Since there are lot more middle class taxpayers the thieves from Whitehall would be better taxing the crap out of both classes and the sheeple who benefit government largess will re-elect them. Are the third way.
The West can't be saved from itself unless limits to taxes and debt are part of Constitution.
Or in another words West needs to change from a Social Republic to a Liberal Republic.
Right now there are limits to what violence the State can make but there are no limits to how much the State can take from people.
Note for Americans "Liberal" means Classical Liberal.
Tracy Emin has never paid tax.
Her entire income such as it is, is a result of farming the Department of Culture, Media and Sport.
Good riddance to bad rubbish.
having done my PADI scuba course
Son of unmarried parents that you are.
Snarl.
Here I am, just miles from the Great Barrier Reef, and my doctor won't permit me to do mine.
I'm curious. What's the evidence for, "A marginal bite of 65 per cent is likely to force such entrepreneurs to cut back on the necessary risk-taking that such ventures require"?
If you're going to make less per extra hour of effort or some slice of risk (say) that might make you decide not to bother - or it may make you put in even more hours / take even more risks.
Similarly, if you can get a lot per extra hour or bit of extra risk - you might just do a little, bank that money and stop at that point saying, "thank you very much".
Look at companies on small profit margins. Some try extra hard *because* their profit margins are small. If their profit margins go up, they end up trying less hard.
The point in the quote is often made, but I've not seen any actual evidence as to whether low marginal benefits make people try more or less hard when it comes to work. Anyone got some pointers?
I am getting fed up saying this but must ascribe to Goebbels dictum albeit in this case I am repeating myself truthfully to make a similar point..
Onywise.
Mark Park(and this is not a put down, it is a serious answer to your question), when I ran a small business I took sufficient money from it to enable myself and my partner to lead a better life than that of her salary and my(previously employment gained)salary had allowed.
I worked hard to ensure that my turnover remained under the VAT threshold each year, as to recoup the extra tax paid meant I had to increase turnover(not profit)by 'x' amount before I received any benefit from doing so.
To do that meant increasing turnover by approx. 15%.
I tried in my first two years but then understood that I had a business that would not regularly do that but would continually give me an income that was better than my previous income.
There was a marginal benefit some years but not all and never guaranteed, so why subject myself to the worry, time expended and sheer hard work for, perhaps an
overall increase in my take home pay of a couple of per cent when I knew that by doing the same thing as I had done in previous years I would get an income that I was satisfied with(I do not know nor care how to italicise the next bit but it should be) from that particular endeavour?
No-one has ever disagreed with my decision so far.
'The point in the quote is often made, but I've not seen any actual evidence as to whether low marginal benefits make people try more or less hard when it comes to work. Anyone got some pointers?'
I hope you accept that as a real life example of business pragmatism as to effort expended versus rewards received?
The obvious question is what did I do about it? I trained someone to take my place and then earned other monies doing other things.
It still worked out to my benefit.
STB.
Mark Pack:
Here's some evidence...
I am not going to hand over 65% of my income to the thieving scum of the public sector.
Evidence ends.
Brian: if that's the quality of your evidence, you might not quite have made your case :-)
STB: Thanks for that. You paint a good picture - but it's only the one case. My question is what's the evidence that overall your situation is more typical than the opposite?
Brian,
Having earned close to that threshold in my last year in the UK, I'll be honest and say I probably wouldn't then and wouldn't now have let it affect my decision to work harder.
Assuming you don't work in a straight hour consulting type gig, at those levels of pay there isn't anything remotely like a linear relationship in place between effort and reward. I used to work in big ticket IT sales earning in the realms of the tax, as do most of my colleagues. Some years you'd make more, some less, but the tax rate isn't going to be a calculation, at least not in the type of sales I used to do.
I think most people who earn those sums on salary plus bonus models will moan a bit and then go on with their lives as before.
"arguably, the disincentive effect of the tax hike will reduce revenues."
There's no argument to it. Raising tax rates on the wealthy lowers total tax receipts, and it has done so in every Western nation since the dawn of capitalism.
Check the history books. Off the top of my head, the three greatest post-WWII increases in tax receipts (in the U.S.) came after the Kennedy tax cuts of 1962, the Reagan tax cuts of 1983, and the Bush tax cuts of 2001. (I may have the dates wrong, but not the results.)
Every single time tax rates have been raised, gross tax receipts have gone down.
Mark Pack, think about it, if you factor in the depreciation in the value of an original investment for inflation, the marginal bite that such steeply progressive tax rates will take amounts to almost total confiscation of earnings. I fail to see how this is not a disincentive. What such tax rates do is to say, more or less: "We do not think you should earn more than this".
