Top 10% of taxpayers paying 60% total income tax - unsustainable?

[ElizaDoolittleAndOften]

There has been loads of debate on here lately about private schools, and people paying their fair share of tax etc. It all got a bit heated. Whether or not you think people who earn a lot should pay a lot of tax is down to you, but my question is;

Is it sustainable in this country for 10% of income taxpayers with the largest incomes to amount to over 60% of the total income tax pot?

Just to note that these top 10% are not all the millionaires and billionaires in the country. I believe the only one to own up and pay up is Sir Alan Sugar.

The reason why I am asking this is because I think I am in a unique position. I am from a very WC background, yet now am able to send my DC to a private school. There is a lot of tax coming out of my house. Within my immediate and extended family we have someone worth £12m (not me), and others who refuse to work and claim every benefit they can, and work on the side. I’ve seen it all.

Over the past few months I have seen people on here irate that people who earn lots need to pay more tax and I saw people on here responding that they are sick of paying for everyone else.

Then something happened at my own work. I work part-time. I don’t earn a lot. It was below the threshold of paying tax. Then we got a pay rise, and I was taxed £60 a month. Everyone around me went into a rage at being taxed more and started to do things like reduce their hours as it wasn’t worth the bother. Others had to adjust hours as it took them over the limit for tax credits. So, everyone begrudged handing over money in tax. They don’t think they should pay tax.

I looked into it for me. This is what I did. I got onto my company and increased my pension contributions, so now I pay £0 in tax because tax is based on income after pension contributions, and just under £5 a month in NI.
On top of this, the govt. tops up my £60 by 25%. So, I am now not a net contributor. I may pay tax on my future pension, but I can take out 25% tax free at some point, plus since this is an investment, it will appreciate in value. I am still a winner.

This just got me thinking. On one end I am getting told I am a tax avoider because I don’t want to pay VAT on my school fees, but at the other end of the spectrum I am able to shuffle some things around and not pay tax.

So, AIBU to think that it is not sustainable for the top 10% to pay 60% of the total pot, and in fact there are people on all levels that need to contribute more, or fairly, to have enough money to pay for all our services?

I worked for HMRC for many many years, I seem to recall some statistics which showed that if the highest rate of taxation went above a certain % then the amount taken in total actually dropped!

A lot of those liable at the highest rates left the UK, so the purpose of raising tax revenue was defeated.

There is an optimum upper rate that brings in the most tax revenues overall.

I think the current tax rates are probably about right.

I don’t get your point op, you want to avoid paying all tax?

I don't understand the question. You feel it is unsustainable for the top 10% to pay the lions share of taxes and it should be more evenly distributed? But at the first hint of you yourself having to pay tax, you went to lengths to avoid paying it.

You’ll get no love on here - but that’s partly because most people don’t understand how mobile high earners are.

No it isn’t really sustainable - but politically there is no appetite for change.

I don’t really get your point either.

It makes sense to me that the top tax payers pay the majority of tax because the numbers are so much bigger. I pay more in tax than I ever thought I’d earn as a salary, by a long way.

There are going to be exceptions and workarounds and people who are unfairly affected due to their own specific circumstances with any system, but I think taxing people who earn more, more, is on the basics absolutely fair. If I paid the same tax rate as juniors at work all I’d be is richer. If they paid the same as me, they wouldn’t be able to pay rent.

Whether our tax money is being used properly is another question, and it’s why I’m voting Labour, but I have no problem at all with paying it. I think looking at ways to tax things wealthy people buy is a good idea as well.

I think you make a good point OP - there is a lot of hypocrisy complaining about rich people who avoid tax, but actually many/most people avoid tax if they can. We don’t live in a high-trust society (like Denmark for example), where people pay tax willingly because they have faith in the system and each other.

I don’t know what the answer is, but in an individualistic culture like ours maybe governments just have to be realistic about what people are willing to pay.

It’s a great campaign sound bite to say Tax the Rich! But the reality unbeknownst to the gullible electorate is that the rich are the ones in the unique position to simply choose not to pay by moving elsewhere. I have several wealthy clients all moving abroad (Dubai being v popular) simply because of the tax system in the UK, so not only do we lose their taxes but also the fact they will no longer be spending tens of thousands each year in the economy. Too high tax will push people away and frankly we can’t afford to lose them.

The problem will be the mobility of wealthy people who pay most in tax. It is very easy to move countries if you earn well, these countries want your tax earnings.

We paid just short of £200k in income tax last tax year. Our last child is finishing (private) school next year. The business runs out of two other countries that we spend much time in, one at 15% and other 25% tax on income. Good public, services, better weather, safer…

A higher rate of tax would be the catalyst for a permanent move, although we could have 90 days in the uk still per year. One employee earning not much less has moved to the 15% country.

Most very high rate tax payers can move and many we know are actively considering it.

I'm a top rate tax payer and I'm happy to contribute to society by paying my fair share.

The top % paying for the people who can't afford it is the way it should be. Unfortunately there will always be the selfish fuckers who think otherwise.

Everyone wants to support those who need help, but to do that you need Revenue coming in, and there is a "Goldilocks" zone of tax rates that maximise Revenue.

