Maximum wages and punitive taxation

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I admire Jeremy Corbyn. No, really. I do! He’s such great entertainment value. A bit like Donald Trump only considerably less consistent and without the logic or practical aspects. Our Jezza is just priceless…

His latest idea is a cap on wages. This is, of course, not a new idea. It’s been done before by the Wilson government. In those days there was a 98% top rate of tax comprising 83% income tax plus 15% investment income surcharge. My memory of the time is a bit hazy so I looked it up. I was a teenager at the time but remember my father complaining that Labour were taking 105% of his top slice income. As it turns out that was a bit inaccurate but nevertheless 98% is bad enough.

So what happened? Well, high earners fled the country in droves. Reportedly 750,000 British taxpayers were liable for a 98 percent tax rate in 1974. Take, for example, the Rolling Stones. Reflecting on the time, Bill Wyman said in the band’s DVD “Stones in Exile” that if a band member made a “million quid,” he would be taking home only £70,000. “It was impossible to make enough to pay Inland Revenue. I had to get out of the country to pay the tax that was incurred on me,” Keith Richards remembered.

The Stones weren’t the only ones. Actors left in drove too. And top business people. The rich have the power and the means to just go off to places where the tax is less punitive. The problem is that they takes jobs and investment with them. No wealth, no job creation or entrepreneurship. It’s all gone abroad – and at the end of the day, it’s a global marketplace we’re living in.

So how about the so-called ‘John Lewis model’ where the top man’s pay is pegged to a multiple of the lowest paid worker? Better, but still bad for business. Top companies will just move their headquarters to other countries, killing the UK jobs in their offices and factories. There they can still pay high salaries to attract top people.

There is only one country in the western world that has a maximum wage in place, and that’s Cuba – but before my old friend Longrider starts kicking off about Cuba again, I’m forced to point out that Cuba has a rather curious dual currency system. It’s been said that the maximum Cuban wage equates to about US$30 a month but there is a an external currency and an internal currency, so the equivalence is meaningless. Locals are paid in local currency and they buy stuff in local currency. It’s worthless outside Cuba. As I said, a curious system…

Also, the wages paid to top executives in private companies is a matter for the shareholders, not the government. Corbyn reckons he wouldn’t give government contracts to companies who pay excessive executive salaries. He won’t put a figure on it and it’s unworkable because there’d be nobody left to give the work too!

So, maximum wages pegged by punitive taxation doesn’t work. Government interference in executive pay doesn’t work. In fact, the entire premise of 1970’s socialism on which Corbyn bases Labour policy doesn’t work.

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4 responses to “Maximum wages and punitive taxation

  1. I’m always assured by business people/economists that business doesn’t occur in a vacuum. So if there is a brain drain, surely there are others waiting in the wings ready to fill the gap. I find it quite amusing that the theory goes out the window whenever anyone suggest taxing these mega rich at high rates. I think the problem has been in the past that they have set the threshold too low and captures a lot of people that it shouldn’t. The example of the rolling stones is a good one. Someone earning a million quid a year shouldn’t be subject to a tax that leaves them so little but I certainly wouldn’t object to a tax that takes a goodly amount after the person has already earned an incredibly large amount of money. Say 50-100 million or so. Anybody receiving more than that in personal wealth is immoral, IMO of course. No way should a civilised society have people homeless and starving while others rake in billions. This post has little in the way of backing my argument with economics…because it is about what is morally right. Business is not the be all and end all of everything in life.

    • Of course, the rich already pay more tax. I remember years back sitting on the next desk to a bloke who was a card carrying member of the Socialist Workers Party. He told I wasn’t paying enough tax because I was a contractor and he was a permie.
      I replied I paid a damn sight more than him because I earned twice as much.
      I would support flat rate tax with a higher personal allowance. Take the lower paid out of tax altogether. I don’t mind two tier taxation but more than that is punitive.
      As regards people waiting in the wings, we wouldn’t be exactly encouraging them. They’d be going elsewhere too?

  2. Actually your dad was right to complain. There was, if I remember correctly, an additional “special surcharge” for one year (67/8?) which was based on your taxable income – or maybe just “unearned” income – for the previous tax year. That brought the percentage up to over 100%. My father was livid also: he couldn’t bear sight, sound or mention of Roy Jenkins after that (maybe before that also?).

    • Yeah 67/8 would be about right. I left school on ’68 and it was about that time. I mean how the fuck do you justify taking all of somebody earnings in tax, never mind 105%FFS?!?!?!?!?

      And, of course, if you were self employed, there’d be employer NI on top of that too! Labour really are thieving bastards.

      But at least I wasn’t having a senior moment!…