France budget: Taxes favoured over spending cuts

[breadandbutterfly]

www.bbc.co.uk/news/world-europe-19754016

Great to see one country brave enough to tax the rich instead of punishing the poor. :)

blogs.telegraph.co.uk/news/nilegardiner/100182875/frances-socialist-75-percent-tax-rate-is-economic-suicide/

" Or maybe even drop the higher level of taxes? "

I've actually long supported the idea of flat rate of tax. Much higher personal allowance followed by a flat rate of 25% (or whatever) that is also replicated by CGT and tax on investments for everyone. Think the disappearance of thresholds would eliminate a lot of the incentives to move money around or hide cash (the way people are doing in order to retain the CB for example) and be far fairer than the current system. If we take a big axe to all the hundreds of exceptions and exemptions that would give specialist tax accountants a lot less work to do and a lot fewer loopholes to exploit.

@Xenia your story of exiled Frenchmen in London makes me wonder if there won't be some tax equivalent of the Scarlet Pimpernel in future... rescuing the wealthy aristos from under the noses of the guillotine-wielding socialists. :)

I think the Frenchmen worked in finance and can work anywhere. London even has its own French MP I think that expats can vote for and there is a French school.

I certainly support a small state and flat tax and zero allowances of any kind as they distort things and make people take decisions based on tax consequences rather than because they are the right decision. We are moving to a £10k a year personal allowance although the downside is lots of [people then will pay no tax so just be net takers from the system and not feel bought into it which is not necessarily a good thing although on balance my preference. Even there if you hvae a family busdiness and say I put all 5 children into it and work them all in it we would have 6 x £10k annual allowance is £60k. Even allowances like that can lead to legal tax avoidance which is a distortion.

Roger Moore (James Bond) in today's Telegraph writes about why he moved to Switzerland in the 1970s with his family. I am old enough to remember the 70s when it was not worth saving due to inflation of 20%, 18% and 22% in 3 years in a row and tax rates were ridiculous. He says the tax rate on unearned income was 98%. I remember my father paid 65% on his NHS doctor salary with an additional 15% on top of that for interest on his savings - in other words the fakirly modestly paid doctor's interset on small building society savings were in effect being confiscated. Moore is one example of how people do genuinely move when rates get too high. 98% is ridiculous. 75% is unacceptable. Above 40% is pretty dire.

amicissima - surely you can't expect little old Sweden to have a bigger GDP than China! Hardly comparable population sizes... - or even the USA. Please compare like with like.

I think you'd agree that Sweden's standard of living is higher than in China or indeed the USA, on average. More useful to compare GDP per capita...?

Xenia - I'd agree that 75% is too high, as I said above - but 40% is waaaay too low. My DH is a higher-rate taxpayer and we are hardly loaded and certainly not so that we can afford to employ tax accountants to exploit loopholes etc - so if we on our relatively meagre income can afford to pay 40%, yet still be regarded as having an incentive to work, then those earning 10 or 100 or 1000 times our earnings can easily get by on a much higher tax rate without considering themselves hard done-by.

What matters is how much disposable income you have left after paying for necessities - someone earning 100m can get by on a lot less than 60m - and in fact feel very well off on 60m. Anyone who feels 'poor' on 60m a year is deluded and should be locked up for all our sakes - or be forced to spend a week living with an ordinary family and get a sense of perspective.

Hardly anyone earns those sums as income the UK or indeed on the planet. Mosto f the 52% tax/NI payers (or 60% or whatever it is when you lose the personal allowance) are £150k plus and not much plus.

The point is about disincentives. If most of what you earn on top of some sum is taken away you don't bother to earn it here. Why would you? We aren't charities.

In fact in my view the fairest taxation system is a capped flat tax say 20% until you pay say £50k tax a year and 0% on all income over that .

There are few "laws" of economics that can be proved almost mathematically, but one that definitely can is the fact that if you raise tax rates for the rich too far then the total tax take will go down.

Just look at the two extremes:

1. Tax rate = 0%. The government doesn't tax people's income at all, so the total tax take is zero, obviously.

1. Tax rate = 100% At the end of the day's work your employer gives you a wad of cash for your efforts. As you exit the building the tax man is standing there. He makes you turn out your pockets, and he takes all your wages. Total tax take is zero, equally obviously. People won't work for nothing.

There must be a stage as tax rates get heavier at which the tax take goes down.

When Nigel Lawson abolished the top rate of tax (60% IIRC bringing it down to 40%(?)) not only did the proportion of tax taken from the top 1% of earners not go down, it actually doubled.

It is actually counterproductive to have a top 50% (or even 45%) rate of tax.

