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Surprise: UK’s Version of ‘Buffett Rule’ Failing to Bring in Expected Revenue

By Doug Powers  •  February 22, 2012 11:05 AM

**Written by Doug Powers

In 2010, the UK implemented what could be described as their version of the “Buffett Rule” that President Obama has been proposing in the US.

Some background:

A new 50% tax rate for top earners has come into force at the start of the financial year.

The new rate will affect the 300,000 highest earners in the UK, out of the 29 million people who pay income tax [or the “upper one percent” – DP].

It will be levied on taxable incomes greater than £150,000 a year and aims to raise an extra £2.4bn by next year.

The 600,000 people who earn more than £100,000 a year will have their personal tax allowance eroded too, raising £1.5bn for the government.

Together with increased tax on pension contributions, which starts next year, the UK’s top 600,000 earners are expected to be paying an extra £7.5bn a year in tax.
The new 50% income tax rate is aimed at boosting public finances.

So how’s that going? Early numbers show that the concerns of those who thought the new tax would backfire like a TVR Cerbera were not unfounded:

The controversial 50p tax band is ‘not working’ and revenues have fallen since it was introduced, new figures suggest.

They appear to show the wealthy are finding ways to dodge the tax band levied on incomes of more than £150,000.

In January, the tax take from those who do self-assessment tax returns collapsed by more than £500million, compared with the same month in 2011. They fell from £10.86billion to £10.35billion.

The figures have been eagerly awaited by George Osborne as they provide the first evidence of the usefulness of the tax rate.

This is because January 31 was the deadline for all self-assessment forms to be filed for 2010-2011, the first full tax year since it was introduced.

The Centre for Economics and Business Reseach said it provided evidence that the 50p tax rate may be starting to hit receipts.

The figures will add to pressure on the Coalition to drop the levy amid fears it is forcing entrepreneurs to relocate abroad.

Separate figures, also published yesterday, provided more evidence that wealthy people are taking steps to avoid paying the tax.

So the well-to-do might be simply taking their money elsewhere? What a shocker!

The Obama administration actually recognizes this. So when pondering things like the “Buffett Rule,” instead of concluding that it might be a bad idea because of the inherent counterproductivity, they’re trying to figure out ways to do make those tax chains inescapable to even the most limber of capitalist Houdinis. That explains calls for things like a global minimum tax — a mandatory “we will find you and tax you anyway no matter where you are” penalty for any greedy, unpatriotic rich person who dares try to take their money elsewhere.

Turning America’s into a Hotel California of sorts (“you can check out any time you like, but you can never leave”) is a sure way to send any business that might have been even considering a move to America crawling back to their digs in other parts of the world — except maybe the UK, which is making a mistake the current US administration should heed but instead seems hell bent to duplicate.

**Written by Doug Powers

Twitter @ThePowersThatBe

Posted in: Politics

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