Tax and privilege

[howcometoday]

This might be a bit of a clumsy question, but I’d love to understand different perspectives on taxation/economic models. I’m not a high earner, so I am mindful that my own situation shapes my view.

To me, higher taxes on higher salaries feel fair. For example, if a CEO makes £15k a month and a train driver makes £3.5k, both are contributing to society in different ways. While the CEO has of course worked hard in education and putting in long hours, high earning ability often relies on a mix of luck, privilege, and opportunities that aren't available to everyone.

Personally I think using tax to level the playing field so everyone can live a decent, comfortable life is a positive thing. Surely a CEO doesn't objectively work 'harder' than a nurse or a cleaner?

I wonder if the resentment towards high tax comes down to a lack of collective responsibility (eg "why should I support random strangers?") or frustration that the dream of keeping wealth isn't being realised?

I'm trying to understand beyond my own thoughts and the people around me- so I welcome some gentle educaiton!

@Ineedanewsofagood point. My brother has been a higher rate tax payer for years. He is having gall bladder issues so for the first time since he was a dc he needs the NHS (he doesn’t have dc). the wait just for his hospital appointment has been 8 months. Now he can afford private but why should he have to resort to that?

Whilst this is true, there are clearly trade-offs to living in China and although the US tax rates are lower, when you add back private healthcare (which is 'included' in the UK tax take) the gap comes down a fair bit.

There are also greater levels of inequality in both the US and China, which may or may not be considered a problem but it's certainly part of the picture.

Not necessarily altruism, but it would require a government who spend it in worthwhile and efficient ways. Equally unlikely!

I'm an accountant so see it from the taxpayer's perspective.

The REAL problem is all the tax cliff edges, stupidly high marginal tax rates, etc which impact on behaviour.

The rates themselves are fine, it's the fact that the graph of marginal tax rates at each income level is like a mountain range whereas a sensible coherent tax system would have it as a gently upward sloping curve.

So many income levels where earning an extra pound can actually leave you worse off, or only marginally better off, making it not worthwhile. Hence those earning over £100k shovelling into pension schemes, reducing their working hours etc., to get taxable income back under £100k thus exacerbating shortages in terms of doctors and doctors etc among other professionals too. Likewise a sole trader business may decided to do less work, or open fewer hours, etc to keep their turnover below the £90k VAT registration threshold (turnover NOT profit!!).

I have loads of clients who muddle on quite nicely, paying taxes as they fall due, not doing anything particularly out of the ordinary in the way of tax planning, etc., but suddenly they hit a cliff edge and that's when they start undertaking tax planning and usually end up paying less tax due to the changes they've made (legally I hasten to add!).

Reeve's stupid IHT changes are a classic case in point. I've never been so busy. So many clients with relatively "modest" IHT liabilities or no IHT liability at all, suddenly potentially brought into huge IHT bills, whether due to the moronic pension changes or the stupid changes to business relief. Those who were "happy" for their estates to pay a few tens of thousands of IHT and weren't wanting to do any tax planning, suddenly saw their estates potentially liable for hundreds of thousands of IHT, have taken planning action, and now HMRC will get nothing! Reeves IHT changes will end up reducing the tax raised from IHT instead of increasing it.

Another case in point due to the VAT threshold not being raised. A small B&B in a seaside resort. Turnover being held back under £90k because going over it, even by a single pound, means them several thousand pounds worse off - they'd need to grow turnover to over £105k to "break even" and be back earning the same profit as at £90k. Today, they have two rooms deliberately left unoccupied with "no rooms" sign on the front window - if they let out those rooms this weekend, they'd breach the threshold - the extra couple of hundred pounds would cost them around £10k! Utterly, utterly stupid to have that kind of brakes holding small businesses back. Similarly, another client is a small pie/sandwich shop who only open 3 days per week because that gives the £89k turnover - they can (and would) open another couple of days, but the extra turnover, again, would cost them more than the profit made due to the VAT on ALL turnover, plus costs of power, staff wages etc. Multiply it by thousands of small businesses all over the country and you can see the loss to the economy and treasury, whilst the Treasury mandarins think they're clever keeping the VAT threshold unchanged and believing "fiscal drag" will bring in more tax revenue - the reality is the opposite!

