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’m well into that to 10% and have been for decades.

I’m glad to be earning so much I can support my family and contribute to the state. I don’t envy people who are earning much less.

We support taxing services including education when provided by a non-government source.

It's often the case that systems settle into these kinds of ratio though. It's often called the 80:20 rule. Same kind of phenomenon applies in lots of circumstances - e.g. in a fundraising endeavour usually 80% of the anount raised will come from 20% of the donors. In business often 80% of the profit comes from 20% of the customers. It's normal. It happens because there's always a smaller number of "quick win" sources of income and then a long long tail of micro-contributions.

When it comes to tax - the total revenue for HMRC was £1,100bn from all sources last year, of which £790bn is from income tax. That total comes from all sorts of sources - income tax & NI, capital gains, inheritance tax, VAT and other business taxes, and duty on alcohol tobacco etc. Obviously many of those don't come out of every household budget directly but most will be passed onto ordinary people sooner or later via bills and the cost of goods purchased if not paid directly. If that £790bn of income tax was collected per-head it would be about £12,000 for each adult and child in the country. A standard nuclear family of 2 adults and 2 children would be responsible for £48,000 pa of government income before they even start feeding clothing and sheltering themselves. Clearly that's ridiculous given that the median household income is £35,000.

Therefore we have a tax system that deliberately set out to make sure that tax burden is not shared out equally. As far as possible the basics of life are not taxed and there's ideally no income tax or NI if you are living on the breadline (though the tax free allowance rarely keeps pace with inflation) and there are tax credits and benefits for those with greater family needs so a single person without children contributes more than a single person with children with the same income.

60% of income tax coming from the top 10% of tax payers sounds about right to me. The top 10% includes those earning anything from £62,000pa to many millions but within that 60% it will actually be that the vast majority will be from the extremely wealthy - actually the burden is mostly falling on the top 1% with incomes over £200,000 pa before tax. The figure has been chosen with the intention to stir up resentment in the comfortably-off.

"The laffer curve demonstrates tax rates and tax take effectively."

The Laffer curve is not backed by any research and the available research does not back up its assumptions.

Except that is what happens. Do some research.

Thing is we can all talk about our own specific workplaces - mine is the exact opposite to yours, we’re importing UK-resident high rate tax payers at a frankly annoying rate, I’m tired of em wandering around with their Starbucks talking in their yank accents. But we’re not going to get anywhere useful by doing it.

How much do those 10% earn though? There are some very large salaries mentioned on here alone, multiple times what I earn and I pay tax and don't claim any benefits expect child benefit.

@Except that is what happens. Do some research." @Floatingvoternolandinsight except the research shows that very few actualy do move.

As said, many people vastly over estimate their geographic mobility of labour on a global scale.

I am happy to pay tax and I will suck up vat on school fees. I don’t appreciate constant comments on here though that I must be a piece of shit for it. I’ve not earned enough to pay tax as well as being a higher rate payer - I’m sure if you rely on the state for things you’d rather me be in the latter than the former.

I also think the average family should be able to pay their way - wages are too low and haven’t kept up with cost of living increases for decades. I remember when socialism would have been that instead of taxing individuals but here we are.

Remember we don't tax wealthy people more because there's a moral obligation for them to pay more, but because they can pay it without going hungry.

It's nothing to do with being fair, but of what will actually work.

You’re asking the wrong question.
It’s not is it sustainable for the top 10% to pay 60% of individual income taxes, but is it sustainable for the top 10% of households to earn 630% of what the bottom 10% of households earn? Or 207% of what the median household earns?

The top 10% households by earned income pay more income tax because the lions share of the total earned income goes to them (a.k.a income inequality) not because they are unfairly taxed.

The more income inequality you see, and it has worsened significantly since the Tories came into power, the less total tax the households on lower incomes will pay.

“The UK has very high inequality of income compared to other developed countries; the 9th most unequal incomes of 38 OECD countries (OECD, 2022).

The UK’s wealth inequality is much more severe than income inequality, with the top fifth taking 36% of the country’s income and 63% of the country’s wealth, while the bottom fifth have only 8% of the income and only 0.5% of the wealth according to the Office for National Statistics.”
https://equalitytrust.org.uk/scale-economic-inequality-uk/

It’s not scaremongering though. We are a 6 figure income household (under 150) who are doing just that. And so are our friends.

plenty of places willing to take us on nomad schemes or non dom statuses. It isn’t just ‘Dubai’. Plenty of EU countries where you can opt into great healthcare and education at additional cost whilst still living within the EU.

we’re not Philip greens and Alan sugars with massive property portfolios and investments. One person who is mobile who commands a high salary, and one whose qualifications are recognised.

’we’ll recruit from overseas’ nah you won’t because people with means often don’t to want to live here. Schools are shite, the nhs is stretched, the bins aren’t collected and you pay high income tax and insane council tax for the pleasure of it. And private schooling and healthcare to top it up is astronomical so you just end up paying twice.

this is a well documented trend. Do some research. Because you are extremely naive.

I’m in the top 10% and my partner’s in the top 5%, we earn good salaries but neither of us are six figure.

We’re both happy to pay our taxes, we have a comfortable life so we don’t NEED that extra money. It would probably go on repaying our mortgage down quicker or an extra holiday which is an incredibly privileged position to be in.

