6 ms·

Throwaway account. I currently reside in the UK, and am in the upper %'s of earners (no idea on the actual %), but my company of which I am the sole shareholde

by tax123 6y ago

Throwaway account. I currently reside in the UK, and am in the upper %'s of earners (no idea on the actual %), but my company of which I am the sole shareholder currently does around $450k profit per month. With the planned corporation tax rises that the government has just announced, it means that the majority of my income will be effectively taxed at > 53% (corporation tax + dividend tax). I also pay the government already around $200,000 per month via VAT on my goods sold. I'll get 47c for every $1 earnt. I understand that I'm a higher earner, and therefore naturally am going to be paying high taxes, but paying over 50% just seem wrong. I am in a few circles with other sizable business owners, and after this tax hike many of us are now moving abroad (Malta, Monaco & Italy are the top options). I'm currently in the process of relocating to Monaco, which although I would prefer to continue to reside in London, I simply am unwilling to pay 7 figures per year to do so. I do wonder how much tax is lost due to people dodging/hiding or relocating, vs if the tax rates were more "reasonable"? I understand my opinion here is probably biased, just thought I'd throw in my 2 cents.

tlarkworthy 6y ago
50% seems reasonable and inline with living in California when you add up state (13%) and federal (37%) tax. I think its good value in the UK compared compared to how little social benefit you see in the US yet still pay a massive amount of tax.
fock 6y ago
how about increasing wages? I doubt that every one of your employees is getting taxed 53%. So I think the system is just working as expected.
- alistairSH 6y ago
  This. The problem is that Monaco exists as a tax haven, and is easily accessibly (at least for Europe's wealthy). 99% of the time I hate that the US taxes citizens' income when they move overseas, but then I hear a story like this and change my mind for a day or two.
- tax123 6y ago
  I don't have any employees.
throwaways885 6y ago
> I understand that I'm a higher earner, and therefore naturally am going to be paying high taxes, but paying over 50% just seem wrong. I have to agree with you. A huge number of regular (albeit comfortable) people, also pay > 50% in income tax. When they complain about "the 1%", it's because they see people like you having the means to get out of this system. They're angry you're not suffering alongside them.
- ceejayoz 6y ago
  > They're angry you're not suffering alongside them. I tend to doubt OP is suffering at $450k/month profit, even if half of it goes to tax.
  - throwaways885 6y ago
    Half of that going to tax is terrible for the business's cash flow. That and the abysmal interest rates just incentivise businesses to waste money rather than save it for a rainy day.
    - ceejayoz 6y ago
      > Half of that going to tax is terrible for the business's cash flow. It's almost like there's an entire society outside the business to think of.
      - throwaways885 5y ago
        A more profitable business is slightly worse for society now, but much much better in terms of long term tax revenues.
- tax123 6y ago
  I have the means to do it right now, but may not in the future - which is why I am doing it right now. I'm currently 26, with no children. In 10 years, this move may not be so simple. My goal with this move is to leave for 5 years or so and acquire enough wealth that I will be personally comfortable for the rest of my life. At which point I would likely to move to wherever I preferred to live in the world (regardless of tax rate), and to work on something more enjoyable and meaningful rather than simply chasing dollars.
zhoujianfu 6y ago
I don’t know if this is right and can’t find the source, but I vaguely remembering around 40% is when the government doesn’t actually take home more income by raising taxes, because rich people start moving away/hiding income. I do have to say anecdotally that 40% does “feel” around the upper limit of what’s “fair” to me..
- tax123 6y ago
  I could see this being true. I know myself, and several others I know who are currently moving (mainly in the 7 to low 8 figures per year range) that are currently moving abroad that would likely just stay put at a flat 40% rate. I know it's entirely psychological, but going over the 50% mark has annoyed several of my peers (and myself) and fueled this move. Something about receiving less than half of what you work for rubs you the wrong way.
