http://www.independent.ie/business/european/british-budget-2012-2bn-spending-cut-funds-tax-breaks-for-20-million-people-3057034.html
This article describes the recent British attempt at tax reform. It describes two key changes being made to the British system: raising the tax-free allowance of income from £7,475 presently to £10,000 by 2015 and a reduction (from 50p to 45p) in the top tax rate. The latter will probably be controversial, as many people, both in Britain and America, believe the government coddles to the rich. The way to prevent this from happening, the British government says, is to reduce the loopholes that the rich use. This sounds like a good idea but will it have any real effect? And if so, could the United States try to reform its tax system along similar lines, specifically with making the rich more accountable?
5 comments:
I also wonder why the British government reduce the tax rate for the top bracket for only 5%. From my view point, this reduction is marginal and creates little incentives for the top income earners to work harder. Therefore, I agree, at least partially, that the government might be "coddling the rich." Besides, an extra dollars earned by top earners are not likely to be spent, but rather saved. So this tax reduction does not necessarily increase aggregate demand, but rather improve total savings & investments.
The raising of tax-free allowance ceiling would certainly be a welfare-enhancing and egalitarian move.
I think the government's main focus is on the lower and middle class. By increasing the amount of personal allowance exempt from tax, they clearly want these people to increase their consumption levels in the hopes of boosting the economy by more spending.
I am very interested to see if this tax reform is effective in Britain. I believe that if it is successful in Britain then the United States will implement a tax reform of their own. I am also very curious as to how the British government plans to eliminate loopholes that are used by the rich. If they can successfully eliminate the loopholes then the United States will be incredibly interested in how they did that.
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