Do you think that raising tax rates will increase revenue to the government? Here’s some real-world experience that tells you that that assumption may not necessarily be true. Britain found out that raising taxed actually cos t their treasury billions of pounds.
Where have all the millionaires gone?
That’s a question many Britons are asking now that new data show nearly two-thirds of the country’s million-pound earners have disappeared not even one year after a tax hike on the nation’s highest earners went into effect.
Britain’s Telegraph newspaper reports that just 6,000 Britons declared income over a million pounds ($1.6 million) to the nation’s tax authority, down from more than 16,000 in the 2009-10 tax year.
Former Labour Party Prime Minister Gordon Brown raised the top rate from 40% to 50% in 2010, shortly before losing the general election to Conservative Prime Minister David Cameron.
The closely watched wealth tax was a disappointment from the beginning, with the first monthly receipts last January bringing a half a billion pounds less than the same month in 2011.
The Telegraph reports the tax increase has so far cost the U.K. Treasury 7 billion pounds.
How is this possible? Well, people who earn a million pounds (or dollars) can move to a place that has lower taxes. That’s easier under European tax law than the US tax law, but it’s possible. The second reason is that many very high income earners have the option of adjusting their income to escape punitive taxes. The may well own their own businesses and set their own salaries. Britain’s experiment in taxes proves that people react to tax rates in ways that lawmakers don’t take into consideration when they try to raise taxes.