50% Tax Rate Discourages Entrepreneurs? Nonsense

"The suggestion that the 50% tax rate discourages entrepreneurs is nonsense. Very few entrepreneurs are on the 50% tax rate, or even aspire to be. Those who seek to make their fortune plan to do so by selling their company and the income from that is taxed at just 10%. It is the likes of bankers, lawyers and managers at major corporates that make up the top 1% of earners, who are above the £150k limit. I can’t imagine why the proponents felt these groups would not evoke public sympathy and evoked the valiant entrepreneur instead."

(Or view my letter and others on the Guardian website.)

No entrepreneur sets up a business and pays themselves over £150,000. If a six-figure salary is your aim you wouldn’t start up a new business. You would target the professions or a career in a big company.

Some entrepreneurs want to be able to control their lives. Many, like me, start by simply not wanting to have to do what others tell you. Some are certainly motivated by making a lot of money, and dream of being the next Bill Gates or Mark Zuckerberg. And some Brits have made it. Iain Dodsworth became a multi-millionaire when Twitter bought Tweetdeck. Michael and Xochi Birch pocketed $595 million when they sold Bebo to AOL. But the dream is of building the company and selling it, or at least part of it. And as I said in the letter, the tax rate on that gain, the tax rate that Dodsworth and Birch will have paid, is just 10% which couldn’t be a deterrent even to the most skinflint of free market evangelists.

There are many things that the government can do to help entrepreneurs but cutting the 50% tax rate is not one of them. A far bigger deterrent to setting up in business is the fact that being an entrepreneur is probably the only profession where a mistake or simple bad luck can lead to losing your house. That doesn’t even happen to convicted criminals. Or the fact that government procurement is so biased towards large, expensive (and inflexible) big businesses, rather than the free and fair competition the government advocates.

We have all been asked to tighten our belts at the moment and many many people have received no real salary increase for years. It is odd that the wealthy feel that they alone should be exempt from this sharing of the load, especially as they include far more of the people responsible for the crisis than the less well-off.

Related blogs

• It is Good to Pay Tax- Henry's thoughts on taxation.

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