Tax Study from UK Argues Higher Marginal Rate will Cripple Entrepreneurship

The US is not the only country faced with crippling effect of higher tax rates.

The TaxPayers' Alliance in the UK has just released a new report by Jonathan Scott and Matthew Sinclair that shows that the new 50p tax rate will push the total tax burden on high earnings to crippling levels and argues that will mean fewer entrepreneurs and jobs.  The report argues that government tax changes, which will raise the marginal tax rate, will reduce the incentives to become an entrepreneur.

The UK did not benefit significantly from the entrepreneurial boom that led up to this recession, according to the authors.  They state that business formation in the UK grew only 0.3% from 1997 to 2006.  With these higher tax rates, it is doubtful that entrepreneurs will be leading the way with new job creation in the UK any time soon.

From the report:

When entrepreneurs earn a large amount of money they will often earn
substantial amounts above the various tax thresholds, save and invest that
money then eventually pass it on to their children. That money is therefore
taxed repeatedly before it is spent and winds up facing a very high marginal
rate:

• Under the present tax system that rate is around 90 per cent.
• With the proposed 50 per cent top tax rate, the marginal rate facing successful entrepreneurs could rise to 92 per cent. That means this measure has taken 20 per cent of the money entrepreneurs are left under the present 40 per cent top tax rate.
• Even if entrepreneurs take their initial reward as capital gains and benefit from the Entrepreneurs' Relief, they will still face a marginal rate of 86 percent.