Tax is messier than we might think

As former vice presidential hopeful Paul Ryan has unveiled in his budget, the marginal tax rates that face some Americans are hideously complex:

(Source: ZeroHedge)

Jonathan Jones has done some rough calculations to show the effect of Alistair Darling's 2009 budget arrangements which see those earning £100,000 to £112,950 facing higher taxation than those earning over £112,950:

(Source: Spectator)

As a result of the myriad of tax credits, benefits and other income rules that exist in the UK the marginal tax rates that people face are actually more similar to the hectic US diagram shown further above. However the 60p rate hurdle does illustrate the point. Such messy systems create incentives for taxpayers to work in strange ways to reduce their tax liabilities. The efforts that work requires is diverted from other more meaningful activities, and so clunky marginal tax rates result in effort being siphoned off from the real economy. Yet another argument for the simplification of our tax system.