There’s nothing exceptional about 50% tax rates

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.”

HMRC 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:

Top-marginal-tax-rates
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.”

http://twitter.com/politicalplanet/status/112080625380503554 Political Planet

There’s nothing exceptional about 50% tax rates: Left Foot Forward’s Declan Gaffney explains that, despite the m… http://t.co/2z9HZs8
http://twitter.com/fdennistoun/status/112082843550744576 Felicity Dennistoun

There’s nothing exceptional about 50% tax rates: http://t.co/pCrT6uV writes @djmgaffneyw4
http://twitter.com/jennniff/status/112085211801583616 Jen

Found this interesting re. 50% tax rate. Kinda rubbishes the higher taxes = no investment argument http://t.co/881zAyv (via @leftfootfwd )
http://twitter.com/therightarticle/status/112090401783021568 Michael

There’s nothing exceptional about 50% tax rates l Left Foot Forward – http://j.mp/pdLyoe
http://twitter.com/epgavaghan/status/112090551700029440 Ed Patrick Gavaghan

There’s nothing exceptional about 50% tax rates: http://t.co/pCrT6uV writes @djmgaffneyw4
http://twitter.com/othertpa/status/112100711969464321 Other TaxPayers Alli

Good analysis of misleading BBC reporting of 50% tax rate, by @djmgaffneyw4 | @leftfootfwd http://t.co/7nnBPym
http://twitter.com/falseecon/status/112100828059414528 False Economy

RT @OtherTPA Good analysis of misleading BBC reporting of 50% tax rate, by @djmgaffneyw4 | @leftfootfwd http://t.co/08xVw5Y
http://twitter.com/dafidius/status/112101366536744960 DPWF

Good analysis of misleading BBC reporting of 50% tax rate, by @djmgaffneyw4 | @leftfootfwd http://t.co/7nnBPym
http://twitter.com/wdean68/status/112101680782385152 Dean Willis

RT @OtherTPA Good analysis of misleading BBC reporting of 50% tax rate, by @djmgaffneyw4 | @leftfootfwd http://t.co/08xVw5Y
http://twitter.com/cretinate/status/112102172036055040 Aaron Chandra

RT @OtherTPA Good analysis of misleading BBC reporting of 50% tax rate, by @djmgaffneyw4 | @leftfootfwd http://t.co/08xVw5Y
http://twitter.com/dafidius/status/112102651273031681 DPWF

RT @leftfootfwd: There’s nothing exceptional about 50% tax rates http://t.co/vYBHJBo
http://twitter.com/ravensrod/status/112102969079644160 Ferret Dave

RT @OtherTPA Good analysis of misleading BBC reporting of 50% tax rate, by @djmgaffneyw4 | @leftfootfwd http://t.co/08xVw5Y
http://twitter.com/brokenofbritain/status/112103523767955458 Broken OfBritain

There’s nothing exceptional about 50% tax rates | Left Foot Forward http://t.co/IExPBiV
http://twitter.com/virtualresistan/status/112103860146941953 VirtualResistance

There’s nothing exceptional about 50% tax rates | Left Foot Forward http://t.co/IExPBiV
http://twitter.com/djmgaffneyw4/status/112105516666335232 Declan Gaffney

There's nothing exceptional about 50% top tax rates if you compare on a like-for-like basis http://t.co/HxNw3Ie
http://twitter.com/nautilusinred/status/112107005073825792 Nautilus in Red

RT @OtherTPA Good analysis of misleading BBC reporting of 50% tax rate, by @djmgaffneyw4 | @leftfootfwd http://t.co/08xVw5Y
http://twitter.com/ianbfawu/status/112107199655985153 Ian Hodson

RT @OtherTPA Good analysis of misleading BBC reporting of 50% tax rate, by @djmgaffneyw4 | @leftfootfwd http://t.co/08xVw5Y
http://twitter.com/creativecrip/status/112108300467843072 TheCreativeCrip

RT @OtherTPA Good analysis of misleading BBC reporting of 50% tax rate, by @djmgaffneyw4 | @leftfootfwd http://t.co/08xVw5Y
http://twitter.com/davidschoibl/status/112109065357893632 davidschoibl

RT @OtherTPA Good analysis of misleading BBC reporting of 50% tax rate, by @djmgaffneyw4 | @leftfootfwd http://t.co/08xVw5Y
http://twitter.com/uponnothing/status/112109766347730944 Kevin Arscott

Good analysis of misleading BBC reporting of 50% tax rate, by @djmgaffneyw4 | @leftfootfwd http://t.co/7nnBPym
http://twitter.com/catherinbrunton/status/112110927700164608 Catherine Brunton

