Thursday, March 22, 2007
Brown cuts basic tax rate by 2p
Chancellor Gordon Brown announced a cut in the basic income tax rate from April 2008 in a surprise move at the end of what is likely to be his last Budget. But his decision to scrap the lower 10p tax rate and raise National Insurance thresholds means few will be better off - and prompted claims of a "con trick".
Read the full story at: http://news.bbc.co.uk/1/hi/uk_politics/6472999.stm
A fall in the rate of income tax will increase disposable income, thus increasing consumption and hence GDP. It may also have important supply side effects in improving the incentives to work (rather than, for example, claim benefits), all other things equal. However, in this case, because other taxes have been raised and tax thresholds altered, for most people disposable income will overall be unchanged. Thus the effect will be relatively neutral. Many commentators see the fall in the headline rate of tax as a pre-emtive strike against the Conservatives, who have traditionally regarded low-tax as their territory, in the run-up to the next general election.
The much acclaimed new interactive learning package LiveEcon can help you understand the economics behind these important policy events. The effect of a change in income tax is detailed in chapters 4 and 9/10/14 (at principles and intermediate level, respectively). Find out how to get LiveEcon at http://www.liveecon.com/. Download this blog as a Blogcast via the website.
Chancellor Gordon Brown announced a cut in the basic income tax rate from April 2008 in a surprise move at the end of what is likely to be his last Budget. But his decision to scrap the lower 10p tax rate and raise National Insurance thresholds means few will be better off - and prompted claims of a "con trick".
Read the full story at: http://news.bbc.co.uk/1/hi/uk_politics/6472999.stm
A fall in the rate of income tax will increase disposable income, thus increasing consumption and hence GDP. It may also have important supply side effects in improving the incentives to work (rather than, for example, claim benefits), all other things equal. However, in this case, because other taxes have been raised and tax thresholds altered, for most people disposable income will overall be unchanged. Thus the effect will be relatively neutral. Many commentators see the fall in the headline rate of tax as a pre-emtive strike against the Conservatives, who have traditionally regarded low-tax as their territory, in the run-up to the next general election.
The much acclaimed new interactive learning package LiveEcon can help you understand the economics behind these important policy events. The effect of a change in income tax is detailed in chapters 4 and 9/10/14 (at principles and intermediate level, respectively). Find out how to get LiveEcon at http://www.liveecon.com/. Download this blog as a Blogcast via the website.
# posted by Sam @ 16:49 
