Tax: what's a fair contribution (follow on from squeezed upper middle)

[EdmondDantes]

How much do you think someone who earns the following take home after tax. This then impacts lifestyle.

A) £25k
B) 50k
C) 100k

Madame - trickle down economic doesn't work, we've already seen that. And on a grander scale, companies don't pay their staff more than they can get away with despite massively increasing profits, reducing tax or paying their directors huge bonuses. Getting money into the economy is good but not when it is detrimental to the services we rely on, we including the gardener and tradesmen you are lucky to be able to employ but they don't earn enough to pay for private healthcare or schooling.

Erm, OP, it's a democracy. We actually get to choose the government based on what they say they're going to do to raise and spend their budgets. And then we get the chance to vote for someone else if we don't like what the ones we (collectively) elected did the last time.

And no. Tax should not be regional. People choose to live in London because it advantages them in some way (often by increasing how much they can earn). They could go and live in the regions instead. They shouldn't get a tax break for living in London. Everyone knows it's expensive to live in London.

And, you can even decide to stand for parliament and try to be part of the government (or at least part of the parliament that holds them to account) if you don't like how things are.

I'd be in favour of a 30p rate in between 20% and 40% - never understood why there isn't one TBH.

Cars and petrol are taxed for more than just for the income, they are taxed to encourage people to buy more efficient cars with lower emissions and reduce unnecessary journeys. It's a little childish to want a neat little trail from one tax to one expenditure. It's one big pot, like council tax and they send out the details of how this is spilt, just look at the percentages spent per department to see where it goes. We vote in our representatives to make these decisions and vote them out if we don't like them. It should not be up to the wealthy to decide on the worthy causes they should give their money. That's how we end up with cats inheriting millions and children living in poverty.

£50k is a pretty high salary so you'd have to tax the (I'm guessing) 1/3 of the working population earning more hugely to make up for the loss. The top rate starts in the mid £40ks, that's 40% and with NI on top.

I don't think London should factor into it and I'm in London so know what the increased out goings are. But things like childcare tax relief would be fairer as this is a cost related to work, public transport season tickets too - would this be a cost a self employed person could claim tax relief on if needed for work?

It's not as much as that QueenChrysalis - according to HMRC, 87.6% of people who pay income tax have no higher rate liability at all. It's less than 10% who earn over 50K I think

There are 30m taxpayers in the uk out of a population of 60m. The government relies on just 311,000 for 30% of all uk income taxes. It relies on another 4.2m for a further 35% of income taxes. Basic rate payers (Ie most people) take more out of the system than they put in (according to the government).

So, when people want more taxes, especially from the rich, what they're saying is that they want the government to rely even more on those 311,000 people. A significant proportion of those 311,000 people work in the financial services industry, where the uk is competing with New York, Singapore and Hong Kong that have lower taxes for the highest earners. The UK is a service based economy so trying to compare with those mumsnet high tax favourites Germany, Belgium and Sweden is an apples and pears job because either their economies are a lot smaller or they still have a huge manufacturing economy.

When the additional rate was higher (50%) it hurt the uk economy. Not because people dodged taxes but because it impacted the legal behaviours of the 311,000 people (HMRC published a report on this) and also it stopped people sending their high earning executives to the UK. There is something psychological of paying more than 50% (if you include nic) in taxes that just impacts behaviours. So what people do? Ask basic rate payers to pay more? Cancel tax credits? Squeeze that 4.5m even more or risk putting even more on the rich?

I'm not sure if there are different figures about noviceoftheday, but the ones I am looking at have the top 10% paying 58.7% of income tax (that was projected for 2014-15, for 2011/12 it was 55.4%)

Misleading statistics, Novice; income tax is but a small proportion of where the Government raises revenue from. Only 29% of the Government's taxt take comes from direct income taxes.

Gah Statistically! (Love your bra work btw). I was fairly sure those were the numbers from the HMRC income tax report that I read about 6 months ago! Well principles of what I was saying in my post (with ahem statistical variation) remains the same, the income tax burden relies v heavily on the contribution of 300k people.

Babycham, on a reread of my post I do believe I made it clear I was talking about income taxes.

Sorry haven't had time to read whole thread but your calculation is off OP: you forgot to include thresholds, it isn't as simple as 35% of 100k = £65k take home - you forgot to factor in tax allowance etc. depending on other factors and how the 100k earner structures their finances (ie. are they employees or contracted, are they paying themselves out of their company and keeping to the 40k ish allowance so only paying 20% for example) they may pay as little as £20k.
It's really not as simple as you make it seem.
FWIW I am a not a fan of progressive taxation - too complicated, and unless thresholds are high enough can actually penalise the poor. Would much rather something like the Norwegian model of 30% across the board with a high threshold - let's say tax free allowance of 18k - and complete transparency.

When we're talking about income tax, then quoting statistics relating to income tax is hardly misleading!

novice it's only cos I looked at those numbers a lot that I noticed - you're right in principle though, higher earners already pay most of the income tax.

20% flat tax. Abolish NI, inheritance tax and stamp duty. Cap tax at a maximum personal income tax of £100k a year.
At least halve the size of the state and its provision.
Abolish all tax reliefs for things like pensions, ISAs, patent box, films, charitable contributions.

Sorted.

What exactly counts as the middle these days?