There’s nothing exceptional about 50% tax rates | Left Foot Forward http://t.co/IExPBiV
http://twitter.com/laura__bruce/status/112113839692193792 Laura Bruce

Good analysis of misleading BBC reporting of 50% tax rate, by @djmgaffneyw4 | @leftfootfwd http://t.co/7nnBPym
http://twitter.com/btnhovenut/status/112132692618911744 Brighton & Hove NUT

BBC and the reporting of top rate for tax from @leftfootfwd http://t.co/3eVpvVj
http://twitter.com/68ron/status/112132696645443584 Ronnie

BBC and the reporting of top rate for tax from @leftfootfwd http://t.co/wgDIlSO
http://twitter.com/tanya_hawkes/status/112139693616939008 tanya hawkes

RT @leftfootfwd: There’s nothing exceptional about 50% tax rates http://t.co/6al6sFa "of all our economic problems, they focus on this"
http://twitter.com/pmlynch10/status/112146300794970112 Paul Lynch

RT @leftfootfwd: There’s nothing exceptional about 50% tax rates http://t.co/x0qx8gH
http://twitter.com/yrotitna/status/112162099358212097 Juan Voet

Good analysis of misleading BBC reporting of 50% tax rate, by @djmgaffneyw4 | @leftfootfwd http://t.co/7nnBPym
http://www.stephenwigmore.blogspot.com Stephen W

I’m not sure why you’re trumpetting this. With a marginal rate of 52% we’re still 3rd highest. We’re still uncompetitive. And we’d still be better off with a 45% highest tax rate.
Henry

it’s 51% – and we’re lower or virtually the same as all but 3 of our major trading partners.

The Tories want to reduce the 50% tax as payback to their bigger donors (overwhelmingly from the City). Why else would these people sign big cheques? The economic arguments are just a cover for the obvious.
http://twitter.com/soton_unite/status/112234668983713792 Soton_Unite

http://t.co/Ckvc2vK 50% Tax rate popular with Public. Take note rich boy Osborne.
http://twitter.com/paulcrofts/status/112238845369655296 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.
http://www.leftfutures.org/2011/09/50-tax-rate-absolutely-in-line-with-other-countries/ 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 [...]
http://www.stephenwigmore.blogspot.com Stephen W

It’s 52%. As the article states it was 51% briefly, now it’s 52.

Cut the income tax rate from 50%->45% giving us an overall rate of 47%. Make us competitive while still taking most of the extra money from increasing the rate above 40%.
Selohesra

Mr Sensible – Labour got kicked out because they had lost economic credibility and with people like you parroting the knee jerk ‘banker’ response at every opportunity it does not look like they are soon to regain it. No-one seriously believes the 50% rate (+2% marginal NI) was anything other than a political wheeze calculated to pander to the politics of envy so beloved by the Labour core vote. Also its worth noting that not all the problems were caused by the bankers, not all bankers were irresponsible and most important (from my point of view at least) not all 50% tax payers are indeed bankers.
Anon E Mouse

Mr.Sensible – So you disagree with Alistair Darling and Ed Balls who say it is a temporary measure then?
Dave Citizen

Anon – now you’ve got me worried – I took Darling and Balls comment about 50p being temporary as a sure sign they’d seen the light and were going to tackle extreme inequality so that it essentially became redundant – are you saying that they are going to get rid of it while people are still ‘earning’ mega bucks?! Oh no, not new new labour please!
Leon Wolfeson

@6 – Again, how does much of income being taxed at 28% make 50%?

Also, “competitive” in what? At crushing the wages of the middle class?
http://twitter.com/68ron/status/112870775261896704 Ronnie

I meant to put this link in last tweet http://t.co/5yHvBhW
matthew fox

I think Anon E Mouse needs to address the issue of how many 50p tax payer have a Swiss Bank Account.

Anon E Mouse wants tax evaders to have a tax cut as well.
http://twitter.com/honzamastrini/status/113317436224315392 John Mastrini

There’s nothing exceptional about 50% tax rates: http://t.co/pCrT6uV writes @djmgaffneyw4
http://twitter.com/djmgaffneyw4/status/113558989056380928 Declan Gaffney

@guardian_clark Have you seen this? 6 of UK's top ten trading partners have top rates at or above 50% http://t.co/HxNw3Ie
http://twitter.com/henrypath/status/135097259070197760 Henry Path

@make_trouble http://t.co/PloR9eFk
http://www.leftfootforward.org/2011/11/50p-tax-still-a-tory-obsession/ 50p tax: Still a Tory obsession, still not that exceptional | Left Foot Forward

[...] also: • There’s nothing exceptional about 50% tax rates - Declan Gaffney, September 9th [...]