Death and Taxes

“In this world nothing can be said to be certain, except death and taxes,” Benjamin Franklin is supposed to have said, to which Will Rogers added: “The difference between death and taxes is death doesn’t get worse every time Congress meets.”

In his March 2012 Budget Statement, UK Chancellor George Osborne said, “My goal is a tax system where the lowest paid are lifted out of the tax altogether, while the tax revenue we get from the richest increases.” This introduces the debate over a person’s change in behaviour as a labourer – and earner of income – when there is more or less incentive to achieve more in one’s job. According to AngloInfo, the global expat network in London, “The UK operates a system of independent taxation. In determining an individual’s liability to UK tax it is first necessary to consider their residence and domicile status.” Natalie Blake is a resident of the UK and calls London home, so she is subject to the national income tax system. By attending university, becoming a successful lawyer, and marrying a man who comes from a wealthier family and who also earns income, Natalie may be moving into a higher income tax bracket. In UK’s progressive tax system (demonstrated in the table below, where greater income earned places the earner in a higher bracket, thus yielding a higher rate of taxation; Source: AngloInfo),

Natalie will pay higher taxes with her greater earned income.

There is much debate among economists on the impact this will have on her spending patterns and behaviour. “Five pounds each, five items. Poundland. Natalie could remember doing this…back in the day, but then it was one pound, and you got so much more for your money, and everything had to be ‘useful,’” (Smith, 292). This statement captures Natalie’s awareness of the changes of income levels in her households throughout her life and of her perception of what makes sense as rational economic behaviour. Rational behaviour, one of the primary basic economic assumptions, is that humans seek greatest possible utility at the lowest possible costs, where utility is the satisfaction gained. The debate about taxes begins with the uncertainty of how rational humans react to high tax rates.

Some economists believe that raising tax rates on the wealthy “won’t do anything to reduce the share of income going to the ultrawealthy and thereby equalize the distribution of income,” however, it will provide the government with the revenue the government needs (Bartlett). According to conservatives, “if tax rates are too high…the rich will stop working and investing in job-creating business and instead spend all their time vacationing and seeking out tax shelters. Therefore, [government] revenues will fall,” (Bartlett). “Workers substitute more hours at work for time spent in leisure if the wage rate rises, as leisure time has become relatively more expensive,” (Krueger). This is known as the substitution effect. The opposing theory is that of the income effect, in which case: “if workers are paid more, they like to use their extra income to consume more of the things they enjoy, including leisure time,” (Krueger). The income effect shows that because there are high tax rates, workers need to work harder and work more to earn income to then compensate for the income lost to paying taxes. With the extra income earned, they can continue their regular spending habits.

Natalie Blake exhibits characteristics relating more to the income effect. She has worked hard during her life, doing well in school, then attending university, and eventually becoming a successful lawyer. This shows incentive to earn income, whether it is because of the need to provide for her children and husband, or to prove to her family that she has made something of herself, despite her socioeconomic origin. She has the ability to purchase for her children three rubber balls, a “sticker set, a big red pitchfork…flashing plastic duck…plastic sword,” despite their arguable uselessness in terms of basic human needs, which makes them objects of leisure (Smith, 292). This supports the theory of the income effect, where Natalie’s ability to purchase these goods, despite her higher income receiving a higher tax rate, is a result of her motivation to work hard.

However, Natalie judges herself, pointing out the rise in prices over the course of her life, and that nevertheless she is still consuming. This resonates with the theory that “people work and save in order to satisfy their own needs and desires, not to pay taxes. Taxes don’t change those needs and desires, so they shouldn’t discourage anyone from working or saving,” (Krueger). This theory steers away from both substitution and income effect theories, driving at the point that tax rates are not sole factors that determine human spending behaviour and consumption patterns. Individual humans consume in a way that directly reflects their individual needs and desires, and do so in a way that is rational for them individually. Consumers do not necessarily carry around with them the constant awareness of the tax rate on their income bracket, and though they may be conscious of changes in their consumption patterns, as does Natalie in this scene, the consciousness alone may have no power over rational decision making. Other factors are contributing and are more urgent, for example, Spike’s insistent chant: “I DO WANT,” (Smith, 292).

A consumer’s constant consideration of tax rates and their effect on one’s spending habits in relation to income reflects less rationality and more paranoia, as would the constant consideration of inevitable human death. Humans can always trust in death, though the excessive caution and awareness that are caused by this paranoia may ultimately lead to irrational and less productive behaviour. As Natalie participates in the UK economy, she does so in regards to her own needs and desires, rather than with the consideration of her contribution to her government’s total income tax revenue.

Works Cited

Bartlett, Bruce. “Would a Higher Top Tax Rate Raise Revenues?” March 13, 2012, 6:00 am

“Income Tax.” http://www.politics.co.uk/reference/income-tax

International Baccalaureate Diploma Program, Higher Level Economics: 2012-2013 Syllabus

Krueger, Alan B. “Why Tax Cuts Will Not Pay Off.” June 26, 2003.

“Personal Income Tax in the United Kingdom.” <http://london.angloinfo.com/information/money/income-tax/>. 2000-2013, AngloINFO Limited.

Smith, Zadie. NW. New York: The Penguin Press, 2012. Print.

Tax Tables and Information.” <http://london.angloinfo.com/information/money/income-tax/tax-tables/ >. 2000-2013, AngloINFO Limited.