The last thing I could ever claim expertise in is economics, but even I know that a ridiculously high rate of taxation that renders small increases in income negligable will serve to destroy any motivation to work harder. What's the point when the extra money you do earn is taken off you?
Via Tim Worstall comes this article by Stumbling and Mumbling on the British taxation system. I have personal experience of this- some years ago I got a low-paying job doing data entry. Fuelled by strong coffee and boredom, I worked hard and soon got promotion to the role of Supervisor of the office. Despite the pay rise I ended up only a few pounds a week better off and with twice the workload. I can see how many people would wonder at the point of putting in extra effort for virtually no reward.
Take a married couple with two children under 11 and pre-tax earnings of £200 a week. If they get a better job, raising their earnings to £300 a week, by how much does their net income rise?
You'll be surprised. It's only £8.52. Yep, out of that extra hundred quid a week, they get to keep less than a tenner. That sounds really bad but think of how it works out over a year. They're earning an extra £5200 but they get to keep a grand total of £443.04. Less than five hundred pounds out of over five thousand.
The situation isn't much better for those earner a bit more.
Higher earners face only slightly lower deduction rates. If a couple’s income rises from £500 to £600, they get to keep all of £23.45.
The British government sure does know how to create a highly motivated, hard working population. Needless to say there are rumblings for a flat tax rate here. It certainly looks like it couldn't be any worse than the situation we have now.
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