Wednesday, 22 April 2009

The brain drain and marginal rates of tax

Here's a really easy way of thinking about the proposed new marginal tax rate of 50% for those earning more than £150K per year.

To simplify matters, if one is earning £250K per annum, and one is unable to find a smart enough accountant to figure out how to avoid paying the new marginal tax rate, one would end up paying an additional £10K per year to HMRC.

Will this contribute to a brain drain as alleged by City wizards?

Yes it might at the margin - to use a pun.

But on the other hand, if the tax had been in effect a few years ago and had lead to the threatened brain drain, the RBS, Northern Rock, Lloyds TSB etc. accidents could well have been some other jurisdiction's problems. That way UK citizens might have avoided a lot of the pain that is to come from the dreadful state of the public finances revealed in today's budget.

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