Other people’s taxes got me to this point so I’d be pulling the ladder up if I saw it differently. I was brought up on tax credits/jobseekers, I went to a rough state school and had some limited contact with social services. When I was older, I went to uni partially funded (pre 2012 fees) and had long term NHS psychotherapy when I had quite severe mental health issues in my late teens. Now I’m fortunate enough to pay back in and hopefully it’ll help other people from backgrounds like mine.

The only bit that bothers me at present is how those taxes get spent. It’s a disgrace that we’re one of the richest countries in the world but millions rely on food banks, can’t heat their homes and can’t access healthcare or NHS dentists.

Tyson Fury is rumoured to be "relocating" to the Isle of Man. It's unlikely that's because of a love of steam trains - it's because it's our closest and easiest tax haven! He'll pay a tiny fraction of the amount of tax currently due in the UK to the IOM government instead. Many others have done the same in the past. Lewis Hamilton bought his private jet via offshore trusts and the IOM to avoid paying VAT on it! Nigel Mansell moved to IOM to become a tax exile. In fact most Formula One winners have become tax exiles in various different tax havens.

@Greygreyhouse it is scaremongering.

Good luck getting EU visas.

The research you keep bleating about shows that people actually very rarely move ( except for the HNWIs who are different) and that people are less globally mobile than they imagine.

Also shows that a huge number of people return to their home country within a few short years of their big flouncy move.

So your research is you and your inner circle of mates, whereas there is real sociological research on this topic that examines the movement of millions of rich in multiple OECD countries;

The Myth of Millionaire Tax Flight: How Place Still Matters for the Rich (2017, Stanford University Press).

The title says it all, it is a myth.

The current tax system with it's over complexity and many cliff edges (at most income levels if you have kids) does not encourage maximising pay for a lot of people. I'm certainly in the position of reducing my hours for a better work life balance and one of those cliff edges was a key factor in choosing to do that. Consequently I'm getting paid less and paying less tax.

This.

Many thanks for your concern, but our residency is all sorted :)

and perhaps I will come back to the UK when I can get a GP appointment, my council isn’t bankrupt, the bin men aren’t striking and my child isn’t in a class of 32 (with two children attacking the others and distracting the learning who should be in a pupil referral unit but alas there are no places and no money for extra hands in mainstream )

but for now paying in to this absolute mismanaged shit show gives me no joy or benefit

very happy to pay my taxes into a system that works. The uk doesn’t work.

@Greygreyhouse Whilst you might be mobile, the vast majority are not.

The UK doesn't work because too many people have voted Tory for the last decade. But don't let the door hit you on the way out.

What is meant by “sustainable” OP?

It’s been like this for more than the 50 years I’ve been around.

Income Tax rates are not as high as they were in the past.

And nowadays people have many more ways to avoid paying Income Tax. Just as you have illustrated, there are many people who put £60k per year into their pension, get a £15k topup (Tax Relief) and a further £15k back (more Tax Relief) in their hand. So they get £75k in their pension pot for the price of £45k, and in the future could die before they are 75 and it would all be tax-free to their descendant - not just the 25%.

People complain about working for no gain because of how the social welfare system is set up and because wages are so low at the bottom. Why would anyone work an extra hour for effectively no pay? These jobs are not salaried careers! The minimum wage should doubled and benefits slashed to the bone imho. We should make it worthwhile for people to work.

It was not too bad in 80s/90s with “the dole” - despite so many signing on, on their way to work. Then we got Labour who created Tax Credits supposedly to reward getting back into work and redistribute wealth to the poor, but in reality was just a system full of holes for people to take advantage of. Yes it redistributed wealth to the poor, but it also led to the disincentivising of work.

People got used to massive handouts, tories have been trying to pull that back to a more sensible but still overly generous system with UC but then Covid handouts only made things worse and re-inforced that those at the top are having a party while everyone else suffers so why should people bother working for nothing.

Covid and the governments response to it had massive negative social impact on the workforce of the country.

Post pandemic people are much more mobile and digitally accessible than they were in 2017 when the book was written.

Many countries offer digital nomad schemes, including much of the EU. If you earn enough or have enough wealth you, and tax you will contribute, are welcomed with open arms.

You need to read the book. The primary reason millionaires flight doesn’t reduce tax income from them isn’t due to their personal mobility, but the relative immobility of their income generating assets.

Take for example millionaires with a U.K. business or a large portfolio of U.K. property that they lease to tenants. They may move themselves to a nice villa in Italy, but the bulk of their income stays U.K. income and is still taxed by HMRC no matter where they live.

Its the same here

Many of these businesses are mobile now, that’s the point. Tech, fin tech, finance, many of the service industries. They can and do easily move. One of other two jurisdictions our business is in is actively marketing itself to such companies and many are relocating there. The staff are young, mobile, international and tech savvy and also very wealthy. We want these people and their skills and money here!

I must preface this by saying i know nothing about tax, but the tax distribution in the uk does seem massively unfair.

I live in an EU country where the lowest rate of tax is about 30% and you pay that on every penny you earn. No threshold. But that works because housing costs are reasonable, utilities don't cost a fortune and even the lowest pay is livable. And we get a great infrastructure and services.

As far as i can see, the lower tax brackets are subsidies for business in the uk, so they can get away with lower wages.

The real higher earners and wealthy can creatively juggle their tax so that it is equivalent to a lower earner. Rishi sunak - prize example.

That leaves the mid to high-earners paying the tax. No, it is not sustainable imho. But it is being felt like a slow puncture. There is record government borrowing, despite slashed investments and services. Labour can't commit to any big public investment because there is no money.

Basically the tories have taken what they can and/or mismanaged the country and got the middle classes to pay for it.