To think everyone should pay the same income tax?

[bigch]

It seems unfair that the people who payed thousands for university, work full time to earn a higher wage or have their dream job are contributing more of a percentage of their income to the system than those who just wern't bothered or decided to have a lower key job.

20% of 100k is a lot more than 20% of £18k and they don't even use the same services such as public school, benefits, ect.

Not rich myself, decided to become a flight attendant because it was what I wanted, but my more hardworking richer friend shouldn't be paying more for my lazy ass to live, I do it fine on my own.

We need Cinnabar on this thread!

My contribution - YABU because flat rates of tax hit the poorest hardest.

If there was a tax-free amount of £15,000 and everyone paid 25% above that, the poorest would be paying next to no tax at all...

Cogito I think that sounds great but wouldn't a lot of revenue be lost? I don't know how much is raised from people up to £15000. At the moment is th first ?£10000 tax free?

Actually flat-rate taxation is an actual economic theory, and one proposed in all seriousness by The Tax Payers Alliance as the best solution for the UK earlier this year. I seem to recall that The Economist also supports it as one of the best tax systems, on the grounds that it has very low avoidance rates (as more groups than average perceive it as 'fair'); it's simple to calculate and collect (so cuts public spending on tax collection - more money to spend elsewhere) and performs well on the 'Laffer Curve' test. Google it - the suggestion may have been made lightly, but it's an interesting and viable theory.

I just pulled £15,000 out of the air. £10,000 is on the cards. PP is right about low avoidance rates when systems are seen to be fairer - and also when there are fewer loopholes etc. There's a whole discussion to be had about PAYE in general. It doesn't keep up with real time, it's not flexible, there are regular mistakes. Beyond that, once someone is outside PAYE, whether they are the small-scale 'knock a bit off if I don't put it through the books and no questions asked' types that are impossible to trace or the grand-scale users of offshore accounts, tax becomes a very woolly business indeed. So those on PAYE who have no choice but to pay up become resentful of those who seem to be getting away with paying less than they should. Brings us back to fairness.

I realise it's an "actual theory". And yes, I realise it is proposed by the Taxpayers Alliance.

The latter is one of the reasons I distrust it actually.

But more to the point, things are not necessarily a good idea because authority figures back them.

I linked The Economist earlier in the thread.

It contains real world examples of flat taxes working. And the pitfalls of an over-complex tax code. They don't hitch it to any particular political philosophy, for there is nothing about it which lends itself to any one more than another.

The Taxpayers Alliance, on the other hand, is avowedly a campaign for lower taxes. It says so on their website. Broadly speaking this is a right wing position, hence their supporters and donors include some fairly prominent Conservatives, or people who have also donated to/supported the Conservatives.

There's not a lot of point being coy about it. I am in favour of lower income taxes myself, so some people would call me right wing.

"... people who payed thousands for university, work full time to earn a higher wage ... "

Oh, loving this assumption. I worked three jobs to put myself through my pharmacy PhD. Love my job now, and couldn't do it without my doctorate, but as it's in the charitable health sector, my wage is less than £18 000 pa.

Please don't assume that those of us on a fairly low wage haven't been "bothered".

Basically (to reiterate, then I really must do some work), what worries me is the idea that "flat tax" is the opposite of "over-complex tax code". It isn't. You could (and we should) simplify the tax code without going near the headline rates. They are the tip of the iceberg.

My point was more to those who assume that flat rate taxation would only appeal to right-wingers and/or the super-rich, and that TTA aren't either of these. I don't have any strong views on it myself - haven't done enough research to really understand the full impact. Why would you assume that people in positions of authority are more corrupt/ dishonest then those not in a position of authority? I tend to assume that no one social group has a monopoly on being dishonest, lazy, grabbing gits

I think flat tax is a fantastic idea.

God, just seen the link to the Economist article is 2005. I thought it was only a couple of years ago!