Surely most people will see their tax as too much and anyone who pays less as too little? We're currently a single earner household and I've long stopped looking at DH's p60's because I can't help but cringe at the amount that goes on tax, no I don't begrudge that we have to pay tax but I'd be a hypocrite to say I wouldn't want to keep more, who wouldn't?

Misleading because it fails to take into account the true impact of taxes, relative to income (VAT etc, which are highly regressive), and the nonsense that is tax credits.

FWIW, Novice, I agree re flat taxes. Even as a socialist, I can see that a flat tax, with high starting threshold would be far fairer than our current system and easier to administer. The rich would find it harder to dodge, and the idle would be 'incentivised' to get a job. None of our craven politicians would ever have the guts to implement it though; too many special interest groups to placate (landlords, pensioners, recipients of Child Benefit, low-paying employers etc etc).

I think the current rates are about right - although I would raise the income tax threshold to around 20K.

I would do away with tax credits altogether. A totally pointless system which doesn't level the playing field e.g a friend of mine has a tiny mortgage on a large house (result of property developing in her first marriage). Joint income with 2nd husband is much smaller, but with tax credits plus tiny outgoings she is very comfortable compared to others who are earn more but who also pay far more in tax and have large outgoings.

The same report also has some figures net of tax credit for specimen families which are quite interesting - hope this is legible!.

I don't think the state thinks it could afford a £20k personal allowance also a lot of people would pay not tax and it may not make people feel bought into the state if they don't contribute. On the other hand if you are getting housing benefit and tax credits whilst in work may be it's better if you get much less or none of those and pay no tax. no point in giving people state handouts who are paying tax (and NI starts at around £7300 of income)

From a quick look at the figures, the total income tax contributed by those earning less than £20k total income is £10.74 billion (2012/13, latest figures I can find)

Then, looking just at tax on earnings (savings and dividends are broken down separately) if you have a flat rate of 20% you'd lose all of the higher rate and additional rate tax income. That's another £39.5 billion and £21.8 billion, respectively.

What would you begin to cut to cover that sort of amount? The figures above show that those who benefit the most from tax credits (those under the 25th percentile, there isn't an accurate enough breakdown to find the tipping point) get back more than they contribute so even if they paid no tax they would still need tax credits.

I got married back in 1983 and DH was earning £3k pa. His tax allowance as a married man was £2795 and he paid 30% on the remainder.

To me that seems the right sort of proportion for somebody who is on low pay, that you get most of your income tax free and pay a higher rate on the balance. Then as your income goes up, the amount you pay tax on is proportionally higher.

I don't agree that higher paid people should lose loads of their income, despite being relatively low paid myself. It should all be in proportion or there is no incentive for people to take on highly paid but highly stressful/responsible jobs.

I have a problem with the large numbers of self employed who pay tax on their "profit" having managed to lose large amounts as expenses. There needs to be a fairer system so that avoidance is dealt with. I know it's legal, but it shouldn't be.

The way I've always felt (for no rational reason I can give) is that I'd be perfectly happy to pay a marginal rate of 20%, start to get fairly uncomfortable at 30% and would avoid 40% at all costs, including if necessary by simply working less.

The problem has been that I pay my own employer and employee NI, so that means any salary falling in the basic-rate band is taxed at nearly 40%. (Salary in the basic-rate band is taxed at 38% and that in the higher-rate band at 47%, so the two bands aren't that different. Both percentages approximate and from memory, so could be wrong by a point or two.) So, if I had to take income as salary, I'd be uncomfortable with all tax-bands that actually exist, where the rate is currently above zero.

(Most years I've managed to avoid paying salary of more than the personal allowance, by taking dividends or pension contributions instead. 2013 was an exception, and writing a cheque for somewhere in the region of 15K PAYE on a salary in the region of 40K was very painful.)

Flat tax makes no sense to me (though happy to be persuaded otherwise!) because it would redistribute the balance of the burden towards the 90% majority rather than the richest 10% so cuts would be needed as there wouldn't be enough money in the pot.

Maximum tax of £100k? Well those 311,000 people pay on average a lot more than 100k so the tab for running the country would have to be picked up by someone.

A personal tax allowance of £20k also doesn't make sense to me because it would take a lot more people out of the tax net. So the burden would fall even more heavily on the richest 10%. Or have heavy cuts.

Fraidycat, those are exactly the behaviours that the 300000 additional rate taxpayers exhibited when the 50% rate was introduced. Everyone focused on the avoidance schemes used by a handful but the real issue was with the other acceptable behaviours such as working less. With NIC on top, a marginal rate of 52% means people will question whether x is worth it if they have to hand over more than half in taxes. It's less clear cut when that marginal rate is 5% lower.

My tax system for the UK: the personal allowance is set so that the poorest 50% of adults pay no income tax, then there is a single tax band that applies to all income above that. (No separate National Insurance.) The single tax band is not allowed to have a rate higher than 50%. (In reality it would probably have to be no lower than 50%, to minimise spending cuts.)

That rationale for this is that it systemically splits the population into two halves, half gain when the single rate goes up (because they get services they don't pay for) and the other half lose. It institutionalises the split between those whose self-interest lies in voting for redistribution, and the opposite.

I wouldn't pay the 50% rate myself, of course. I'd do whatever necessary (working less, pension contributions) to keep my income below the threshold.

Apparently there are vague intentions to merge income tax and National Insurance. It'll be interesting to see how many other basic-rate taxpayers will revolt once they realise that basic-rate income is already being taxed at nearly 40%.