Friday, 16 March 2012

Osborne weighs 50p tax rate cut to 45p

Softcapitalist | March 16 7:26am 
The major flaw of the argument that a low top rate is good for the economy is the fact that high incomes do not trickle down over the medium term. The data support the view the top earners made substantially more money while the median income stagnated in nominal terms in the past decade. Most UK residents are worse off in real terms, particularly since inflation was "liberalized". 

The main objective of Mr Osborne's policy should be to reduce the inequality and grow the median income of the UK tax payer. The government often hides behind average numbers but even that is less flattering since only the very rich got a good deal in this crisis. The debate on the 50p rate cannot be robust without clear evidence and explanations of how are the top earners generating GDP growth and wealth accumulation for the masses. 

And again, would you rather take home 50% of £300,000 or 65% of £100,000? Is Mr Bob Diamond going to move Barclays HQ to Moscow to enjoy a cheerful 13% cut on his 5 or 10 or 20 million pounds annual income, as half of that is too little for the massive effort he puts into building a better future for Britain? Why is then Russian spoken in Kensington&Chelsea more than Oxbridge English in Chystye Prudy? 

Another key element of the debate is the effective tax rate for the top 20%, 10%, 5% and 1% of the working population of old Britain. The ability to duck the taxman increases significantly with income, hence the effective rate equals HMRC's tax bible for most of us. Households that make £100,000 per year have miserable pension savings, cannot afford FTSE investments and have debts several times their income in the form of mortgage and education loans. They are the backbone of the economy, because they are the engines of consumption through debt - the UK economy would be dead and buried without Mr & Mrs Consumer. They are the large army of voters but don't lobby. They are unaffected by the 50p rate but, since 40% of them do want it to fall back to 40p, dream they will be affected Some Day... and their naivety is ruthlessly exploited by politicians of all colours and accents. Most middleclaassers don't get a tent, they occupy nothing and they constantly get a bad deal - they just get poorer with each Parliament. The Treasury Bless Them! 

Article Below

George Osborne is considering announcing a cut in the 50p top rate of income tax to 45p in his Budget next week, after the Liberal Democrats showed willingness to drop their resistance in return for a clampdown on tax avoidance by wealthy people.
People familiar with the Budget negotiations have told the Financial Times that the issue of the 50p rate, which is hugely unpopular among Conservatives, was put back on the table after the chancellor said he would make some moves towards what Nick Clegg, the Lib Dem leader, has billed a “tycoon tax”.





It had been thought that there was no chance of a deal on the issue after David Cameron, the prime minister, made clear his resistance to Lib Dem demands for a “mansion tax” on properties worth more than £2m as a trade-off.
But Nick Clegg’s proposal of a tycoon tax, which he made to his party’s spring conference last weekend and which would see wealthy people forced to pay a set minimum amount of overall tax, changed the two parties’ negotiating positions. Although Mr Osborne is unlikely to name a minimum rate as suggested by Mr Clegg, he may package a bundle of anti-avoidance measures and brand them as a “tycoon tax”, allowing the Lib Dem leader to tell his party he won concessions in return for allowing the Tories to reduce the top rate of tax.
One person close to the process said: “That is definitely an option right now, but this could easily go either way.” Another indicated that the Lib Dems were willing to give way on their demands for a mansion tax, saying: “The rich can contribute in more than one way.”
The decision will be taken at the final pre-Budget meeting of the group of four people at the heart of the coalition on Monday, as talks continue into the 11th hour.
Mr Osborne remains nervous about dropping the 50p rate, as it enjoys the support of roughly six in 10 UK voters. However, he is expected during the Budget to unveil figures from the tax authorities showing it has raised less than £1bn, far below the £2.5bn previously estimated. These will add to pressure from UK business leaders and his own MPs to scrap the tax.
Campaigners against the tax have been lobbying politicians hard in their efforts to apply pressure on Mr Osborne. They admit the tax is likely to have raised money this year, but point to figures from the Centre for Economic and Business Research predicting a longer-term fall in revenues as wealthy people do more to avoid paying tax and increasingly move abroad.
They have the backing of several influential Conservative backbenchers, including John Redwood, the former environment secretary, and David Ruffley, a Tory member of the Treasury select committee.
But those rightwing Tories are likely to be furious that Mr Osborne is not willing to go further and drop the top rate of income tax to its previous level of 40p. Mr Ruffley told the Financial Times the calculations of how much the tax raised would be worthless, and Mr Osborne would face a revolt if he did not take steps to make the full cut to 40p.
“Any figure that Revenue & Customs comes up with for what the 50p has been raising will be utterly meaningless because it can never capture taxpayers turning income into capital, or wealthy individuals leaving the UK,” Mr Ruffley said.
“The 50p rate says Britain is not open for business and will stop entrepreneurs coming here in the first place.”

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