A complaint here about marginal tax rates at one point on the distribution:

More than half a million people are paying income tax of up to 60 per cent on the top slice of their earnings. A punitive tax trap catches out those on salaries of between £100,000 and £125,000 a year and the number being caught in it is higher than ever, …

That’s a bad idea, obviously. Well above any rational estimation of the peak of the Laffer Curve where revenue is maximised*. So, it should be lower, obviously.

But one of our regular reminders, the Laffer Curve does not only apply to rich people. Marginal tax rates can be too high for poorer people too. As that interface between the income tax system and universal credit is:

Under the UC taper, payments are reduced as claimants earn more. The current taper "rate" is 55%.

That’s too high by the best estimate the literature seems to have of that peak of the Laffer Curve. That is, we’ve already tapped out the ability of squeezing money from the populace in the form of incomes taxes (note, that means taxes upon income, income tax itself plus national insurance, both employees’ and employers’).

Which is why there’re so many beady eyes upon other methods of squeezing of course. Our own solution would be that government just spend less. Sadly, an extremely unpopular idea among those who gain the joy of spending however much the populace might like it.

Tim Worstall

*No, really, the Diamond and Saez estimate is of 54% (including employers’ NI) as the peak in a system like ours