Nope, indeed they don't! All I mean is that all authority figures (including think tanks, serious periodicals and the like) have a standpoint and an agenda, just like everybody else, and their pronouncements should be heard with that in mind. The fact that a prestigious publication advocates a particular position shouldn't by itself make that position more "truthy".

Your reason doesn't make sense. If they both pay 20 percent (which they don't btw), they are both paying the same. Not in monetary terms but in the amount of what they have to give. If they both paid £600 for example, that would be peanuts to the higher earner and extortionate to the lower earner.

I agree with you. 20% of £100k is £20,000. 20% of £20k is £4,000. So the "rich" are already paying more. Why penalise people who work hard and progress up the career ladder?

But the better off you are the more you can afford to contribute without damaging your standard of living. It costs a certain amount of money to keep this country going. If we cut the tax bill for the well off then either the poorer will have to pay more (and so there will be children living in genuine poverty) or there will be less services provided.

And then we have to decide which is more important - cancer treatments or teaching assistants.

Btw I should probably add that I've been a higher rate tax payer since I was 25.

Yes but using your figures ophelia, the person on £100K has 80K left to spend, the person on £20K only has £16K to live on which is a tad harder .

And the person taking home 80K isn't necessarily working harder or longer hours than the person taking home 16K - they were just lucky enough to be in a position to get qualifications, or get a particular job, or inherit a business, or simply to be born with more brains.

YANBU

Far better for the rich to have more to spend on £600 handbags and yoga retreats than to keep hospitals and schools working efficiently.

If you divided up a typical class of 30 children and gave them monopoly money in proportion to the actual income of the UK, they would divide like this (this is based on actual income distribution data):

7 pupils would have less than £10 per week
10 pupils would have £10-£15 per week
13 pupils would have £15-40 per week
1 pupil would have £50 per week
1 pupil would have £110 per week

The class needs to contribute together towards £100 to purchase something that they will all benefit from - (I can't think of an example that represents healthcare, education, policing and security and everything else, lets keep it as a simple "something good").

Each pupil also has to contribute £8 per head per week towards lunch (representing the costs of paying for a basic standard of living), and can keep the rest for other expenses - lets say there are some fun things that spare money can be spent on after paying for these basics, representing quality of life over and above basic survival.

Under the current "progressive" tax system:

Of the 7 who have less than £10, the very poorest contribute nothing, those closer to £10 contribute less than £1, so they can still afford lunch but they are unlikely to afford anything fun - they may get something extra once every 3 or 4 weeks if they are careful to save.
The 10 with £10-£15 contribute between £1 and £1.70 each so they have a little bit left over after paying for lunch.
The 13 with £15-40 contribute £1.70-£5.00 and have a bit more spending money.
The two richest contribute £9 and £35 respectively, and have plenty of spending money left over

Under a flat tax system divised to raise the same £100 with everyone contributing the same proportion of income:

The 7 poorest would have to contribute £1-£1.50 each despite the fact that this would mean they could not afford lunch at all and would go hungry
The 10 in the next bracket would contribute a bit more - taking them close to the cost of lunch so they would have much less for other things - the tax would be taking everything they had over and above what they need for basic survival.
The 13 in the next bracket would pay an amount not that different from what they are paying under the progressive system, so they probably wouldn't notice the difference.
The pupil with £50 would pay 80 pence less so would have marginally more spending money (£42 ish left over, rather than £41)
The pupil with £110 would pay £15 less - so would be keeping £90 to spend on the fun stuff as oposed to £75.

If you ran this as a simulation with an actual group of thirty people, any civilised human being who was the richest in the class would feel sickened and disgusted by the idea that 17 people could either go hungry or be deprived of the opportunity to have any quality of live over and above hand-to-mouth survival just so that they could have an extra amount of excess spare money that they don't particularly need.

The thing about progressive tax is that it enshrines the principle of redistribution. People might (do!) disagree about the degree of redistribution. But whereas a flat rate tax might be for each to pay a fair share towards services received (defence, education etc) the higher per centage rate for wealthier folk represents the principle that they should in addition to that help out poorer people.

