Thursday, January 14, 2010

Tax rate of 50%? That's crazy!

Just saw the news for U.K. today. Seems like the U.K. government is going to tax those earning more than 1 million pounds 50%! To me personally, that looks like a large ditch effort to swing votes to the current party for the next election. This will not do any good to the U.K. economy.

The reason is very simple. One of the best incentives for people to work hard is of course money. Now if the government is telling you that you can earn a lot, but I'm going to take half of it because you earn too much, what will be your reaction?

There will only be two. Either you migrate away, or you'll stop working hard so you'll earn lesser. Either case, it is not good for the country. Your boss is usually richer than you and if your boss decides to migrate away or close down the company, how will that affect the country's employment rate?

There are many side effects in chasing the rich away and many of the indirect problems will be less spending and even worsening unemployment. The rich are usually the ones with high disposable cash. I hope voters would be able to see that sometimes, the easy way out of resolving the problem might result in a even bigger problem in the future.

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