Switzerland, libertarians would be well advised to look at payroll taxes and cantonal income tax rates before getting too excited about that purported low-tax paradise. So it looks as if a lot of the UK’s main export markets need to be excluded from the sample to back any claim it has “one of the highest personal tax regimes in the industrialised world”.
This gives another reason, were any needed, to second Duncan Weldon’s assessment:
“Of all our economic problems, they focus on the 50p tax.”
It also gives us an excuse to pinch his apposite quotation from the revered economist, Michal Kalecki:
“In this situation a powerful alliance is likely to be formed between big business and rentier interests, and they would probably find more than one economist to declare that the situation was manifestly unsound.”
46 Responses to “There’s nothing exceptional about 50% tax rates”
Paul Crofts
Good analysis of misleading BBC reporting of 50% tax rate, by @djmgaffneyw4 | @leftfootfwd http://t.co/abmqORW
Dave Citizen
People want to live and work in places that are great to live in. Narrowly looking at the top marginal income tax rates completely misses the point – Britain suffers from extreme inequality (3rd from worst in a list of the 24 most comparable OECD countries): i.e. rich people can be very rich in Britain. This makes our country less attractive to talented people who are looking for a place where they can live well and their children can go as far as their talents can take them.
Countries like Sweden and Finland have much healthier levels of inequality as a result of things like land and ‘luxury/second’ property taxes, making life better for all. Britain, by contrast, is dominated by a grabbing elite who see their main task as protecting the privileges they have at everyone else’s expense.
We clearly need additional taxes on land and property accumulations (especially empty/ 3rd+ holiday homes) and incremental taxes on ‘earnings’ over 250k, 350k, 450k per year – anything over this ain’t earnings, it’s plain bonkers!
Leon Wolfeson
Those figures are not what the rich pay. Capital gains, for them, is 28%.
LFF, let’s see a side-by-side comparison of the actual incomes in those countries of someone who earns, say, £150k salary and £75 in capital gains a year.
And a rough idea of the benefits (i.e. the US tax rate might be lower, but then they pay $3k/month for deacent health insurance, so…)
Mr. Sensible
I think the top rate of Income Tax is right and fare, and we should not allow bankers to blackmail us in to scrapping it.
50% tax rate – absolutely in line with other countries | Left Futures
[…] Gaffney’s article on Left Foot Forward clearly explains how the 50p tax rate is in fact entirely in keeping with the marginal rates of tax […]