  - zo1 6y ago
    50% is a very psychological number. It's half, and telling people that half of their time is spent on money that they literally let someone else spend for the social-good is not a good thing. Start getting into the 80%+ range, and the conversation should rightfully center around indentured servitude and slavery. One thing that I don't understand why were not discussing/suggesting: If we must have taxes, and we want to go above 40/50%, why not consider giving people more choice in where that money gets spent as a way to offset the "negative" feelings. I think a lot of people would be more okay with large percentage tax-values if they were in control of what that money was being spent on.
- zo1 6y ago
  You may be thinking of the Laffer curve (https://en.wikipedia.org/wiki/Laffer_curve https://en.wikipedia.org/wiki/Laffer_curve). Though my understanding of it is that it doesn't prescribe any singulary "point" like 40%, but just says that there is a point somewhere and that this is the relative behavior of total tax collection around it, wherever it exists.
- pydry 6y ago
  From 1932 to 1986 the marginal top rate was >= 50%, topping out at 92% https://cdn.theatlantic.com/thumbor/fNk9ykzBXTBck1HJK0pFxYhXMB8=/672x1015/filters:format(png)/media/img/posts/2019/01/TaxRatesClean/original.png https://cdn.theatlantic.com/thumbor/fNk9ykzBXTBck1HJK0pFxYhX... As soon as it fell below 50%, median income growth stalled and hasn't really budged ever since: https://en.wikipedia.org/wiki/Causes_of_income_inequality_in_the_United_States#/media/File:2008_Top1percentUSA.png https://en.wikipedia.org/wiki/Causes_of_income_inequality_in... Compounding is one potential reason why. A 92% top tax rate helps keep a lid on geometric wealth growth via compounding.
an_opabinia 6y ago
I don't know. What's the right amount of tax? Broadly, retail people like you and me, we don't have an opinion of a specific value, like 22% or 44% or whatever, we just feel up and down or whatever. That's fine. That notwithstanding: your business profits come from somewhere right? Maybe your customer's customers, seeing as it's probably a software business. How much lower would taxes get until your customers spend money on health insurance / health catastrophes? On cars to replace a worse metro, or on apartments closer to work? On private schooling? On vacations out of the country? What if people stopped moving to London? If its services got worse and people left, how could that possibly be good for anyone? I don't really want to generalize why because I don't live there, it is of course an amazing place to live. Is the underlying problem that London and the UK, the way they are, are expensive? What you wind up not paying in taxes, your customers will pay anyway, and maybe not even in a strict sense of Non Tax Compulsory Payments - the accounting mechanism typically used in the US - but simply to enjoy a high quality of life. And maybe this is why so many low tax locales have such primitive economies, people are spending on other things besides sophisticated software services. Ironically this aligns me still with a "right" amount of slightly lower tax. It's probably about 38-44%, and it ought to be simpler. I really don't like people leaving California, especially high earners, but I understand that they also blame tax for other grievances. So maybe the real takeaway is to not generalize, and instead support technocrats who can explain and analyze these issues.
- gher-shyu3i 6y ago
  > I don't know. What's the right amount of tax? Islam solved this problem a long time ago. Look up Zakat laws. For your cash in the bank that has been sitting for 1 year, it's an extremely reasonable 2.5%.
globular-toast 6y ago
> I also pay the government already around $200,000 per month via VAT on my goods sold. You don't pay the VAT, the consumers pay the VAT. Enjoy Monaco. I fear it will just feed your greed even more and won't make you happy, though.
- tax123 6y ago
