British Tax Rates Up, Tax Revenue Down

The apparent results of an increase of the top British income tax rate to 50% may moderate because, one, last-minute taxpayers still have time to file (and the group can be expected to lean toward those who owe big) and, two, those who were able to take income before the tax increase may have rushed to do so.  Still, a tax increase shouldn’t result in level tax revenue, let alone decreased tax revenue:

The Treasury received £10.35 billion in income tax payments from those paying by self-assessment last month, a drop of £509 million compared with January 2011. Most other taxes produced higher revenues over the same period. …

Senior sources said that the first official figures indicated that there had been “manoeuvring” by well-off Britons to avoid the new higher rate. The figures will add to pressure on the Coalition to drop the levy amid fears it is forcing entrepreneurs to relocate abroad.

The self-assessment returns from January, when most income tax is paid by the better-off, have been eagerly awaited by the Treasury and government ministers as they provide the first evidence of the success, or failure, of the 50p rate. It is the first year following the introduction of the 50p rate which had been expected to boost tax revenues from self-assessment by more than £1billion.

If this result continues, the only existing rational for retaining the high tax rate would be a punitive measure for earning large sums of money.  If the British government should conclude that the move was a mistake, it will be interesting to see whether there is a lower threshold to overcome the cost of shifting income back into the country and whether wealthy Britons are satisfied with the new homes into which they’ve “manoeuvered” their money.