High marginal tax rates severely damaging economic recovery prospects

[patslatt]

The regime of punitive income taxes of the 1970s and 1980s across the English speaking world was replaced by lower income tax rates thanks to economic policies of Thatcher and Reagan. At the same time,many very generous tax shelters that allowed room for the market economy to breathe under the burden of high income tax rates were curbed or withdrawn. I remember thinking that eventually tax rates would go up again but the shelters would not be restored.

Governments seem to have forgotten the message of those shelters,that there is a limit to marginal tax rates. Raising them beyond the low 40 per cent area invites great economic inefficiencies and loss of business opportunities. The Irish government's present tax raising frenzy could bring marginal tax rates back to the bad old days of the 1980s when the rates were 65%. This is likely unless the government can somehow find the will to face down the public sector unions and cut their bloated pay by about 20%.

The futility of high marginal tax rates is persuasively argued in today's London Times Bullets meant for bankers could kill the welfare state - Times Online by the newspaper's economist Anatole Kaletsky. He quotes The Institute of Fiscal Studies' opinion that the tax increase to 50% in the budget will lead to "behavioural changes such as changes in work patterns,relocations abroad and and conversion of wages into corporate profits and capital gains". Besides,the £2 billion the Treasury hopes to collect from this increase to 50% is very small compared to public sector borrowing projection of £150 to 200 billion a year.

He expects the tax increase to dampen economic recovery prospects in the key industries on which the UK has a comparative advantage:finance,pharmaceuticals,advanced electronics,engineering design,architecture,entertainment,management,consu ltancy,law,advertising. That's because these industries rely on highly paid,internationally mobile workers who will be deterred by taxes from coming to the UK.

A very similar observation could be made about the increased Irish marginal tax rates in the budget.

[caveman]

But the rich were dodging tax during the boom..obviously they will continue to do so if taxes rise even further

[Mitsui]

Our own government's attitude to informed opinion has been pretty obvious for a long time now - they're agin it, unless it happens to agree with them. After all, even in last autumn's budget they syphoned money out of the economy and cut back on education, two things that seemed bizarre even to an economic illiterate like me.

[nonpartyboy]

This governemt is completely at sea,they should have slashed their own spending first and only raised taxes when things begin to improve,they're failed policys will have us in the ******************** for years to come,making everyone sustantially poorer now will only make things 10 times worse.

[hopi watcher]

The regime of punitive income taxes of the 1970s and 1980s across the English speaking world was replaced by lower income tax rates thanks to economic policies of Thatcher and Reagan. At the same time,many very generous tax shelters that allowed room for the market economy to breathe under the burden of high income tax rates were curbed or withdrawn. I remember thinking that eventually tax rates would go up again but the shelters would not be restored.

Governments seem to have forgotten the message of those shelters,that there is a limit to marginal tax rates. Raising them beyond the low 40 per cent area invites great economic inefficiencies and loss of business opportunities. The Irish government's present tax raising frenzy could bring marginal tax rates back to the bad old days of the 1980s when the rates were 65%. This is likely unless the government can somehow find the will to face down the public sector unions and cut their bloated pay by about 20%.

The futility of high marginal tax rates is persuasively argued in today's London Times Bullets meant for bankers could kill the welfare state - Times Online by the newspaper's economist Anatole Kaletsky. He quotes The Institute of Fiscal Studies' opinion that the tax increase to 50% in the budget will lead to "behavioural changes such as changes in work patterns,relocations abroad and and conversion of wages into corporate profits and capital gains". Besides,the £2 billion the Treasury hopes to collect from this increase to 50% is very small compared to public sector borrowing projection of £150 to 200 billion a year.

He expects the tax increase to dampen economic recovery prospects in the key industries on which the UK has a comparative advantage:finance,pharmaceuticals,advanced electronics,engineering design,architecture,entertainment,management,consu ltancy,law,advertising. That's because these industries rely on highly paid,internationally mobile workers who will be deterred by taxes from coming to the UK.

A very similar observation could be made about the increased Irish marginal tax rates in the budget.