They must have clever people to advise them and behavioural economics is no longer a new idea. Why do they not realise they are shooting themselves in the foot

We've also had successive governments for the past few decades (including Labour, especially Brown) who deliberately brought in "tax free" changes such as tax free interest, tax free dividends, 0% and 10% tax rates (introducing then removing), tax free investments, removing tax from dividends (ACT), increasing pension tax benefits (then reducing again), all giving the impression that saving/avoiding tax was a worthy thing to do! That sends a strong message to people to think about ways of saving/reducing tax, and we're now here where we are!

Back in the 90s, people didn't even think about tax on interest and dividends as it was "paid" at source before they received the money. A minority of people could reclaim some/all of the tax, but for most people, they never even noticed the tax - it was just one of those things. Removing those taxes at source has brought it to the front of peoples' minds and inevitably people now regard it as some kind of sport to get all their investments into tax free wrappers or plan to use all the tax zero rate bands on interest/dividends etc.

It all contributes to the overall picture of people actively avoiding paying tax.

Typical low earner messages from the OP here.

I agree with you, OP. I also think that most people can’t grasp the implications of the numbers.

Many people get antsy at talk of wealth taxes, without understanding that in today’s terms, they are just comfortable bit aren’t particularly wealthy and they and their families are becoming less so well off, compared with earlier generations. A millionaire is closer in wealth to a homeless person on the street. A billionaire will easily earn a couple of million in passive income each month and what are they going to spend it on? Buying up stuff eg houses and land, that is increasingly out of reach of the rest of us.

Even in the US, some people are starting to talk about a basic universal income and healthcare but the have the mega wealthy actively working against them and saying it’s all about personal responsibility. Which is remarkably convenient for making even more money.

Inequality is pernicious and damages even the better off.

No idea with the Tory governments, but for the current Labour government, they're more interested in politics of envy of "punishing" the rich whether or not it helps the country/economy. I.e. VAT on private school fees - punishes the rich but hasn't helped the country one iota. The IHT changes are exactly the same - all about punishing the rich, especially farmers who "the left" seem to think are rich because they drive Range Rovers, but which will do untold damage to the economy and ultimately suck in food imports thus detrimental to our balance of trade deficit!

my theory with the IHT changes & the VAT on fees was the gov did that to make the benefit reforms more palatable eg they couldn’t be accused of just gong after the “poor”, “we are all in this together”. It didn’t work though as they had to water down the reforms.

Yes, but rather than "punishing" the rich, how about incentives for the "poor" to help themselves, get jobs, get better jobs, start businesses, etc etc. There's more than one way to skin a cat.

The UK has lost hundreds of thousands of small businesses, pubs, shops, guest houses, independent tradesmen, independent professionals, etc. Small businesses still employ more people in the UK than big businesses. Rather than constantly kick small independents out of business through high taxes, high overheads, etc., why not nurture them and encourage more people to start up?

It's the same politics of envy. Too many still see a self employed person with a nice car etc and think "greedy bastard", and cheer on the leftie politicians! At the same time, those same people are bemoaning the state of the High Street, their local pub closing, being unable to get a plumber, etc. It's a complete disconnect of reality.

We are a high earning family. DH is in the 45p rate earning £150k. He works incredibly hard and definitely didn't get there by privilege.

Worked his socks off, we both came from India (where we had less than what today's council estate families do). Just valued education and hard work

A ceo as a business owner or a ceo as an employee?

Honestly I do not understand people who think employees should earn as much as business owners and it should ‘level the field’.

No you did not save your money to invest and start a business.
You did not work 24/7 365 with no holidays.
You can take holidays! Do you think business owners ever actually take proper holidays?
You did not earn unstably, or at all, or worked part time or any combination so you could earn a measly amount to keep yourself a float whilst you built a business for years.
You are not at the whim of politics du jour every 5 minutes trashing your income.
Any good business owner pays their staff before themselves. You might not believe it but your income is more secure than theirs.

And you know what?! You CAN do it. If you wanted to you could be a ceo. Go be one and do the hard work and stop whinging.

I honestly believe if you're not disabled and you aren't caring for disabled relatives, it's on you to take life by the grips and build your own future

@BadbadbunnyI think it’s quite difficult to climb out of poverty these days tbh. Uni & housing costs are so high & general cost of living which makes risk taking less attractive.

Despite earning a decent salary Im on the housing ladder largely because I had significant help. This is true for almost all of my friends.

The cliff-edges are left over from the olden days, when tax was worked out from printed books of tables showing the amounts at each rate. Now we have computers so the rates could be much smoother.

Another thing that annoys me: as a pensioner I don't pay NI, so my "tax" rate is lower than a younger person with the same income.

