This article takes a conceptual, tax policy analytical approach towards the 2009–2010 UK bank payroll tax (BPT) — often referred to as the ‘banker’s bonus tax’ — from the tax policy conceptual frameworks of efficiency and equity. The first conceptual tax policy factor relating to efficiency under optimal tax theory is analysed in terms of Pareto optimality (Mirrlees et al., 2011), which seeks minimal distortions and avoidance of deadweight costs (Auerbach, 2013; Stiglitz 1986). The conceptual tax policy factor relating to equity will be analysed in terms of fairness, with a policy focus geared toward formal incidence (Shavrio 2009). Equity-related tax policy concerns as it relates to the UK bank payroll tax also include both the benefits principle and ability-to-pay principle, whilst incorporating vertical and horizontal equity concerns. This article is composed of two main parts. The first part provides a conceptual tax and policy analysis from the perspective of efficiency. The second part provides a conceptual tax and policy analysis from the perspective of equity and fairness. Throughout each part, the analysis is augmented through the utilisation of various graphical visual examples.
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- Optimal Tax Theory
- UK Bank Payroll Tax