Brycie you are making an unreasonable assumption that everyone defines "fair share" exactly as you are. There are many different possible ways to define "fair" - I didn't include a "poll tax" type model in my example above, which has everyone contributing the same regardless of income - £3.33 in the example above which would push more than half the group into a breadline-situation or worse, but there is just a valid an argument to say that this is "fair" as there is that flat tax is "fair" or progressive tax is "fair".

If you don't agree that £3.33 is the fairest way, it's probably because you agree that you can't assume that money has a constant value no matter whose pocket it is in. A £10 note in the pocket of someone who lives on the breadline represents a huge amount of money - it could be their food budget for the week. In the pocket of someone with a middle income it's an opportunity to have a nice little treat. In the pocket of someone wealthy, it's spare change - they could happily leave it as a bonus tip at a restaurant and are unlikely to see anything they could spend it on as a "special treat" but as something fairly normal.

Because of this, the "pain" felt (i.e. the amount of financial distress incurred through the lost income) by taking each pound of tax is much greater for people on lower incomes. A flat percentage tax is therefore a little fairer than a poll tax. However, as I was trying to illustrate above, a flat tax still allows the amount taken from the poorest to make a significant and painful impact on their quality of life whilst being not particularly painful at all for the richest people.

A really progressive tax - with more levels and higher rates at the top - would try to spread the "pain" fairly, rather than spreading either the absolute amount or the percentage of income fairly. That would mean setting the rate so that each person's tax bill represented the same level of "distress" whatever their circumstances. In the classroom example, this would be represented by the richest 2 pupils contributing a much higher amount - they would still be the wealthiest post-tax but their taxes would hurt just as much to lose from their pocket as the contributions of those in the middle.

Our current system is really a half-way compromise between a "flat tax" and a properly "fair in terms of pain" progressive tax. Those that think that sharing the pain is the fairest way think it's not progresssive enough.

I agree. We should all get the same basic personal allowance of £10k and then all pay the same flat percentage rate on everything we earn after that with no other allowances.

That way rich and poor get a basic allowance enough to live on and we all pay the same rate with no complex tax avoidance schemes allowed.

There are 30m taxpayers in the UK. Out of everyone in the country, just 342,000 people contribute 27% of all income taxes that the government collects. This means that the average person (28m people pay either no tax or at the 20% rate) take more out of the system than they contribute in and makes the UK very reliant on the that top 1% of taxpayers. It means that it is important the uk taxation system is perceived to be sufficiently fair that there isnt a reduction in that 342,000 population, either because they leave the country or because of tax avoidance. Incidentally, of that 342,000, the vast majority, 303,000 earn between 150k and 500k and for most of them, they are unlikely to leave the country or seek to avoid tax (if the taxation system is seen as fair). That leaves 39,000 people, ie approx 0.1% of taxpayers, who contribute more than 10% of the income tax revenues to the government.

These stats are important for a number of reasons. Firstly, given the reliance on the top 1%, clearly, any significant reduction in the tax rate, would materially impact the 28m who earn less than £50k as they would clearly have to pick up the bill. xcdfangirl's excellent post clearly illustrates the consequences of this.

Secondly, the 50% rate didnt work for a good reason. It encouraged people, who wouldnt normally try and avoid tax to do so, ie the 300,000 people who earn between £150k and £500k were tempted into the Jimmy Carr type schemes, so the government didnt raise any extra revenues and it actually will cost them a fortune in litigation fees and HMRC scarce resources in pursuing the avoiders. It also meant people were disincentivised to earn more as that psychological barrier was reached where more than half (when you add in NI) would paid in tax for the extra income. Additionally, the 39,000 people who earn more than £500k and contribute more than 10% of the revenues was at risk in shrinking in its numbers purely because most of these jobs can be done anywhere as they are in the financial services sector. Why pay tax at 50% in the UK, when you can pay tax at 40% in New York, 16/20% in Hong Kong and Singapore? Interestingly, the latter have flat rate tax systems but the consequences of that is a lack of social conscience, with no NHS for people to rely on.