to not be surprised that France's intention to heavily tax the rich will result in less tax intake?

(110 Posts)
Orwellian Tue 29-Jan-13 10:06:56

It obvious to everyone except Hollande that if you inflict a punitive tax on the rich (75%) then they will simply leave the country and take their wealth with them.

It has never worked to inflict punitive taxes on the rich as they will simply vote with their feet and now France is suffering due to this stupid policy.

I do agree that all sectors of society need to pay their way but in most countries income tax banding means that the rich will already being more since a salary of say, £90000 taxed at 40% will pay more tax than a salary of £50000 taxed at 40%. Unearned wealth is another matter but those paying tax (via payroll taxes on a salary) already pay more.

CoteDAzur Fri 01-Feb-13 22:03:41

Tarka - No, it doesn't look like we are agreeing at all.

"I also agree that at some point if you raise taxes, tax revenue will fall. I'm just saying that this point might only be 100%"

That is a laughable claim. If you have studied any macroeconomy at all (and I suppose you would have to if you are a "microeconomist"), you would have went over the data that shows beyond any doubt that significantly increased taxes result in lower tax revenue. US has ample data supporting this.

In any case, nobody in their right mind would claim that people would continue to dutifully pay their taxes or even work at all if tax rate was 99% hmm

"By discredited I meant a lot of people think it is bollocks. Hth"

No, that doesn't help grin "Discredited" doesn't mean that at all and I don't understand how you can possibly have written a PhD thesis (on economics, no less) if you have such an imprecise grasp of the English language.

HannahsSister40 Fri 01-Feb-13 15:19:27

Hollande and his government are a shining example of how socialism does not work.

blondecat Fri 01-Feb-13 15:15:21

Not at all

You forget France also has a Wealth taxi paid on all your assets annually. If your assets value goes up and down eg shares you don't get a refund either

And income tax is levied not on your cash income but on what the state deems to be your income, usually higher.

Poor FIL paid his tax in April. Hollande won the election and in July he got a demand for the same again. confused 75% rate didn't come into this.

If you are asset rich, cash poor you can easily be forced to sell things to pay your taxes. The incentives for tax minimization are huge. As are the penalties. Try dawn raids by armed police.

The very rich of course avoid it.

TarkaTheOtter Fri 01-Feb-13 15:05:18

cotedazur

We are agreeing for the most part - there is little evidence for the inverse u-shaped laffer curve. I also agree that at some point if you raise taxes, tax revenue will fall. I'm just saying that this point might only be 100%. I think it is likely below this but no-one has shown that empirically to a high degree of statistical significance. iUnless you can link to something for me. Therefore aside from 0 tax revenue at 0% and 100% (and you could dispute the latter because there are non-financial rewards to working which you could add to your utility function). We know very little about what happens in between.

In fact, given that there is actually very little variation in the average (as opposed to the marginal) tax rate in any given economy, we will probably never be able to accurately predict most of the interval 0-100.

By discredited I meant a lot of people think it is bollocks. Hth

TarkaTheOtter Fri 01-Feb-13 14:42:16

"Prize" not "price" obviously.

slhilly Fri 01-Feb-13 14:39:41

As Krugman says in that article, the Laffer curve focuses on the wrong thing: "the problem with super-high rates isn’t so much that they reduce incentives to work; it’s that they create huge incentives to avoid or evade." But of course many rich folks make significant efforts to avoid or evade even low rates.

CoteDAzur Fri 01-Feb-13 14:30:14

If you are an economist, would you explain what you meant when you said that Laffer Curve was 'discredited'?

By whom? And when?

CoteDAzur Fri 01-Feb-13 14:27:58

It is not "anyone's guess". As I said below, the shape doesn't have to be symmetrical or even single-peaked, but there is no doubt whatsoever that tax revenue decreases after a certain point.

There is no single Laffer Curve, to be applied to all countries across all time - i.e. you can't expect its shape to be identical across history and geography. However, its point is undisputed. You can only raise interest rates to a certain degree before your tax revenues start declining.