Of course, some highly paid folk love their jobs so much that even 100 per cent taxes on say, anything over £150,000 per year might not deter them from working their businesses around the clock, but to imagine this is to imagine that most such earners will not deeply resent being treated in such a fashion. For every passionate altruist who will give their wealth away, there are hundreds of thousands, indeed millions, of high earners who will say "to hell with it" and cut back a bit on their risk-taking, spend more time at home or on the golf course, or put their efforts into non-financial endeavours, etc. Now of course many of such actions might turn out to be better for their well-being, but the incentives to behave that way should not be imposed by such punishing tax rates in the first place.
There are plenty of studies, not least by the likes of Arthur Laffer(Link), George Gilder, Allister Heath(Link), Alan Reynolds, Alvin Rabushka, etc, to show that when tax rates are steeply progressive, the rich ironically pay less of the total tax burden in percentage terms, partly due to the slackening of energies that such high taxes cause. This has been widely noticed; there is now quite a broad base of statistics to prove the core of what the "Laffer Curve" argument says: people respond to incentives.
I am afraid those who deny that steeply progressive taxes deter wealth creation either do not understand human nature and economics, or don't really care, or are liars with an ideological hatred of free markets.
'I am afraid those who deny that steeply progressive taxes deter wealth creation either do not understand human nature and economics, or don't really care, or are liars with an ideological hatred of free markets.'
I'll bet on the last category.
I've wondered something similar about politicians in general -
If you as a politician really believe what you are saying, despite a mountain of evidence to the contrary ( ie - socialism will work !! - raising taxes will raise revenue !!) then you are too stupid to be in the position you hold.
On the other hand, if you do not believe it then you are a damn liar and should be fired on those grounds.
Now, which is it ??
I would question this: "the UK-based artist, Tracy Emin"
UK based, almost certainly yes. Artist? No.
Instead, may I suggest "the UK-based pretend artist, Tracy Emin"
I don't know Watcher, I think she's raised narcissism to an art form.
Mark Pack, here's an argument that might work for you:
Let's consider an investment that doubles your money if it works out and you lose all if you fail. You can keep making investments like that as long as they succeed at least 50% of the time.
How does this situation change when you only get to keep 35% of the winnings?
See? Less risk taking.
Rob: sure, in that case you'd end up with less risk-taking. But I get back to my original question: where's the empirical evidence that (a) those are the sorts of odds in real life, and hence (b) that is what happens to people's behaviour?
Add in there being plenty of experimental economics and psychological evidence about how people often don't behave on the basis of such and what are we left with?
Several assertions that this *must* be how people behave, but very little evidence that it *is* how they behave. (Plus, it would seem, perhaps a touch of "This is how I'd behave so surely that must be how everyone else would too"?)
I must admit, when I asked the question I assumed that I'd get plenty of evidence, guessing the views of many readers of this site and the high quality of many of the contributions. Slightly surprised therefore to find that evidence seems to be so hard to highlight!
When I was working (in US ) when I didn't have enough money to quit, but too much income to work ,to get sick in June and when the sick pay ran out to be on leave without pay.Much better two work two half years than one full year,when you get killed by taxes.
Mark, you dismiss personal testimonials as mere anecdotal evidence and that is fair enough. But then it would be only fair to ask: precisely what kind of 'hard evidence' are you looking for, and, incidentally, do you have any hard evidence of that particular kind supporting the opposing point of view?
Alisa: fair question. Evidence such as survey data, econometric analysis or historical time series are the sorts of things I had in mind, i.e. moving away from the assertion or personal anecdote towards the more systematic, preferably with a few numbers :-)
I wouldn't claim to know hard evidence the other way. That's partly why I asked my question: I'm struck by how rarely in my experience people refer to evidence on this sort of question, regardless of which way they're arguing the point.
At the macro level, there is more evidence bandied about (Laffer curve et al.) to be fair.
Alisa: fair question. Evidence such as survey data, econometric analysis or historical time series are the sorts of things I had in mind, i.e. moving away from the assertion or personal anecdote towards the more systematic, preferably with a few numbers :-)Right:-)
I wouldn't claim to know hard evidence the other way.Right:-)
At the macro level, there is more evidence bandied about (Laffer curve et al.) to be fair.But isn't the macro level is the subject at hand? After all, Jonathan's post is discussing government policy and its wider consequences. So it seems to me that the likes of Laffer fits the 'hard evidence' bill quite nicely. What am I missing?
