During their 2017 election campaign, the Labour Party announced proposals to make the rich pay more income tax. They claimed that this would be a fair and effective way to increase tax revenues, while critics thought that behavioural changes would mean that no additional revenue would be raised.
As things currently stand, there is a 40% income-tax rate on all incomes from £45,000 to £150,000, and a 45% rate for all incomes above £150,000. Labour proposed a 45% income-tax rate on incomes from £80,000 to £123,000, and a 50% rate on incomes over £123,000. IFS analysis indicates that Labour’s reforms would have affected 1.3 million people (the highest-earning 2% of taxpayers) and potentially raised somewhere between £0 and £4.5 billion in additional tax revenue. The range of possible values shows that this reform was subject to a large degree of uncertainty. So what exactly will determine how much is raised by an increase in the top rate of tax?
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