Putting tax rates above that zone harms the people who need help.

it’s pure scaremongering to tell people ‘all the rich people will just leave!’. On a simple, logical level, its not like my job ceases to exist if I quit. My company just goes ‘ah, that’s a shame, guess we’ll find someone else’ and promotes internally or recruits from overseas.

And that’s leaving aside that people have families, kids, friends and lives and don’t just bugger off cos they’re losing five hundred quid a month. The super rich don’t really ‘live’ anywhere anyway so are irrelevant, but your average rich person is just living their life and no more likely to move to fucking Dubai than anyone else.

I'm also struggling to get your point OP.

Your question is AIBU to think that it is not sustainable for the top 10% to pay 60% of the total pot, and in fact there are people on all levels that need to contribute more, or fairly, to have enough money to pay for all our services?

But you as an individual are doing everything you can to limit your tax liability and pay zero income tax

Well, they're not taxed at 60% for a start. The top tax bracket is 45%. There is a loss of your tax-free allowance of 50p for every £1 you earn over £100k, so in effect earnings between £100-125k are taxed at 60%, but anything over and above that is taxed at 45%.

My point is that people are saying those already paying loads of tax should pay more whereas IME, people on all levels will go to great lengths to not pay tax.

So, why should my DH, already paying around 50% of his income, pay more when someone, like those I work with, who only have to pay £50 a month can get out of paying it, and pay zero by reducing their hours. Why are they not saying, I got over £100 pay rise, and some of that is going back in tax, but that’s OK, I will do my bit, and instead say, It’s not worth it, I’d rather go home early and not have the extra money.

Yes, I played chess with my pay so I didn’t pay tax. TBH if I hadn’t seen the outrage by my colleagues, and learnt from them how to mix it up, I would’ve just sucked it up.

Well for a start the top 10% of tax payers only pay 60% of income tax, they don't pay 60% of all tax. Income tax accounts for only 25% of tax revenue, framing it this way is rather disingenuous.

Also, the vast majority of people who threaten to leave massively over estimate their global mobility of labour, studies show that people threaten to leave and don't.

The "net tax contributor" thing is also a very basic calculation and based on a number of assumptions which are incorrect.

I think more the problem is that over 50% of households take more out the government pot each year than they pay in taxes which isn't sustainable.

This includes cost of school places which is about £7500 a year per child.

So two parents earning £40k will pay about £7600 in tax and NI each year, therefore if they have two children, this is only just covered.

The government is VERY reliant on those high earner tax contributions.

And then we need to look at the extremes - those companies that avoid paying UK tax (the likes of Amazon) as well as those at the other end who live life on benefits who are actually perfectly capable of working, but don't because they don't have to. BOTH these need to be tackled.

Your specific example OP is actually interesting.

governments REALLY want people to save for retirement. Otherwise they’ve got a horde of old people with no money needing extra assistance. They want you to have money so you can put it back in the economy by spending it.

However, telling people ‘you should save for your retirement’ is fucking useless. So they’ve made it financially attractive exactly as you describe. Result is good for you and good for them and that’s exactly how it should be. It’s not ‘evading tax’ to save into a pension.

Im sure someone will be along to say ‘ah HA well how’s that different to me, a billionaire, putting all my assets in an offshore trust! I win!’ which is just dumb

@ElizaDoolittleAndOften I'm not sure of the exact numbers, but there is a real issue with cliff edges regarding tax and benefits at a low income level. Effective marginal tax rates can be very high if working more hours means that people lose benefits.

It doesn't make sense to point out that high earners will move to avoid higher tax rates, then criticise low earners for doing similar.

The laffer curve demonstrates tax rates and tax take effectively.

its also not just individuals who are mobile but also companies, particularly service companies who can and do up and move

That’s not the case. Even those on low six figure salaries are more mobile and can, and do, often move to low tax jurisdictions. I have in the past. It also makes it harder to attract new replacement employees- we have seen that in Scotland with higher rate taxes.

some jobs are not mobile of course but many are.

Tax avoidance measures generally tend to be there to encourage behavior the government find desirable. Saving for retirement is one of course but there are others like various enterprise schemes for investing in growing companies.

anyone tax resident in the uk has to pay tax on their global income. So putting your assets in an offshore trust isn’t tax avoidance unless you’re not going to benefit from them

The top 10% isn’t as rich as people think, most won’t be anywhere near millionaires and if we tax them too much they’ll just leave or work less. It’s already happening.

That ignores all the jobs that can now be done working from home, which can, literally, be done anywhere. I'm an accountant and now have more IT contractor clients who are living outside the UK than I have living in the UK - whereas ten years ago, none of my IT contractor clients lived abroad. Most have moved abroad because of IR35! They're still doing the same work, still working for the same end clients, but are now living outside the UK and paying tax elsewhere, not just on income, but also on their expenses, i.e. via VAT, sales tax, etc. That's a massive net loss to the UK as most of these were earning £200k+!

Labour will sell their policies on the back of a magic money fountain from "the rich".

But it won't work like that. The rich will just avoid the tax and the squeezed middle who think it won't be them will get hit.

It always works like that. The idea that there is money available to squeeze from the richest segment of society is a pipe dream.

Rich people have the least to worry about.

The OP never said they pay a rate of 60%. They said 60% of the income tax revenue generated.