I am truly sorry if this is against your belief system.

TarkaTheOtter Fri 01-Feb-13 14:24:53

adeucalione
No, not me, I am a microeconomist and haven't studied the laffer curve since before my PhD (if we are comparing letters wink).

Nobel price winning, and professor of economics at Princeton, Paul Krugman has a thing or two to say about it though.
Ps. He also worked for the administration during the Reagan years so I'm guessing he's pretty clued up as to what went down (hint: not budget deficits).

TarkaTheOtter Fri 01-Feb-13 14:15:00

somebloke
"First, suppose income is taxed at 0%. Total tax take for the government is zero, obviously.
Now suppose income is taxed at 100%. Total tax take for the government is again zero, equally obviously. People aren't going to do work where every penny they earn is handed over to the tax man."

All you have shown with that logic are two discrete points. What happens in between is anyone's guess. Why is it a nice symmetric curve? The peak could quite easily be at 75% or 99%. Or it might not even be a smooth curve at all? It is quite feasible that there is a psychological cliff face above which people think there is no benefit to further work and therefore there could be a vertical component to the "curve".

There is plenty of evidence ( see in particular the work of Krugman) disputing the shape of the laffer curve.

slhilly Fri 01-Feb-13 14:10:38

I think you are conflating at least three things:
1. can illiquid assets be taxed?
2. do the rich own enough wealth to (in theory) solve the country's financial woes if the government were to tax their assets to some (great) degree?
3. what would happen if the government were to try such a thing?

1. Answer is yes. It just takes time for the money to arrive. Example is houses and SDLT. Or the introduction of the new Estate tax by the Asquith government. Obviously, there are moral questions about rates, and there are practical issues of depressing market values by requiring asset sales, but there's no doubt it can be done.

2. Answer is yes. The rich are sitting on hundreds of billions of assets. Enough to make our financial problems as a country go away entirely. See the report I linked to above for a global perspective on this.

3. Who knows. But obviously, the rich have the motivation and means to take steps to minimise their tax liabilities, and the greater the tax level, the greater the incentive. However, the incentive exists anyway, and the opposite problem also exists - there's lots of forum shopping for the lowest tax regime that can be found, all the way down to zero. If global average tax rates were say 7%, and one country offered 5%, many rich folks would be likely to shift domicile to that country to take advantage. For governments, it's like retailers offering discounts, it needs to be done carefully or you end up with no margin (tax take).

niceguy2 Fri 01-Feb-13 13:30:53

Slhilly. my point is that I think a lot of people simply think that these billionaires have it all sat in the bank and the government can just wave a legislative magic wand and magic away our financial problems.

And I am trying to point out that this is not the case. That often we say people are millionaires/billionaires because of their assets. Often assets they cannot easily liquidate. So you wouldn't get anywhere near the tax revenues that people think the rich should pay.

slhilly Fri 01-Feb-13 13:13:27

niceguy2, what does it matter that rich people hold their wealth in a variety of asset classes of which cash is only a small component? The volatility of those other asset classes (property, shares, bonds, financial instruments, jewellery, art etc) is sometimes less than cash and sometimes greater. They are obviously less liquid than cash too. But you are kidding yourself if you think that the average billionaire doesn't have enough liquidity to buy a house on the Bishop's Avenue in cash.

The fact that income may be much lower than net wealth is self-evident: it's only the poor where this is not the case, as they have no chance of accumulating a capital cushion. It doesn't mean that the rich would be unable to pay higher taxes, or that they are not "really" rich.

niceguy2 Thu 31-Jan-13 11:54:10

using the 'nobody needs' argument, nobody NEEDS two TV's.....nobody NEEDS a car (we can walk or use public transport). Nobody NEEDS to go on holiday.

It's a ridiculous argument and one which has no place in a free society. I don't want someone else telling me what I need or don't need.

