N.B. I'm not the Devil
Over at the TaxPayers' Alliance, we've got a new report out today investigating the marginal tax rates that hit entrepeneurs, and calculating the scale at which tax policies remove the incentives to actually take a risk and be an entrepeneur.
Entrepeneurship is a risky activity for the individuals involved, which is of great benefit to the wider economy. It's in all our interests that there are rewards available for taking the risk of leaving the relative security of employment to invest your own time and money in a business idea. The incentive for taking those risks is of course the profit you make back if you're successful.
However, at every stage of the process the State is there to take a cut. We investigated the total marginal tax rate on an entrepeneur who earns a profit, saves it, invests it in a company and then leaves it to their children. Currently, that rate is 90%—they will only have 10% of their original profits left.
When you test the new 50% higher rate of income tax, though, that marginal rate goes up to 92%. An extra 2% might not seem a lot, but it is effectively reducing the existing incentive by 20%. This is yet another kick in the teeth for entrepeneurship.
We already know from various independent assessments that the 50% higher rate is unlikely to raise any revenue for the public coffers, and indeed it may well lose money by deterring investors. This latest study demonstrates quite how damaging the rate will be to a vital sector of the economy.
If we are going to grow our way out of this recession, then we will need the risk-takers, the innovators and the entrepeneurs. They won't put their livelihoods, homes and careers on the line if the Government continues to give them a kicking.
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