Mark, check out this link(Link) for some evidence about the effect of tax rates on growth. That is probably the sort of data that exists to demonstrate, that when other things are equal, high, progressive taxes blunt economic growth. As a result, this is as much proof as one needs that incentives are hit when taxes go up.
And a bit of honest introspection and careful observation of how you and your fellows live should bear out the truth of the insight that if you seize a large and rising proportion of a person's earnings, it will affect their behaviour. One could, I suppose, conduct all manner of clever field experiments, behavioural tests and whatnot to unearth some more evidence, but this is hardly going tor reveal any deep secrets, as far as I can see.
Consider also the evidence that comes from countries such as the US: high-taxing California is seeing an exodus of citizens, who are heading to Nevada and Texas (no income tax); the various countries, such as Estonia, that have adopted low, flat taxes have seen a remarkable improvement in their fortunes. Take a look at some of the links I gave earlier in this thread for more suggestive evidence that tax rates matter, even to the very rich.
And of course, besides the behavioural and economic arguments, is the primary argument is that progressive taxes are morally objectionable because unless they can be based on some objective yardstick of fairness, they are little better than thieving. I admit that this is a shocking statement to those who have imbibed the egalitarian presumption with their mother's milk.
A colleague of mine commutes to Switzerland every week.
He brought back a local newspaper some weeks ago: the headline was about how Geneva had to work to be able to compete with the other swiss cantons for all the people wanting to move there. As in providing better services, schools, etc...
The important thing as said before is the macro effect, and there is plenty of evidence for that.
Incentives do work, both ways. It always strikes me how those labour morons (well, politicians of all sides really) think that incentives work when raising the cost of booze or cigarettes to reduce consumption, but that stealing more money from people has no negative effect as if by magic.
We can now add hypocritical parasite to things like obnoxious drunk and mediocre artist to descriptions of Tracy Emin.
Um, Tracy ... whose taxes do you think pay for those subsidies for artists? You're wealthy now - cough up. If you have a problem with it return whatever subsidies you previously received and go live elsewhere.
Alisa: I'd say the Laffer curve is about total tax take and economic wealth rather than how individuals behave - and there's the usual ecological fallacy trap in moving too smoothly from one to the other. Plus, the evidence about the Laffer curve is not exactly all one way.
Jonathan: thanks; I'll take a look.
The US Congress seems to agree, too, or at least it did in 1997 as it relates to optimal capital gains tax rates. That study would appear to include enough tables and graphs to suit you, even a really nice one showing the elasticity of capital gains tax rates. Pretty compelling stuff. You want data? We've got data!
But the short answer, Mark, is that it's not possible to conduct a true, solid empirical analysis of the Laffer Curve because there is no way to have a "control group" against which to measure. Everything else is never equal. So those predisposed to argue against the intuitive truth of the declining marginal efficiency of high tax rates can always claim that the evidence is merely "anecdotal", not "scientifically rigorous", however voluminous it may be.
I don't care very much about the detailed evidence on incentives, although I believe strongly that higher taxes do reduce incentives, as well as increasing corruption and making Emin-like rent seeking the best route to prosperity.
To me it is a moral issue. Steeply progressive taxes are immoral, and tantamount to theft. And this one is worse: it is motivated by spite and hatred. Our masters know that high earners (apart from rent seekers and the political class) won't vote for them anyway, and are sending a clear message that they hate them and want to punish them, even if it is bad for the country.
No argument with that, Graham; I was merely replying to Mark's specific questions. Different issues.
The thing is, the argument is not whether the Laffer curve exists, it does, the issue is what drives it.
Anyone who questions its existence is not worth talking to, because any observation confirms it's reality, and no quoted fact will change their mind. If people wish to discuss the mechanisms driving the curve, that is another story, and there is plenty of opportunity to debate.
http://danieljmitchell.wordpress.com/2009/05/18/revenge-of-the-laffer-curve/
There is even a video.
I happened to be amongst those who will have to pay the 50% tax rise (and will have the tax relief on my pension contribution taken away, something not mentioned but if I was ever to meet Brown, I will hit him on that basis alone). Indeed, most of my colleagues around me are in the same situation.
What struck me this time is that it is not only the foreigners who are looking at their options, but the brit contingent is even more adamant.
There is a threshold where you really do not have a choice but to move, and this threshold is very close indeed.
To be honest, it does not please me at all because this is forced on me.
There are also other factors which will reduce the overall tax take as income tax and NI contributions are not the only things one pays. How about VAT? How about the builders, shops, whatever? They won't see my money anymore either.
