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Thursday, September 29, 2011

A comment on tax

Suppose you earn £40,000 per annum. You decide that you want to improve your quality of life, so you decide to work four days per week instead of five and make do with £32,000 per annum. With a marginal rate of tax at 51% (40% income tax plus 11% national insurance), you take a salary cut of £8,000 but are only £4,000 per annum worse off. If you've paid off your mortgage and the kids are all college, you might well prefer a four day week with time to pursue your hobbies over the extra £80 per week.

This isn't idle speculation, because I know people who have already done this. Therefore, the net gain to Exchequer from the 50p tax rate is negative. If an employer has a couple of people who do this, and hires a part-timer to fill in for them, then the overall tax take is substantially less, although I suppose you could argue that having three people employed part-time (provided that's what they all want) is better for society than having two people full time and one on benefit.

More than 2,000 tax inspectors will be recruited to crack down on tax evasion among the wealthiest people in the UK… Danny Alexander, Chief Secretary to the Treasury, told the Lib Dem conference that this would ensure 350,000 top earners paid their "fair share" of tax.

[From BBC News - Lib Dem conference: Minister signals tax crackdown]

Since really, really rich people don't pay tax anyway, all this suggests to me that the days of income tax are numbered and the sooner it is scrapped, the better. We should have introduced a land value tax back in Victorian times, it's time to bite the bullet. Now, people who live in big houses around Woking might whine about it, but it's a much fairer way of funding the state (and it can't be dodged).

In the future, everyone will be famous to fifteen people.
[posted with ecto]

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