  I do not plan to reside in Monaco forever, nor do I think I will be particularly happy there. I'm 100% certain I won't be as happy as I currently am in London. It's simply a place for me to live for a few years until I'm confident that I'll personally have enough funds to live the life I want forever (and provide that life for my family). It's a sacrifice I'm willing to make at 26 years old, so that when I'm 31 me and my family will be good for life. After that, I will likely relocate to either the south of France, the UK or Canada, subject to change - and work on more meaningful projects.
ectopod 6y ago
Why not take your compensation as salary rather than dividends? You'll be paying the top rate of 45%. Am I missing something?
- tax123 6y ago
  Because it is my copporation, I would also have to pay the employer and employee NI contributions, and therefore dividends have always been the most tax efficient way for UK business owners to extract their profits. That said with these new corporation tax hikes, it's approximately the same now (dependent on the amount £££).
  - ectopod 6y ago
    Cheers. I thought NI was capped at a fairly low level so I ignored it, but it turns out that employer's NI is not.
VBprogrammer 6y ago
You do not pay the government VAT. You collect VAT on purchases on the governments behalf, that amount was never yours in the first place. That aside I make a comfortable living as a software developer in London. My effective tax rate is around 35%. If I was earning > 10x what I currently earn I don't think I'd be complaining about an extra 18% in tax.
- zajio1am 6y ago
  > You do not pay the government VAT. You collect VAT on purchases on the governments behalf, that amount was never yours in the first place. While technically true from the legal and accounting point of view, but from economic point of view one could argue that there would be one market price level without VAT (p0), and current market price level with VAT (p1, p1+vat). Then real effect of VAT on consumers is (p1+vat-p0) and on providers is (p0-p1).
gmac 6y ago
It seems you’re relocating on principle, and the principle is: you deserve the majority of your company’s profits for yourself. There are other principles you could apply, though. For example, placing even a very small weighting on overall social welfare would probably reverse your position. How much happier do you think the increase you are pursuing on your extremely large income will make you? How much happier do you think the same money could make the kinds of people on whom much of your tax receipts would have been spent? For example, state pensioners, or people struggling in the gig economy and relying on food banks to get by?
- tax123 6y ago
  You raise good points, and I am not fundamentally against taxes. I believe they are an extremely important part of society. That said (and this may be unique to me), I am a 1 employee corporation and I still work 15hour+ days. If they keep taking a larger and larger cut, I'm simply going to start working less (and therefore earning less), and I feel like it won't have the impact on tax revenues they are hoping for. I do however understand that my situation is maybe not "normal".
  - gmac 6y ago
    Thanks for your thoughtful reply. It's interesting that you mention that higher taxation might lead you to work less hard. In general, it's possible that this would be a good thing for everybody. You'd get more time for relaxation and other interests. At the same time, everyone else would experience less envy. I appreciate that this may sound weird. However, there's evidence that people are much more rivalrous about income and consumption than they are about their leisure time. In the extreme, if people cared only about relative income (i.e. rank), then earning more money would be wholly zero-sum. In reality, of course, people care partly about relative and partly about absolute income. But that still implies that the socially optimal income tax is non-zero, since that encourages more (non-rivalrous) leisure at the expense of (rivalrous) consumption. The economist Richard Layard has made this argument more formally [1]. [1] e.g. https://core.ac.uk/download/pdf/208274889.pdf https://core.ac.uk/download/pdf/208274889.pdf
DrBazza 6y ago
> I do wonder how much tax is lost due to people dodging/hiding or relocating, vs if the tax rates were more "reasonable"? Just look at the 70s in the UK. It was 'tax them until the pips squeak', and it had exactly the effect of driving business and high net worth individuals away from the UK.
gher-shyu3i 6y ago
> but paying over 50% just seem wrong. It doesn't seem wrong, it is outright wrong. It's stealing.

