Higher Marginal Tax Rates cause Millionaires to leave Britain and Reduce Tax Revenues

Posted by PITHOCRATES - December 2nd, 2012

Week in Review

The Beatles were part of the British Invasion.  They came to the US, conquered, earned obscene amounts of money and went home.  And when they did the British took about 95% of their earnings.  Prompting George Harrison to write the song Taxman.  “There’s one for you, nineteen for me.  ‘Cause I’m the taxman.”  If you do the math (1 divided by 20) that comes out to a top marginal tax rate of 95%.  Shortly thereafter the Beatles were no longer British.  They became tax exiles.  And they weren’t the last Brits to leave their highly taxed country (see Two-thirds of millionaires left Britain to avoid 50p tax rate by Robert Winnett posted 11/27/2012 on The Telegraph).

In the 2009-10 tax year, more than 16,000 people declared an annual income of more than £1 million [$1.6 million US] to HM Revenue and Customs.

This number fell to just 6,000 after Gordon Brown introduced the new 50p top rate of income tax shortly before the last general election…

Last night, Harriet Baldwin, the Conservative MP who uncovered the latest figures, said: “Labour’s ideological tax hike led to a tax cull of millionaires.

Far from raising funds, it actually cost the UK £7 billion [$11.235 billion US] in lost tax revenue…

Mr Osborne argued earlier this year that the 50p rate was deterring entrepreneurs from coming to Britain.

So many politicians say rich people won’t leave if they raise income tax rates.  But the evidence is that they do.  And who can blame people like George Harrison?  Being a Beatle wasn’t easy.  The band broke up before anyone was older than 30.  Because they couldn’t stand it any longer.  Imagine doing something that you enjoy less and less while giving about 95% of your income to the taxman.  If you’re going to do something you don’t enjoy for the money you will want to at least keep the majority of what you earn.

So, does raising tax rates to confiscatory levels make rich people leave the country?  Yes.  And if they leave what percentage of their earnings does the taxman get?  Zero percent.  So what brings in more tax revenue?  A 95% tax rate taxing no income?  Or a much lower tax rate taxing any income?  The lower tax rate taxing any income, of course.  Because it takes two things to make tax revenue.  A tax rate.  And income to tax.  For a tax rate without income to tax is useless.

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