Lots of Tories are talking about the new 50% tax rate and how it's going to be a restriction on entepreneurship. I happen to believe that this viewpoint is a pile of steaming horse dung, some might say that this is because I'm an socialist dinosaur who doesn't understand "aspiration" and "wealth creation".
So, instead, I'll repeat a point made by James Kwak, a silicon valley entepreneur and co-founder of Guidewire Software Inc, he's talking about estate (inheritance tax) but I believe it demonstrates the psychology of the entepreneur pretty well:
Like most Silicon Valley entrepreneurs, when I started my company, one of the motivations was the small chance of someday making a lot of money. Back in 2001, none of us looked around the table and said, “You know, I would work really hard at this startup, but since I’m going to have to pay the estate tax if we’re successful, I’m just going to phone it in.”
So, if any budding entepreneurs happen to be reading; Do you think you'll be packing it in simply because if you succeed to the point where you earn over £150K you'll end up in a higher tax bracket?
About the author: Andreas is a Labour activist based in Norwich, he's organiser for his local ward of Town Close. He works as a software developer and being the mercenary soul that he is has found himself working in the insurance, financial services, electronics and marketing industries at various points in time. He blogs at CitizenAndreas. Read more from this author
James Dyson shipped his jobs abroad when tax rates were at their least punative because labour costs where cheaper (and presumably unions weaker) in Malaysia.
The idea that firms or individuals will flood out simply because of the 50% rate is fanciful. The Tories accepted this when they proposed tougher taxation rules on Non-Doms.
Rates of income tax are less important than corporation tax with regards 'inward investment' for the simple reason that capital is much more mobile than labour. And this - despite what the Tories would have us believe - is obviously not the only reason firms set up in one place rather than another. Steaming dung is right. What strikes me immediately about the Tory response is how they're behaving as if nothing has changed. They preached the mantra of rewards for entrepreneurship and are still doing so without taking account of two now nose-bleedingly obvious facts:
1) Rewards for risk have no meaning whatsoever if failure carries no penalty - as we have seen in cartoon form with Fred Goodwin.
2) It's not at all obvious that high rewards for high risk is economically efficient. In the financial sector, quite a few observers, including myself, would argue that this bonus culture has simply encouraged recklessness.
Those presently foaming about the 50% tax band are too blinded by ideology to understand the true character of this budget - which is that it contains no dramatic measures, it isn't that interesting, and that it's a fairly work-a-day attempt by Darling to make the best of a pretty dismal situation. The new tax band won't raise much money but it won't raise much political capital either. I can't see it as a red line in the sand. All Cameron will do is say that the Tories aspire to reduce it when it is prudent to do so but because Brown fucked up the economy, this isn't going to happen immediately. Contrary to what Jackie Ashley et al seem to think, I reckon Darling and some of the more intelligent on the Labour benches understand this perfectly well.
Yup, fanciful indeed. I covered the myth of the flight of capital at length the other week if you can be arsed - http://www.bickerstafferecord.org.uk/?p=582
Great post.