paying 50p ...

What are the main arguments in favour of keeping the 50p tax rate?

-higher revenues for the government (“50p tax rate will raise an additional £12.6bn over the next five years even if people choose to leave the country to avoid it”)

-tax revenues could be used to develop the economy, fight the recession etc.

-moral and fair

What are the main arguments in favour of scrapping the 50p tax rate?

-high-income people could flee the country

-disincentive for foreign investors and workers

-disincentive for entrepreneurship

-lower competiveness

What does the Laffer curve show? Is it relevant in the case of the 50p top rate of tax? What does it suggest about the ability of the tax to generate income?

The Laffer curve shows the relationship between the tax rate and the tax revenue. It can be seen that, as taxes increase from low levels, tax revenue collected by the government also increase, but after a certain point (T*) people would be discouraged to work and the tax revenue would fall. Eventually, if tax rates reached 100% , then all people would stop working because they would have to give everything they earned to the government.

 It is relevant in the case of 50p top tax rate because it shows that after a certain level, a tax rate could harm the economy. The problem is that it is very difficult to estimate the (T*) rate and many factors affect the predictions.

A possible non-symmetric Laffer Curve with a maximum revenue point at around a 70% tax rate

How does the top rate of tax affect the international competitiveness of the UK economy?

The 50p tax decreases the international competiveness of the UK because it creates disincentives for investors and enterpreneurs to come to the UK.

Why is there a trade-off between raising tax revenue and boosting economic growth through the use of the 50p tax rate?

There is a possibility that high-income people would flee the country in order to avoid high taxes or work less. Moreover, they could spend less (lower demand), because their disposable incomes would be lower. It could also discourage entrpreneurs to start new businesses or invest in others.

Why is there concern about the highest rate of tax actually causing tax revenue to fall?

Because many people would have the incentive to flee the country or work less, to pay the lower tax.

What are the equity arguments concerning the scrapping of the 50p tax and raising the tax threshold?

-all people should pay the same percentage of their incomes

-high income people pay much more anyway

Is there an equity argument in favour of the 50p tax rate?

-high-income people should pay higher taxes to reduce income disportions

-if one tax rate is to be decreased the other shoul be reduced also

That's what I think, 

MANU

Comment on the effectiveness of one policy which could be used by a government to reduce income inequality.

One policy that could be used by a government to reduce income inequality is progressive taxation. People with higher incomes would have to pay a higher percentage of their income in taxes and low-income people would have to pay less. On one hand, it could lead to a reduction in income inequalities among people but, on the other hand, its effectiveness could be limited. First of all, high-income people would have an incentive to stop working (or work less) or flee the country. It could also encourage them to avoid paying taxes and keep their money in banks from abroad. Secondly, it depend on the difference between two levels of taxation, because if it is significantly low it will not have a big impact on reducing income inequalities.

Other factors to consider are:
1. wider macroeconomic implications (e.g. discouraging inward investment, fall in tax revenue, therefore, reducing the funds available for welfare benefits)
2. tax as an instrument excludes those who do not pay income tax (students, unemployed, pensioners) who, arguably suffer most from inequality
3. criticism of a fiscal policy as a blunt instrument
4. how progressive should the tax be, data from other countries?

income TAXES

Why may relative income tax rates between countries give only a partial picture of the international competitiveness of these countries? What else would need to be taken into account?

Compering income tax rates in different countries may give a general clue about their international competitiveness, but there are many other factors worth taking into consideration. Firstly, the rates of expenditure taxes could differ dramatically (for example the VAT rate). Secondly, there cooperate taxes and tariffs are also important issues to take into account. Thirdly, the current political and economic situation can influence country’s competiveness. It is more beneficial for an investor to put money into a country with a stable growth than into one with a risky public debt.  Others factors are: the quality of labour force and infrastructure, costs of living (education fees, rent) and social insurance.

Does making taxes more steeply progressive necessarily act as a disincentive to output? Explain.

Of course it depends. Generally, more steeply progressive taxes could act as a disincentive to output, because many rich people could flee to other countries or simply work less. On the other hand, they could gain more from government’s spending and investments.

How progressive are income taxes in the UK compared with other countries? Give examples.

In the UK individual income taxes are highly progressive at the rate of 0-50%. In Norway it is 28-49%, in Ireland 20-41% and in the USA 15-45%.

What externalities (positive and negative) might result from steeply progressive income tax rates?

Countries have to find a compromise between efficiency, fairness and simplicity. Steeply progressive income taxes could cause a disincentive for wealthy people to work more and also encourage them to leave the country, in order to pay lower taxes. On the other hand, steeply progressive tax rates could help in reducing the gap between the rich and the poor in the society. Another advantage of it is a bigger tax revenue for the government and the possibility of higher spending and investment, which would benefit the whole nation.

That's what I think.

MANU