I know that the previous Labour government agreed about this or they would have introduced the 50% rate much sooner than they did. In fact they introduced it very late on, essentially as a booby trap for the Tories, who they knew would find it politically difficult to remove it.

Paradoxically, the best way of "soaking the rich" is to simplify taxes and avoid imposing on them rates which are too onerous.

I certainly agree with somebloke.

I am not a communist (I am a free market libertarian wanting a capped flat tax) but we need to add the gloss that some countries have taken 100% or almost - in a communist state you work and are provided with everything. I just started reading a book about North Korea which is interesting (although I am not suggesting any country on the planet has ever managed pure communism).

In the 80s we had 15% VAT. We do have higher sales taxes now so even if we got top rate tax down to 40% and abolish national insurance over that level so we had a top tax NI rate of 40% people are still paying a lot of tax on air fares, petrol and other stuff unless they don't spend much or only buy food.

There was one suggestion we might be able to abolish CGT, IHT, stamp duty and reduce income tax if we put VAT on everything.

AllI'm asking you to do is to compare two countries of similar size. Denmark is fairly similar to Ireland - Denmark has a top tax rate of 51.6% acc to Wiki. Not sure about Ireland but am guessing it's a lot less.

Remind me whose economy has collapsed?

Xenia and somebloke - don't think anyone on this thread is arguing for 100% tax or even 75% - but 40% top rate as the Tories would like is just a joke.

Of course someone who earns 400K should pay a higher rate of tax than someone who earns 40K - because the guy on 400K can spare it. Anyone who really can find no motivation to work if he can "only" keep 240K a year is just greedy.

There's no 'of course' about it. If everyone pays the same % of their income to the treasury, that's surely much fairer? At the moment the hue and cry goes up when it's discovered that a wealthy person who derives their income via dividends, profits and other non-PAYE sources making full use of legitimate exemptions has only paid 20% but the rest of us are paying 40%. If dividends, profits, PAYE and all the rest were all taxed at a flat 25% or 30% that problem would never occur.

breadandbutterfly
Xenia and somebloke - don't think anyone on this thread is arguing for 100% tax or even 75% - but 40% top rate as the Tories would like is just a joke.

40% is not the top tax rate. The top tax rate is 51%. That's 40% income tax and 11% National Insurance.

NI is not hypothecated. It doesn't get put in to a special pot for the NHS or pensions. It's all bundled together so that today's taxpayers pay for yesterday's pensions (also known as a Ponzi scheme). So NI is simply another income tax.

Of course someone who earns 400K should pay a higher rate of tax than someone who earns 40K - because the guy on 400K can spare it. Anyone who really can find no motivation to work if he can "only" keep 240K a year is just greedy.

As Cogito points out, there is no 'of course' about it.

breadandbutterfly:

I didn't argue for a 100% tax rate. I was just making the point that at some point raising tax rates further will result in the total tax take going down, not up.
It's slowly throttling the goose that lays the golden eggs to try to make it lay more.

If a 40% top rate is just some Tory joke, how come the Labour government kept it for the vast majority of their 13 years in power?

When Lawson abolished the top rate, essentially reducing it from 60 to 40% the tax take went up.

49% is a joke. It's too high. 20% flat tax for all capped at £50k a year would be very fair indeed.

We can at least agree that 40% is a joke. More seriously 40% has been the rates for a very long period. I certainlywould resent even giving 42p in each £1 to a state to spend on wars, a load of sexist soldiers we don;t need, foreign aid (ie corruption) never mind a mass of benefits claimants and scroungers adn the 50% who never pay tax but like most people I could just about live with 40% as long as keep all the allowances there are which the state wants you to use to reduce the 40% like pensions but I would much rather lose all allowances and pay a straight 20%and I might well move to a state with a 20% rate in future particularly when the children leave school whichi s not very long. I can work anywhere.

Sorry,i repeat - once you get beyond the point where you have enough for yourself and your family, more than you could possibly need - once you have enough to buy pointless yachts - or indeed islands - then you have more than you should have and should give a fair whack of it back to help fund others in society and to help fund services in society that benefit or have benefitted you when younger - roads,eucation, health, pensions, police etc etc

no man isn an island - even if you no longer use state education or healthcare you almost certainly have used them in the past, and use teachers and doctors and nurses trained at the state's expenses. The security of your home is thanks to the police,prisons,judiciary etc etc - I could go on.

No man is an island (even if they own one) - we all rely on the state to create a pleasant, safe society for us to live in and should contribute to that as we are able.

Bread. Very few people earn 400k as a salary. Those who do are probably either running their own business or have very specialised skills which cannot easily be found.

