Treasury loses as top earners dodge 50p tax
Lord Myners cast doubt on whether the Treasury would recieve the £1.13 billion expected for 2010
High earners will cost the public purse hundreds of millions of pounds through tax dodges as they avoid the new 50p rate of income tax, a minister indicated yesterday.
Lord Myners, the City Minister, said that the Treasury had “significantly reduced” its estimate of the revenue to be earned from the historic change
Erm...well...duh!
Anyone who has an inkling of how tax revenue works could have told you that.
Y'see there is a thing called the tipping point. It is the point where the cost-benefit of tax avoidance outweighs paying the tax.
And it works in reverse - if tax is low enough then there is no cost-benefit to avoid paying the tax.
In other words, if you tax at an appropriate level you can get a nice sychronicity where the tax payer is happy to pay and the Treasury gets its income.
(NB: This excludes the seriously stinking rich for the most part as they are almost all habitual tax avoiders)
So if you tax too high, income goes down. If you tax just right then government income actuallly increases.
Guess which way the Scottish Historian and his neighbour went?