Higher tax rates, wealth creation and taxes on emissions

The Chancellor of the Exchequer, Mr Darling, has given fair warning that income tax will rise to a rate of 50% for those who earn more than £150,000 a year. I should point out that these high earners will also have to pay about 11% of their income in National insurance – a tax with a different name, so that the highest marginal rate will be 61%. Since the announcement the newspapers have been full with reports from extremely wealthy people complaining about this tax.

Of course these people do not complain for themselves, but complain that the high rate of tax will probably stifle entrepreneurship by encouraging very talented people to leave Britain to go into tax exile abroad. These wealthy folks are not at all concerned that they might have to pay a few pounds more themselves. Their concern is for the effect of a high tax upon the nation’s prosperity, because it is feared that the “wealth creators” will leave the country.

Apparently all it takes is a global recession – the worst in the lifetimes of most of us, and an extra ten percent in income tax to “stifle” people’s desire to build up large businesses. Instead they will not build up large businesses in Britain but go and “live” abroad and build up their large business there!

Well, first of all it would be a fortunate if unintended consequence of the high tax rate if Mr Fred Goodwin and those of his ilk left the shores of these islands to carry out their activities, which have impoverished so many, abroad.

Secondly in these difficult times it is not unreasonable for the high earners to pay higher tax rates than the low earners.

Thirdly, most wealth creators are not motivated by very high incomes but by the prospect of selling the company that they have built for a large capital gain. Capital gains tax is at the rate of 18%, which is not a rate to stifle wealth creation.

Fourth, people have always created wealth. When taxes are very high wealth is still being created, new companies spring up and make jobs, but the owners of those new companies simply hang on to less of their earnings.

The problem with all taxes is that most governments waste large amounts of tax. The present Labour Government (I choose them because they are in power and their waste is uppermost in our memories) have wasted huge amounts of our taxes on (just a few examples) the war in Iraq, building the Millennium Dome, increasing unnecessary bureaucracy and now threaten to waste billions on an identity card scheme. They have also created a zeitgeist of unnecessary jobs, unnecessary undergraduates studying unnecessary subjects, and a default position where many who claim to serve the public, also eat greedily like pigs at the trough.

This waste is probably inevitable. It is produced as a result of the natural corruption that power brings and the ordinary vanity and foolishness of humans. It will always exist and you can comfort yourself with the certain knowledge that much of your tax will be wasted, whether you earn plenty of money or just a small amount of the stuff.

We are now entering times when everyone will have to be careful with what they spend, including the government. I expect that there will be les waste, because the government will have less money to waste. 

I also think that by concentrating on income tax rises Mr Darling has given the wealthy the opportunity to complain about the effect of the tax rise on wealth creation. He has missed a trick.

In my experience those that earn a great deal of money increase their carbon emissions proportionately as their income increases. They buy and use very powerful cars, they frequently fly and when they do, they fly first class and they usually buy and live in very large houses. They have massive carbon footprints.

If taxes were increased on these climate change activities of individuals it would not  stifle wealth creation.

All taxes are inherently and of necessity unfair and have unfair consequences, which is why Robin Hood was so popular. Taxes on emissions might still have unfair consequences but they will be less unfair than most taxes and Mr Darling could do worst than to look at them.

3 Responses

  1. […] Original post: Higher tax rates, wealth creation and taxes on emissions « Robert … […]

  2. Let me start my crrent thread by saying, Making someone work for nothing and giving others something for nothing does not work in the long run for the economy, these two statements can be linked to every walk and ilk of life as we know it.

    The tax hype of 50% for those earning over 150, 000 per annum will not really raise what the chancellor is looking for, people will simply convert their excess cash into stocks and bonds and other routes which are tax exempt, one nil to the middle earners.

    If we continue to tax any polluters we are going to drive away even the modest carbon producers to the countries that have no legislation of carbon taxes and all we will have left is a nation of office workers and managers who will all be vouching for the remaining paper work and advertisers all anoying every remaining business with claims of how they could increse their exposure to a stagnent market with no takers or buyers of whatever they thinkmis available.

    Another white paper which is currently going through the annals of the parliament is the privacy laws, where the government will be able to rad everyones e-mails etc, this is their last chance to find out just how many pwople are making any moneis for themselves from a country on its knees.

    I for one will be seperating myself from proceedings if this bully boy bill passes, its going to bring about changes by many for sure, the computer is the one and only item of communication that is to become as intrusive as the Stazi party in Post War Germany, time to take stock and go back to the good old hand written letter, which will become the norm once again when we no longer have power on tap post oil.

    If the carbon tax comes to pass, every business in the land who is anybody will have to pay to pollute, a scenario I do not condone, pay yes but not pollute, but with one comes the other, is it to be possible that the very few giants like Virgin, Sugar and similar will have to give back some of their hard earned cash from their polluting ways, not at all, because they work and deal abroad and only sell here, there is the main problem and one of those statements in mentioned earlier.

    Tax everyone to death and that is what it will be for every business that tries to do things in house, a house that is quickly becomming one large office of chiefs and not many indians.

    The only wat to tax the rich is to tax their imports, the imports that others have worked for nothing for, could it be our finest hour, to stop our own from producing the carbon which we started and let others do the same while we play mr clean.

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