Failed businessman’s daft taxation plan

Good one Jackson! you should be on stage!

Ludo Thierry:

Couldn’t help but be mightily amused by Fraser of Allander’s beautifully dry demolition job on Jackson Carlaw’s Scottish sub-branch manager campaign around ‘taxation’.

‘Union’ Jacko has come up with a taxation policy to close the income tax ‘gap’ between Scotland and Ukania for those earning between £27,000 and £45,000. Only thing is – it ain’t possible to do this without reducing Scottish revenue receipts by a whopping £270M. FoA trace through Carlaw’s pathetic gibberings and conclude that he must be planning to raise the income tax rate for earners in the Higher Rate band to 42p in the pound – Presumably not quite what Union Jacko had in mind! – Link and snippets below (The FM wasn’t wrong when she dubbed Carlaw’s campaign as “Comedy Gold”) :

https://fraserofallander.org/scottish-economy/fiscal-policy/analysis-of-jackson-carlaws-income-tax-proposals/amp/?__twitter_impression=true

Earlier this week, Scottish Conservatives leadership candidate Jackson Carlaw committed to close the income tax gap between Scotland and rUK for those earning between £27,000 and £45,000.

The majority of individuals with income in this range (those with incomes less than £43,430) currently face annual income tax liabilities of up to £150 higher than equivalent counterparts in rUK. But this difference increases rapidly beyond £43,430, reaching £500 at incomes of £45,000

How might Jackson Carlaw’s commitment be implemented in practice?

The obvious way would be to cancel the Intermediate Rate of tax in Scotland (which levies a 21% marginal rate of tax on Scottish taxpayers with income between £25,000 and £43,430 as opposed to the 20% rate prevailing in rUK) and to increase the Higher Rate threshold from £43,430 to £45,000.

If this policy was implemented in 2020/21 it would reduce the government’s income tax revenues by around £270 million (Mr. Carlaw will not be in a position to implement the policy until 2022/23 at the earliest, but we examine the implications in 2020/21 for illustration).

One of the reasons why the policy appears perhaps surprisingly expensive is that the elimination of the intermediate rate and increase in higher rate threshold would also apply to taxpayers with incomes above £45,000….the policy would affect average household incomes at each decile of the distribution. The policy predominantly benefits households in the upper two deciles (i.e. upper fifth) of the distribution.

This result might be seen as puzzling, given the stated aim of the policy to help ‘middle earners’.

• Households in the bottom third of the income distribution contain very few individuals who have taxable incomes above £25,000.
• Those earning below £30,000 gain very little from the policy, as the difference in liability that they face relative to rUK is small.
• The percentage income gains are highest for those with taxable incomes between £43,430 and £45,000 (these individuals are at around the 85th percentile of taxpayers, i.e. they are in the top 15% of taxpayers ranked by income), and these individuals tend to live in households in the top fifth of the income distribution.
• Meanwhile the cash gain for someone with income of £100,000 is the same as someone with income of £45,000.

Hence a policy framed as supporting ‘middle earners’ predominantly benefits households at the top of the distribution of household income.

Of course if the objective is to help ‘middle earners’ but not necessarily those earning above £45,000, then the cut to the intermediate rate could be offset by a further increase in the higher rate, to say 42p. At the moment, it is not clear whether this is what Jackson Carlaw intends.

Published by johnrobertson834

Retired Professor of Media Politics Not-for-profit independent political analysis

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