A few weeks ago, I wrote this on the effectiveness of introducing a tax surcharge on high income earners as a way to reduce income inequality:
[We] have to look at the incidence of the increased tax on high earners. The burden of the tax does not necessarily fall on the people who actually pay the tax.
We can be pretty sure that if there's one group of people who won't be paying the tax, it is the high-income earners themselves...
[T]he gross incomes of high-income earners will rise so that their after-tax incomes are the same. Extra revenues will be generated, but the burden of the tax increase will be borne by those below the top end of the income distribution...
The tax system is at best a clumsy instrument for redistributing income, and there are simply too many possibilities for generating unintended perverse outcomes.
Soon after, the UK government announced a tax of 50% on bank bonuses. And today, we have this (h/t MR):
Bankers escape bonus blow: City bankers will suffer little or no impact from the bonus supertax imposed by the government last month, according to a Financial Times poll of leading investment banks.
Most banks, polled in an anonymised survey, said they would absorb all or part of the cost of the one-off 50 per cent tax by inflating their bonus pools, even at the risk of irritating the government and their own shareholders.
The results chime with intelligence garnered by headhunters. “The tax is going to be 90 per cent absorbed by the banks,” said one senior recruitment consultant with clients in the City.
So just who will end up paying that surtax?