I urge you to read the report HMRC did on the effects of the 50p top rate of tax. I talks about Taxable Income Elasticity (TIE) and how the rich are able to move their money.
Here is the link. You can ignore all the regression analysis (much of which I don't follow completely myself) and just read the introduction and conclusion. The basic gist is that the increase from 40% to 50% has raised at most £1bn more in the best case and cost the exchequer £1bn in the worse case.
I think the problem is that people don't realise the majority of this kind of effect isn't about British people trying to screw over Britain, it's about companies wanting to recruit the best people and pay competitively. Companies need to recruit the best from around the world, and they need to compete on an after-tax basis. This means that in high tax jurisdictions, they need to pay a higher salary just to give the employee the same after-tax income, which makes the company less competitive.
A large number of the executives getting paid the big money in this country are not British, or are working for companies who are not British. These people or companies have no allegiance to Britain, who why would they think twice about moving their headquarters to a different country?
The rise in tax was a political stunt to try and win votes before the election, Gordon Brown didn't care that it very feasibly cost the Treasury money in the short term and almost certainly will cost the government in the long term. A " highly distortionary form of taxation" as described by the HMRC report.
Oh, I agree about the last bit. I genuinely dislike the Conservatives, but Brown's last act on the top rate of taxation was done purely and solely to make the next government's job harder, since he knew the hatchet job he and later-years Tony had done with New Labour's image meant their re-election was extremely unlikely.
And thank you for the link, the HMRC report was quite interesting. I suspected that they would base a fair chunk of their analysis on a Laffer-curve argument, and my suspicions were confirmed.
However, this brings up an entirely new question. The migration of capital (and labour, as per the HMRC report) over the last twenty years, and the unprecedented capital mobility that has engendered, has meant that national borders are now effectively meaningless. If the taxation rate rises to a level that either the elites or the corporations find uncomfortable (i.e, exceeding the direct and indirect benefits they receive from being based within a certain country) they either store their assets in off-shore tax havens (and, in the cases of Starbucks et al, flat out refuse to pay taxes owed) or threaten to withdraw from the country entirely (a la Gerard Depardieu and his flight to Russia). Thus, corporations and the richer elements of society are threatening established governments around the world in order to increase their own profits and savings, in many cases while the country itself is in the midst of a financial recession. This forces governments to reduce taxes, and, since the rich now don't seem to invest money locally anyway, lose both direct and indirect revenue as a result. This means cutting welfare budgets and social security, leaving ever greater sections of poor society to suffer ever greater privations, all in order to keep what few wealthy people and companies that still pay taxes in the country.
If nationality truly means nothing in the modern world, then the rich and the corporations will continue using these threats to get ever greater tax breaks, forcing ever greater reductions in welfare and social services, which will increase popular anger and discontent. Eventually, either real wages will fall to a level that finally gets us competing with the likes of India and China (i.e, poverty level), or taxes will fall to make us a financial haven of our own. Ideally both, in the wealthy/big businesses' eyes. This process will only be exacerbated by the increasing extraction prices of oil and coal (if Jeff Rubin's 'The End of Growth' is to be believed).
The end result will be magnificent destruction, caused by this same capital and labour mobility that is destroying the concept of 'patriotism' and 'nationalism'. So is that a good thing?
IS stashing 21 trillion pounds of the world's wealth wherever taxes are low enough, leaving the 'parent' countries grappling with recessions and discontent, a good thing? One wonders at the foresight employed in that process.
