So, it seems that 68% of the UK thinks the 50p tax rate is a good idea. Actually, I'm quite cheered by that. Given that only 1% of the country will actually pay the tax, this means that 31% of the country is bright enough to realise that just because "other people" will be paying a tax doesn't make it a good thing. This post is therefore directed at the 68%. For the rest, it will some across as simplistic and obvious, which is why I haven't posted it until now.
It is an oft-repeated fact that those of us in the £150k-plus bracket form 1% of the population, yet we contribute 23% of all taxes. What is not so often mentioned is that it was not always so. Before Lawson dropped the top rate of tax from 50% to 40%, the figure for the contribution from the top 1% of earners was 14% of overall taxes. It was after he reduced the rate to 40% that the contribution went up to 23%. So it is not just dry economic theory that says changes in the top rate of tax are counter-intuitive; it is hard direct evidence from this country's own history.
It is not just income tax that shows this effect, either. Lawson also reduced the rate of Stamp Duty, in several stages. When asked at a meeting of Conservative backbenchers to eliminate the Duty entirely, he replied that each time he had reduced Stamp Duty, the tax take had in fact risen as a result of increased dutiable activity. However, he suspected that if he eliminated it entirely then the tax take would probably fall.
This is, of course, not the slightest bit surprising - if you think about it. We quite happily accept that taxes influence people's behaviour in other ways. We increase road tax on fuel-hungry cars and expect people to buy more efficient models in response. Taxes on alcohol and tobacco are levied because we are told that their use causes harm and should be discouraged. We are all braced for a whole panoply of green taxes that are designed, purely and simply, to mould our behaviour in ways that (we are told) will save the planet and hold back the rising tides.
Yet in respect of income tax, we direct a new tax at precisely the people who have control over how much they earn, how they earn it and (crucially) where they earn it, and we expect that the new tax will have no effect on their behaviour. This is not just foolish, it is wilfully foolish.
HT - Stuart Sharpe's post yesterday, which attracted a comment that I felt I had to reply to.