Can I just point out when I said: "nobody 'needs' two or three properties or 10s of millions in the bank." This was my (unclear) response to 'nobody needs more than £1 million a year."

I agree with Cote and Alibaba. I certainly don't want some bureaucrat - telling me exactly what they think my family 'need'.

niceguy2 Thu 31-Jan-13 11:48:19

I think most people who think that taxing the rich until the pips squeak 'cos they dont need it' miss a very important point.

And that a lot of these 'rich' people do not actually have billions sat in some swiss bank account. Most of the time these super-rich are merely so on paper only. Their riches are often for example based on the shares they own. And as we all know, share prices can go down as well as up.

If you look at their actual income it's probably only a tiny fraction of their overall 'riches'.

Astelia Thu 31-Jan-13 11:47:53

There are two tax rates where the government collects nothing- 0% and 100%. In between that the government has to be very careful not to frighten away its cash cows as the highly paid put a huge amount of money into the country coffers.

So YANBU OP, France is going to lose a lot of money doing this. I just hope those leaving France move to the UK to spend their money and pay their (much lower) tax.

Alibabaandthe40nappies Thu 31-Jan-13 11:40:20

But nobody 'needs' two or three properties or 10s of millions in the bank.

You cannot start taxing people on the basis of need.
If we use that premise then any benefit claimant who spends money on cigarettes, alcohol, anything other than the most basic clothes and food doesn't 'need' the amount of money they have and therefore their benefit could be reduced.

Obviously this would be totally unpalatable.

adeucalione Thu 31-Jan-13 11:38:13

Tarka - who discredited it? you?

For every article that blithely refers to it as discredited, there's another that says it's the best thing since sliced bread, but most agree that tax cuts for the rich paid for themselves when Reagan reduced the top rate from 70% to 28% (although not necessarily across all socio economic groups). Unpalatable perhaps, but true - fair taxes for the rich mean that they save themselves the cost of a fancy accountant and pay what they owe.

CoteDAzur Thu 31-Jan-13 11:26:40

"But nobody 'needs' two or three properties"

It is not a "need" thing. It is a "want" thing. People work for things they want. If they are not allowed to have those things, then they will not work as hard - simple as that.

This has been the point of contention between capitalist economic theory and communist economic theory, and the latter lost. "To each according to need" just doesn't work in real life, because not everyone likes everything in the same way - To you it might look like I need a bike because I don't have one, but maybe I don't care to have one but would want several more books instead. To you it might look like I don't need a second house but maybe that is all I work for, to house my elderly parents.

Read up on Utility Function and you will see what I mean.

CoteDAzur Thu 31-Jan-13 11:08:30

Tarka - I studied optimal tax rate and Laffer Curve at MBA level and looked into US data that clearly shows tax revenues decreased when tax rates were raised above a certain level.

Laffer Curve isn't necessarily symmetrical nor even single-peaked, but there is no doubt either theoretically or empirically that you can only squeeze taxpayers so much and above a certain level they will either just not work or come up with creative ways to present their accounting - i.e. evade taxes.

somebloke123 Thu 31-Jan-13 11:01:04

But it does work. When Nigel Lawson abolished the top rate of tax (then 60%) the tax take from the top earners actually went up, not down.

CelticPromise Thu 31-Jan-13 10:50:42

But people don't just work like numbers. So that wouldn't work.

somebloke123 Thu 31-Jan-13 10:35:38

TarkaThe Otter

You can prove it almost mathematically.

Take the two extreme positions.

First, suppose income is taxed at 0%. Total tax take for the government is zero, obviously.

Now suppose income is taxed at 100%. Total tax take for the government is again zero, equally obviously. People aren't going to do work where every penny they earn is handed over to the tax man.

There must be a point as the tax rate gets higher and higher where the total tax take stops going up and starts to decrease.

TarkaTheOtter Thu 31-Jan-13 09:20:08

Actually I'm being too polite - "controversial" should read discredited. It's a theoretical concept which did not survive empirical testing.

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