Your capacity to regurgiate and repackage this nonsense is impressive if nothing else. Raising tax rates is unavoidable and your view that low tax rates are good is to ignore the logical outcome of the reagannomics to which you base all your theory on. It has failed utterly and has cuased by far the greatest recession of modern times that will result in much hardship and the destruction of people's lives. In such a climate, to be advocating that the government should make no effort to redistribute wealth generated so as to achieve some level of fairness is just unbelievable. To do so would provoke such unrest within te community that recovery would be postponed indefinitely.
The greed merchants will just have to get used to the fact that when times are hard, sharing is vital in order to maintain social cohesion, or are you suggesting that those with money can retreat behind gated estates complete with a private police force to protect their interests?

[Watcher1]

Your capacity to regurgiate and repackage this nonsense is impressive if nothing else. Raising tax rates is unavoidable and your view that low tax rates are good is to ignore the logical outcome of the reagannomics to which you base all your theory on. It has failed utterly and has cuased by far the greatest recession of modern times that will result in much hardship and the destruction of people's lives. In such a climate, to be advocating that the government should make no effort to redistribute wealth generated so as to achieve some level of fairness is just unbelievable. To do so would provoke such unrest within te community that recovery would be postponed indefinitely.
The greed merchants will just have to get used to the fact that when times are hard, sharing is vital in order to maintain social cohesion, or are you suggesting that those with money can retreat behind gated estates complete with a private police force to protect their interests?

Raising taxes and raising tax rates are 2 different things. Our own tax rates are ridiculous - 2 tax rates is completely unsustainable in these times, especially the manner in which ours are structured. Now the levies have made them even worse. Lenihan has tried to mangle two different tax structures together in a very severe manner and I fear it will make a complete bollix of the whole thing. I know he said it would be regularised in the December budget, but cdan we believe ANYTHING this muppet says?

[hopi watcher]

Raising taxes and raising tax rates are 2 different things. Our own tax rates are ridiculous - 2 tax rates is completely unsustainable in these times, especially the manner in which ours are structured. Now the levies have made them even worse. Lenihan has tried to mangle two different tax structures together in a very severe manner and I fear it will make a complete bollix of the whole thing. I know he said it would be regularised in the December budget, but cdan we believe ANYTHING this muppet says?

I accept that what the govenrment has done so far indicates that they are trying to tackle the problem and protect the golden circle at the same time. I have advocated that the introduction of two new bands is needed so that top end income is adequately taxed.
It is crucial that the government come up with a system that sees wealth distribution controlled. In the US as we speak, people who recently lost their jobs are now already depending on food parcels from charities to exist.

[jimmyfour]

Governments seem to have forgotten the message of those shelters,that there is a limit to marginal tax rates. Raising them beyond the low 40 per cent area invites great economic inefficiencies and loss of business opportunities. The Irish government's present tax raising frenzy could bring marginal tax rates back to the bad old days of the 1980s when the rates were 65%.

What is this "could"?

For a public sector worker earning over €36,400, the combined effect of all these levies means 41% + 4% (Income levy) + 6% (PRSI) + 7.5% (Pension levy) = 58.5% tax.

We are effectly entirely screwed if we are pushing 60% tax rates before the next budget!

[/QUOTE]

[Right is right]

High tax rates are an impediment to success as they remove the incentive to improve and be successful...

The problem in this country is that the f*cking idiots in Govt took a short term source of funding (taxes on the property market) and used them to fund long term current spending as well as just allowing public spending to spiral totally out of control for electoral benefits and we are now suffering for that...

What is most required is to cut spending

[hopi watcher]

High tax rates are an impediment to success as they remove the incentive to improve and be successful...

The problem in this country is that the f*cking idiots in Govt took a short term source of funding (taxes on the property market) and used them to fund long term current spending as well as just allowing public spending to spiral totally out of control for electoral benefits and we are now suffering for that...

What is most required is to cut spending

This is not so. Do you think that by slashing spending that that will not result in many more having little or no income on which to live? Are you advocating that the burden of this recession be carried by the most vulnerable? What do see as the outfall of the 'cut in spending' that you refer to?