Either way, increasing taxes for them just because "they can afford it" is simply going to dissuade them from earning. Your entrepreneur who has had to take big risks, mortgage his own home and spend less time with his wife & kids. He's going to have less incentive to take risks & work hard if the government are just going to take his money.

I've experienced this myself years ago when I was just over the HRT limit. Work offered me a bonus of £100 if I'd work one Saturday. Of course in reality I only took home £58 after NI & HRT tax. Throw in petrol and lunch and it was more like £50. I decided against doing anymore Saturdays since I'd rather spend the time with my family than have £50 but a 1 day weekend. Like you said. As a HRT I don't NEED the money. My point is that the tax rate was a big enough disincentive to stop me from working. The losers are of course myself and the treasury who cannot tax money I haven't earned.

breadandbutterfly "Of course someone who earns 400K should pay a higher rate of tax than someone who earns 40K - because the guy on 400K can spare it."

That sounds like theft to me. Besides, what about the poor buggers who earn significantly less than that but are still faced with a huge tax bill?

"we all rely on the state to create a pleasant, safe society for us to live in and should contribute to that as we are able."

Not all of us by a long chalk. Many of us have cottoned on to the fact that government agencies are largely incompetent, inefficient, self-serving bureaucracies who, if they can be circumvented in any possible way, should be. For example, many of us pay into the system but rely on private healthcare / dentistry, many of us put more faith in the baseball bat by the side of the bed than in the combined efforts of the police and the judiciary, many of us look to city hall with their 5-a-day advisers and outreach coordinators and simply cannot see how these people would possibly earn in a living if they weren't sucking on the states teat. Most of us would never dream about organising a private whip round to pay for an illegal invasion of a far away country. Few of us would dream about taking money from the poorest in this country and spending it on foreign aid to countries with their own space program or on duck houses or on playstations for illiterate prisoners or on a world class sports day.

The state is a cancerous tumour that erodes the freedoms and dignities of the people of this land. It throws us into penury and justifies itself with handouts of your own money for crap you neither asked for, want or need. We can see the effects of this system writ large across Greece, Spain and Ireland where the people are fiscally hobbled by a vanity experiment gone sour. It can only be fixed by the systematic dismantling of the state; of returning independence to the demos of responsibility to the demos and, finally, of returning power to the demos.

Yes, tax is theft philosphers argue.

Also lawful avoidance is morally right because the state spends money badly so the less you lawfully give it the better.

Obviously there are a range of views on this thread but the difference between b&b and others shows that well - the idea that no one should have more than he needs - to each according to his needs etc. That is communism and I don't agree with it. I have chosen to live in a capitalist society. Anyone on the thread who wants those who work very hard to give most of that back to the state to feed benefits claimants can go to a country which follows confiscatory tax principles.

I do believe in a welfare state but I think a small state with an acceptance that say £50k a year tax is the most anyone soudl pay regardless of income or 20% flat tax which is not capped I suppose I coudl live with, is better and fairer and more right.

I remember someone I know saying once tax tipped over 50% recently including NI that relaly did tip the balance - they woudl do no extra work. If 60% went to their children/family that was juust about okay. Whjen it was most of what they earned that Sunday working for in that case the state then better to spend the Sunday playing with the children.

breadandbutterfly "Of course someone who earns 400K should pay a higher rate of tax than someone who earns 40K - because the guy on 400K can spare it."

Sorry to come back to this again bread, but that statement is not strictly speaking correct- the higher your income, the higher your out-goings tend to be. Most of us cut our coat according to our cloth.

Say you're a businessman (or woman- it is 2012 ) earning 400K a year and the government introduce 60 or 70% taxation on your income. Out of that 400K you might have been employing a gardener or cleaner who in turn is paying tax on what you pay them. You've probably got into the habit of saving, the interest rate on which is taxed. You may have bought an expensive property to live in, plus a little bolt-hole somewhere down south for the holidays- you would have paid stamp duty on these when you bought them. These things are all luxuries which a high income affords you but which might be cut back on if you're paying more directly in tax, so the tax man will never see the tax you've paid indirectly on these things. And if you're wise, you'll take yourself off and pay no income tax whatsoever.

Indeed you could argue they should pay a lower % as they have paid so very much more tax than someone on a lower income. I think half of people pay no tax and 75% take more out (tax credits, benefits, housing benefit) than they pay in so only about 25% are net givers to the system and we are increasingly made to feel very unpopular. Those 1% who oay 25% of all tax feel even more criticised. It was nice to see an article in the Times this week praising one man who pays about £20m a year in income tax rather than just on about how much peoplem ust be tax dogers if they choose to give money to charity rather than spend it on women, men or fast yachts.