Why The 50p Tax Rate?

Alistair Darling’s latest war against the wealthy has enticed him to recommend a 50 percent tax rate on the income they generate. He wants the high earners to pay more, and more. For many amongst us, it might be justified because the more the people earn, the more they should be taxed.

But to me, there is an entirely different perspective to all of this. Let us first consider the 20p tax band rate. Under this rule any one earning 20k annually will pay 4k as taxes and the one earning 50k will pay 10k as tax and so on. According to the above simple calculations, any one who is earning more is paying more automatically.

And then comes in the consideration for the low earners that they should be taxed differently because they don’t earn enough. Fine, fair enough, we should all help the less able amongst the society, so let’s tax them 10p or whatever.

So for me there is an incentive that as I earn more and more, I get to save more and more and improve my life style. And for the government, it is more tax as I earn more. The problem starts after this point. The tax man now wants the high earners to be taxed at a different rate i.e. 40p.

So if I am earning 34k annually, I will be taxed 6.8k and my disposable income will be 27.2k. But if I earn 35k I will be paying 13.6k means I only get 21.4k to spend for myself. So where is the incentive for me to earn more?

I am now being penalized for my efforts, dedication and hard work. All the hard work that I have put into my education, into my career and my sacrifices to be what I am, financially successful, is not helping me out, and this I find out after years.

So does the government wants to discourage me that I should only put in enough hard work that will enable me to earn just below the high earners tax band? I, as an individual, kept on telling myself that if I study NOW I shall get a good job.

And then I work hard NOW to get good grades. And once I am out of the uni, then I get motivated rightly convincing myself that I should work hard to rise among my peers and attempt to advance in seniority. I work harder than ever, paying my price in shape of taxes for my hard work slowly toiling my way to success.

Then again comes the hard part i.e. because I earn more now, I have to pay more than the average hard worker and lot more than the ones who don’t work or did work hard enough. So it comes upon me that hard work is directly proportional to tax increase but laziness is inversely proportional to it.

I begin to see that the dream that I once saw as a child, and what my elders taught me, that working hard pays more and gives me more comfort, somehow proves to be a farce. The reality unfolds to me that working hard means more taxes and more tension in shape of responsibilities.

So where is that incentive for me to make me continue working hard enough as I am now disheartened. I don’t want to develop or upgrade myself anymore because the taxman’s axe is there to clip my advancements. What wrong have I done by working hard?

Did the government pay for my uni qualifications? Did they help me get the job? Did they convince the banker that I will repay my loan back or did they appear for assist me in my exams or interview? If I see the government as a facilitator, then I also see that I am paying heavily for them being a facilitator.

The above example is to explain that what wrong have the hard workers done that tax man and the society is after them. Are they being penalized for creating job opportunities or not being a burden on public finances?

Rather than taxing the high earners heavily the government can introduce other schemes to mint or skim money out of their pockets. For instance, they can ask them to sponsor a polytechnic institute to develop skills that the industry needs giving them targets and keeping checks and balances on the way.

They can ask them to sponsor public betterment schemes like building roads, improving infrastructure and the like. Like this the businesses/ high earners will participate directly in community development rather than paying the tax and forgetting the community.

Similarly it will also develop a strong affiliation between the businesses and the community and they will understand each other more and more and bilaterally help out by help and support.

This will also ease the burden on the government and limit their operational responsibility as providers and restraining them to their original role, the facilitators.