A taxing question

There are suggestions in the media today that the top rate of income tax, currently set at 50% for earnings above £150,000 should be abolished. The main bone of contention seems to be that the rate as it stands is not an effective way of raising tax and indeed may raise less tax than a lower rate. This is of course, not a new idea. A concept known as the Laffer Curve explains this concept very well, suggesting that there is an 'optimum' tax rate which will maximise the tax take. Too low and the tax will fail to raise all it could; too high and people will be disincentivised to work and the tax revenue will fall. The logic suggests that there is a rate that will result in the maximum tax revenue from the tax paying population.

What do we think that optimum tax rate might be?

An associated issue of course is that there is a general misconception regarding the 50% tax rate. The rate is a 'marginal' rate and is therefore paid only on earnings above the £150,000 threshold. So, for someone earning £160,000, they would be liable for 50% of the £10,000 above the threshold. Below that level they would pay varying amounts according to the 'progressive' tax structure that the UK operates.

What is the difference between a progressive and a regressive tax structure?