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Friday, February 24, 2012

U.K.'s 25% Tax Hike on the 'Rich' Produces Less Revenue

The Telegraph, 50p Tax Rate 'Failing to Boost Revenues’:

The Treasury received £10.35 billion in income tax payments from those paying by self-assessment last month, a drop of £509 million compared with January 2011. Most other taxes produced higher revenues over the same period.

Senior sources said that the first official figures indicated that there had been “manoeuvring” by well-off Britons to avoid the new higher rate. The figures will add to pressure on the Coalition to drop the levy amid fears it is forcing entrepreneurs to relocate abroad.

The self-assessment returns from January, when most income tax is paid by the better-off, have been eagerly awaited by the Treasury and government ministers as they provide the first evidence of the success, or failure, of the 50p rate. It is the first year following the introduction of the 50p rate which had been expected to boost tax revenues from self-assessment by more than £1billion.

Advisor One, U.K. Wealth Tax Brought Less Revenue Than Before Tax Hike:

As taxes assume a leading role in U.S. policy debate ... the first receipts on a new wealth tax in the U.K. have brought disappointing results to British Treasury officials.... [S]ome observers, political conservatives among them, are taking the recent experience in the U.K., which last year raised its top rate on high income earners from 40% to 50%, as a demonstration of the ineffectiveness of a tax-the-rich policy.

Britain’s Telegraph newspaper reported that the U.K. Treasury–in the first test of the wealth tax policy introduced last year–received 509 million pounds less for January than the same month in 2011. The Treasury had projected that monthly revenues would actually increase by more than 1 billion pounds. ...

The disappointing results could move Chancellor of the Exchequer George Osborne to drop the tax after an official analysis is completed next month, but the Tory official’s Liberal Democrat coalition partners remain strongly committed to higher rates for Britain’s highest earners.

Wall Street Journal editorial, David Cameron's Tax Lesson: A 50% Tax Rate Yields Less Revenue Than Advertised:

Speaking of higher taxes (and President Obama always does), there's news from once fair Britannia.

Preliminary figures out this week show that Britain's 50% top marginal income-tax rate may have reduced tax revenue from top earners by as much as 5%, compared to the old 40% top rate. Tax revenue from those filing self-assessments due January 31 was down some £500 million versus last year. ...

What this week's numbers teach, however, is that Britain's richest taxpayers are simply shifting their incomes, or themselves, offshore, or deferring income, or otherwise arranging their affairs to avoid the confiscatory new top tax rate. Maybe that's unfair, too—the rich are usually better at protecting their assets—but it's the predictable consequence of a tax rate whose animating purposes are envy and spite.

There's a lesson here for the Obama Administration, not that it is likely to heed it any more than Mr. Cameron.

(Hat Tip: Chaz Perin.)

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Comments

Duh!! This happens every time it is tried. You'd think that liberals would get the message.

Posted by: MochaLite | Feb 24, 2012 4:34:29 PM

The lesson the Obama administration learned is that we need to change the law and lean on foreign governments so we can tax whether they are offshore or not.

Leftists know only one solution: tyranny.

The rest of us know there's only one solution to tyranny.

Posted by: SDN | Feb 25, 2012 6:14:57 AM

No no no. I can't believe you people fell for this. Lower revenues are NOT caused by increased taxes. Every journolist and (mostly) every professor knows that. It is witches that have lowered tax revenues. They do this every time, because they are clever. They want it to look like that if you tax something you get less of it.

So let's cut the debate. The science is settled. We need to be smarter than the witches. We need to focus our efforts to make sure we hunt down the right thing.

I think the best idea is to put the UN in charge. This is exactly the kind of global emergency the UN is designed to extinguish.

My proposal: A global witch tax. That will reduce their numbers. Because anytime you tax something you get less of it. But we have to be careful. Because clever witches may just make it look like their are less witches, jut to make us look like fools.

So then I propose a global witch and a global broom tax. Also, we will make cauldrons illegal. Except if you get a waiver from the UN. Which you can buy, if you submit the required paperwork and fees. Or bribe someone. But mostly bribe someone.

Posted by: IRSmedic | Feb 25, 2012 6:48:24 AM

Just like the deficit stimulus spending the liberals only know one answer...government deficit spending and the tax rates are not high enough. The 50p is as big as they could get away with, they wanted it much higher.

Posted by: Danny | Feb 25, 2012 8:47:03 AM

"Liberal Democrat coalition partners remain strongly committed to higher rates for Britain’s highest earners." Given the revenue results this is proof positive they want to retain the higher rate only for spite, which by definition means these people are unworthy to govern.

Posted by: Duke | Feb 25, 2012 9:27:22 AM

The first-year results suffer from income-shifting: income accelerated to the earlier, lower rate year. I expect subsequent years to show improvement, because 50 percent is probably slightly below the Laffer peak for wages.

For capital gains and other non-wage income, 50 percent is well above the Laffer peak. That income will not return in full until the rate actually comes down.

The linked Telegraph article contains this gem: "The Liberal Democrats have insisted that [the 50% rate] must stay because it is important to demonstrate that the rich are paying their fair share." In other words, the schadenfreude benefit is worth the cost in revenue. If the voters agree, they deserve the result.

Posted by: AMTbuff | Feb 25, 2012 9:45:30 AM

Rich folk didn't get that way by letting brain dead politicos steal their money. And they will always be one step ahead.Sad when class envy is a national tax policy.

Posted by: Rich K | Feb 25, 2012 10:05:13 AM

It is the first year following the introduction of the 50p rate which had been expected to boost tax revenues from self-assessment by more than £1billion.

The UK already had the statistics to know how this was going to go. I was living in Scotland in the late 1980s and subject to UK income tax. Around 1989(-ish), the top marginal tax rate was dropped from 50p to 40p. Margret Thatcher said that dropping the marginal tax rate would increase revenue. The Labour Party cried how ridiculous, as did the pundits. After the rate change, the government's revenues shot up. The pundits were quiet.

I think what surprised me the most was not the high marginal tax rate, but how low down the "rich" line went. With my overseas differential and other extras for having taking a job that few others would take, I was doing well for 32yo. Rich, I was not. If I remember correctly, the line for the top rate was at about the pound equivalent of $40k.

The Brits taught me two thing by their tax system. (1) The Laffer Curve is correct. (2) The line for "The Rich" has to be set pretty low for the government to raise any significant revenue.

(I was a civilian and not military anymore. Overseas military & US sniveling service are not subject to host nation's income taxes.)

Posted by: Holy Loch Sailor | Feb 25, 2012 10:39:37 AM

My guess is Obamao and the Democrats know that confiscatory tax rates don't help the economy, or revenue. That's why I'm thinking they DID NOT DO IT after 7/1/09 when they got filibuster-proof Senate. They also thought they could USE the issue as a wedge and class-warfare vote-getter in 2012 if they did NOT pass the legislation they seem to be screaming for now. What an ugly group of politicians....Obama, Pelosi, Reid, and about 300 other Dems in DC. It's more than revolting, b/c it's actually ruining our country with the $3.7T fed spending, 2% SS tax-cut, etc.

Posted by: steve-Oh | Feb 25, 2012 11:08:59 AM

Obviously, the Obama Administration knows about this. However, they will ignore it a plow ahead with their intention to sink us into complete socialism;i.e disaster!

Posted by: Fred17 | Feb 25, 2012 1:07:20 PM