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50% tax – yes or no?

Posted by Niki on September 13th 2011 @ 1:28 pm

Plucking taxes...

Well, I have read and read and I still don’t know the answer to this one. Putting any moralising aside (I am rubbish at moralising) and looking simply at the maths it is kind of hard to argue against. Does a higher tax rate prove a demotivator for our “wealth creators” (whoever they are)? Well, probably not. My Grandmother always said that 50% of something was better than 100% of nothing and you really cannot argue with the maths.

Equally a high proportion of those effected will be employees (not wealth creators) what are they going to do – go part-time? Resign and get a lower paid job? Unlikely, let’s face it. So, that isn’t really the debate then – the debate is will the tax take go up or down as a consequence of the new higher rate? Perhaps too early to tell – one can only assume that it must go up in the short-term; the longer term effects are much harder to evaluate. I found the following on Wikipedia when exploring the Laffer curve which pretty much sums it up…

The Adam Smith Institute stated in a 2010 report that:

“The 1997 Budget in Ireland halved the rate of taxation of realized capital gains from 40% to 20%. The then Minister for Finance, Charlie McCreevy, was heavily criticized on the grounds that this change would reduce revenues. He countered by predicting that revenues would rise substantially as a result of the lower tax rate. Revenues rose considerably, almost trebling in fact, and greatly exceeded official predictions.”

The effects of the credit bubble in the Republic of Ireland have not been included in this research, although since the bubble burst the taxes collected have proven far from adequate to continue operating the Irish state or economy.

And we all know what happened next…

Post filed under Comment and tagged 50%, 50% tax rate, higher rate, tax.