The United Kingdom's 50p top rate of tax on income over £150,000 should be abolished, but replacing it with a so-called mansion tax would also be a mistake.
The British government should abolish the 50p top rate of income tax immediately. It raises a trivial amount of money and the long-run effect may be such that no money is raised at all. Treasury calculations suggest that, if there were no behavioural responses to the 50p tax rate, it would yield £6.5bn. However, even the Treasury believes that it will only raise £2.7bn. There are various reasons for this, but they will include less work and less risk-taking by the well off – and that is bad news for all of us. Furthermore, after allowing for other taxes, such as indirect taxes and payroll taxes, those paying the 50p tax rate on earnings actually pay nearly two-thirds of their income in tax at the margin, so it is no wonder they change their behaviour in response.
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