by tax123 6y ago

tlarkworthy 6y ago

50% seems reasonable and inline with living in California when you add up state (13%) and federal (37%) tax. I think its good value in the UK compared compared to how little social benefit you see in the US yet still pay a massive amount of tax.

fock 6y ago

how about increasing wages? I doubt that every one of your employees is getting taxed 53%. So I think the system is just working as expected.

alistairSH 6y ago
This. The problem is that Monaco exists as a tax haven, and is easily accessibly (at least for Europe's wealthy). 99% of the time I hate that the US taxes citizens' income when they move overseas, but then I hear a story like this and change my mind for a day or two.
tax123 6y ago
I don't have any employees.

throwaways885 6y ago

> I understand that I'm a higher earner, and therefore naturally am going to be paying high taxes, but paying over 50% just seem wrong. I have to agree with you. A huge number of regular (albeit comfortable) people, also pay > 50% in income tax. When they complain about "the 1%", it's because they see people like you having the means to get out of this system. They're angry you're not suffering alongside them.

ceejayoz 6y ago
> They're angry you're not suffering alongside them. I tend to doubt OP is suffering at $450k/month profit, even if half of it goes to tax.
- throwaways885 6y ago
  Half of that going to tax is terrible for the business's cash flow. That and the abysmal interest rates just incentivise businesses to waste money rather than save it for a rainy day.
  - ceejayoz 6y ago
    > Half of that going to tax is terrible for the business's cash flow. It's almost like there's an entire society outside the business to think of.
    - throwaways885 5y ago
      A more profitable business is slightly worse for society now, but much much better in terms of long term tax revenues.
tax123 6y ago
I have the means to do it right now, but may not in the future - which is why I am doing it right now. I'm currently 26, with no children. In 10 years, this move may not be so simple. My goal with this move is to leave for 5 years or so and acquire enough wealth that I will be personally comfortable for the rest of my life. At which point I would likely to move to wherever I preferred to live in the world (regardless of tax rate), and to work on something more enjoyable and meaningful rather than simply chasing dollars.

zhoujianfu 6y ago

I don’t know if this is right and can’t find the source, but I vaguely remembering around 40% is when the government doesn’t actually take home more income by raising taxes, because rich people start moving away/hiding income. I do have to say anecdotally that 40% does “feel” around the upper limit of what’s “fair” to me..

tax123 6y ago
I could see this being true. I know myself, and several others I know who are currently moving (mainly in the 7 to low 8 figures per year range) that are currently moving abroad that would likely just stay put at a flat 40% rate. I know it's entirely psychological, but going over the 50% mark has annoyed several of my peers (and myself) and fueled this move. Something about receiving less than half of what you work for rubs you the wrong way.
- zo1 6y ago
  50% is a very psychological number. It's half, and telling people that half of their time is spent on money that they literally let someone else spend for the social-good is not a good thing. Start getting into the 80%+ range, and the conversation should rightfully center around indentured servitude and slavery. One thing that I don't understand why were not discussing/suggesting: If we must have taxes, and we want to go above 40/50%, why not consider giving people more choice in where that money gets spent as a way to offset the "negative" feelings. I think a lot of people would be more okay with large percentage tax-values if they were in control of what that money was being spent on.
zo1 6y ago
You may be thinking of the Laffer curve (https://en.wikipedia.org/wiki/Laffer_curve https://en.wikipedia.org/wiki/Laffer_curve). Though my understanding of it is that it doesn't prescribe any singulary "point" like 40%, but just says that there is a point somewhere and that this is the relative behavior of total tax collection around it, wherever it exists.
pydry 6y ago
From 1932 to 1986 the marginal top rate was >= 50%, topping out at 92% https://cdn.theatlantic.com/thumbor/fNk9ykzBXTBck1HJK0pFxYhXMB8=/672x1015/filters:format(png)/media/img/posts/2019/01/TaxRatesClean/original.png https://cdn.theatlantic.com/thumbor/fNk9ykzBXTBck1HJK0pFxYhX... As soon as it fell below 50%, median income growth stalled and hasn't really budged ever since: https://en.wikipedia.org/wiki/Causes_of_income_inequality_in_the_United_States#/media/File:2008_Top1percentUSA.png https://en.wikipedia.org/wiki/Causes_of_income_inequality_in... Compounding is one potential reason why. A 92% top tax rate helps keep a lid on geometric wealth growth via compounding.

an_opabinia 6y ago

I don't know. What's the right amount of tax? Broadly, retail people like you and me, we don't have an opinion of a specific value, like 22% or 44% or whatever, we just feel up and down or whatever. That's fine. That notwithstanding: your business profits come from somewhere right? Maybe your customer's customers, seeing as it's probably a software business. How much lower would taxes get until your customers spend money on health insurance / health catastrophes? On cars to replace a worse metro, or on apartments closer to work? On private schooling? On vacations out of the country? What if people stopped moving to London? If its services got worse and people left, how could that possibly be good for anyone? I don't really want to generalize why because I don't live there, it is of course an amazing place to live. Is the underlying problem that London and the UK, the way they are, are expensive? What you wind up not paying in taxes, your customers will pay anyway, and maybe not even in a strict sense of Non Tax Compulsory Payments - the accounting mechanism typically used in the US - but simply to enjoy a high quality of life. And maybe this is why so many low tax locales have such primitive economies, people are spending on other things besides sophisticated software services. Ironically this aligns me still with a "right" amount of slightly lower tax. It's probably about 38-44%, and it ought to be simpler. I really don't like people leaving California, especially high earners, but I understand that they also blame tax for other grievances. So maybe the real takeaway is to not generalize, and instead support technocrats who can explain and analyze these issues.