I think if they increased tax rates by say 1or2 percent every so often, and reduced NI by the same amount, most people would not be affected, and the whole thing would gradually be simpler and fairer, because "NI" is just tax really.

they need to abolish NI & roll into income tax

I'm going to take the bait. I am in the higher earner level through PAYE and then being a landlord. I also have a limited company. Therefore I am what most on Mumsnet hate. I reduced my PAYE hours and refuse to do anymore limited company work because tax wise there's no point. Id have to earn 40k more for it to start benefitting me. So I don't. But that's a hell of lot less tax the government could feasibly be getting from me because I decide it's not worth my time. (Even if they made it more tax efficient they'd still be getting more than 0).
Instead I have time and my health back. But a little niggle still reminds me I will never 'reach my full professional potential' because of this.

But you don't need to "take risks" to start a very small sideline fledgling business. You don't "need" to give up your day job. Lots of things can be started in your spare time, evenings, weekends, etc. A new start up doesn't need to cost thousands, especially now we have the internet, and it's cheap (if not free) to advertise/market your services, free to set up an ebay/etsy account, cheap to set up a website. Lots of businesses can be started with your own laptop. Turn a hobby into a business. Do a bit of "labour only" work to get your name out there, i.e. cleaning, car washing, DIY, decorating, "handyman" work, even personal services such as shopping for people, standing in queues for people, etc.

I think too many people have just lost (or never had) the entreprenneurial spirit.

Look at the likes of Alan Sugar who started out selling car aerials in a clapped out van.

Two of my more notable clients, both selling their businesses for a few million, started out with nothing. One bought and sold wet fish from a clapped out Tranny van. The other started selling surplus hobby bits and pieces on Ebay. Both had multi million pound turnover businesses within 10 years. Just starting out with virtually nothing and "boot-strapping" to ratchet up their businesses bit by bit. Some pretty big businesses have come from virtually nowhere and nothing. It's amazing what you can do when you're desperate!

I started my own accountancy practice by doing "moonlighting" in evenings and weekends from my full time day job, using just my home computer back in the 90s, getting clients from postcard advs in shop windows. Within 2 years I had enough clients to give up the day job and go full time self employed, which I've been doing for the past 27 years with my own accountancy practice. Start up costs was a pack of postcards as I already had the computer, printer, phone and pen to write the postcards!!

Oh, I'm not judging you at all. I think I'd feel the same if I was in your position. Im just wondering on what the solution could possibly be. Thanks for explaining :)

I just think it’s different these days & with longer commutes etc I think people are more time poor.

But maybe it’s just my own personal experience. I only know a few people my age or younger who have set up their own businesses, only one came from a poorer background.

I dont know much about China tbh, but the health and higher education systems in the US seem horrific to society as a whole me.

What do you do for work, if you don't mind sharing?

Yes, I know what you mean, but some of the cliff edges are more recent than that. It just seems that the old ways are so "baked in" to the Treasury that they can't seem to move forward. The child benefit and free childcare cliff edges are relatively modern, and probably 2/3 decades after computers took over from tax table books.

But not sure it was an active choice even in the 70s and 80s not to be complicated as VAT started at a very strange (and difficult) 7.5% then 15% which was ok, but then to 17.5% which is again very strange and certainly not set to be simple! Working backwards to find VAT from a gross figure before widespread use of computers was a fiendish 3/23rds which changed to 7/47ths!.

So I don't really think that making things simple was ever really the first and foremost thought within the Treasury when setting tax rates, bands, thresholds etc.

We need to get away from who works harder and linking that to tax. It needs to be fair, no matter how hard you work. When lower paid workers pay more tax in percentage terms (which they do overall), and can’t access things like lower interest rates for borrowing, free access to cash, free access to reasonably priced food, cheaper energy tariffs etc, the system is not fair.

I’m a higher rate tax payer, and pay more than my English counterparts. I don’t begrudge it, but it frustrates me that people are still getting poorer. I don’t care if some folk aren’t working and my tax money supports them. I don’t care that some folk will work under the table whilst taking benefits. I do care that children are going hungry and cutting benefits to all because a few might be on the take is not the answer. I do care that education is being poorly funded and children with SEN in particular are suffering for it. Rather than paying more income tax, I’d like to see a proper, joined up thinking approach locally where I can put some money to help. I donate to food banks but that’s only part of the solution. Let me pay more on my energy bills, so a local family can have cheaper bills. Have a local fund I can give to where families can get what they need. It’s too piecemeal and hard for people to access as it is. People are too proud to accept charity so let’s try something different.