gher-shyu3i 6y ago
> I don't know. What's the right amount of tax? Islam solved this problem a long time ago. Look up Zakat laws. For your cash in the bank that has been sitting for 1 year, it's an extremely reasonable 2.5%.

globular-toast 6y ago

> I also pay the government already around $200,000 per month via VAT on my goods sold. You don't pay the VAT, the consumers pay the VAT. Enjoy Monaco. I fear it will just feed your greed even more and won't make you happy, though.

tax123 6y ago
I do not plan to reside in Monaco forever, nor do I think I will be particularly happy there. I'm 100% certain I won't be as happy as I currently am in London. It's simply a place for me to live for a few years until I'm confident that I'll personally have enough funds to live the life I want forever (and provide that life for my family). It's a sacrifice I'm willing to make at 26 years old, so that when I'm 31 me and my family will be good for life. After that, I will likely relocate to either the south of France, the UK or Canada, subject to change - and work on more meaningful projects.

ectopod 6y ago

Why not take your compensation as salary rather than dividends? You'll be paying the top rate of 45%. Am I missing something?

tax123 6y ago
Because it is my copporation, I would also have to pay the employer and employee NI contributions, and therefore dividends have always been the most tax efficient way for UK business owners to extract their profits. That said with these new corporation tax hikes, it's approximately the same now (dependent on the amount £££).
- ectopod 6y ago
  Cheers. I thought NI was capped at a fairly low level so I ignored it, but it turns out that employer's NI is not.

VBprogrammer 6y ago

You do not pay the government VAT. You collect VAT on purchases on the governments behalf, that amount was never yours in the first place. That aside I make a comfortable living as a software developer in London. My effective tax rate is around 35%. If I was earning > 10x what I currently earn I don't think I'd be complaining about an extra 18% in tax.

zajio1am 6y ago
> You do not pay the government VAT. You collect VAT on purchases on the governments behalf, that amount was never yours in the first place. While technically true from the legal and accounting point of view, but from economic point of view one could argue that there would be one market price level without VAT (p0), and current market price level with VAT (p1, p1+vat). Then real effect of VAT on consumers is (p1+vat-p0) and on providers is (p0-p1).

gmac 6y ago

It seems you’re relocating on principle, and the principle is: you deserve the majority of your company’s profits for yourself. There are other principles you could apply, though. For example, placing even a very small weighting on overall social welfare would probably reverse your position. How much happier do you think the increase you are pursuing on your extremely large income will make you? How much happier do you think the same money could make the kinds of people on whom much of your tax receipts would have been spent? For example, state pensioners, or people struggling in the gig economy and relying on food banks to get by?

tax123 6y ago
You raise good points, and I am not fundamentally against taxes. I believe they are an extremely important part of society. That said (and this may be unique to me), I am a 1 employee corporation and I still work 15hour+ days. If they keep taking a larger and larger cut, I'm simply going to start working less (and therefore earning less), and I feel like it won't have the impact on tax revenues they are hoping for. I do however understand that my situation is maybe not "normal".
- gmac 6y ago
  Thanks for your thoughtful reply. It's interesting that you mention that higher taxation might lead you to work less hard. In general, it's possible that this would be a good thing for everybody. You'd get more time for relaxation and other interests. At the same time, everyone else would experience less envy. I appreciate that this may sound weird. However, there's evidence that people are much more rivalrous about income and consumption than they are about their leisure time. In the extreme, if people cared only about relative income (i.e. rank), then earning more money would be wholly zero-sum. In reality, of course, people care partly about relative and partly about absolute income. But that still implies that the socially optimal income tax is non-zero, since that encourages more (non-rivalrous) leisure at the expense of (rivalrous) consumption. The economist Richard Layard has made this argument more formally [1]. [1] e.g. https://core.ac.uk/download/pdf/208274889.pdf https://core.ac.uk/download/pdf/208274889.pdf

DrBazza 6y ago

> I do wonder how much tax is lost due to people dodging/hiding or relocating, vs if the tax rates were more "reasonable"? Just look at the 70s in the UK. It was 'tax them until the pips squeak', and it had exactly the effect of driving business and high net worth individuals away from the UK.

gher-shyu3i 6y ago

> but paying over 50% just seem wrong. It doesn't seem wrong, it is outright wrong. It's stealing.