To think it's depressing that everyone seems to think after this recession we should just return to exactly how things were?

[kake]

Does anyone else get this sense? What I mean is that everybody is lamenting this recession, quite rightly as it's awful, and I feel for everyone who has lost their job or is struggling.

But on the other hand there doesn't seem to be an acceptance that in some ways this has been at least a little bit caused by complete over-consumption in the good times and that we need to change our ways a little bit. Or a lot. When people talk about house prices especially, the consensus always seems to be that if there's any talk about a recovery that must be a positive thing, with the implication that we should be getting back to stupidly inflated house prices as soon as possible.

I find it depressing, as someone who didn't buy partly because we couldn't really afford it but also because we were really cautious and didn't want to overstretch ourselves. But now we're seeing a lot of friends who did somehow being rewarded as their mortgages have been slashed.

I'm also someone who wishes that taxes had been much higher for what I consider to be well paid people (and that would include my DH!) during the boom, so that there hadn't been such a disparity in income in this country then. It's a shame that higher tax levels in future will have to pay off debt not contribute to the national benefit! If I mention this to (well paid) friends they look at me as if I'm mad, although they are people who in principle I think sort of do believe in equality, just not if it affects their/our pockets. My view is that as satisfaction with income is largely relative (ie it matters more to people apparently that they get paid more than their neighbour than their absolute wealth), then if everybody is taxed more at higher income levels, then we'd all be in the same boat and it wouldn't make much difference.

But I feel like I'm STILL swimming against the tide, just when I would have thought more people would begin to feel like this. We have lots of friends who work in the banking sector for example who've been through a bit of a rocky time but now seem to be out the other side and better off than ever and sort of with no lessons learned!

It just seems ... so wrong! Or maybe I just got out of bed on the wrong side. And this post isn't as articulate as I would have hoped!

Hi Cote D'Azur, unless I've totally misunderstood something, I don't think that is the answer to my questions. A progressive tax system isn't communist any more than the current bankrupt system represents that mythical beast free market capitalism. Redistributive socialism and capitalism can co-exist. Isn't that the point of all this? I simply don't accept that we should have to live in a country that tolerates horrible inequalities (to the detriment of all of us) whilst simultaneously shutting down all debate on the subject by suggesting that any alternative is akin to communism (dirty word). I'm not a communist by the way.

In MY system, people would not be allowed to be paid from offshore subsidiaries and tax avoidance would be illegal. I've got at least two supporters for my dictatorship on this thread so it could be a reality!

Have found this thread very interesting. And have written about houses before. We have always rented - not through choice but because we have never earned enough - my DH is an unskilled worker and I am a language lecturer p/t, neither of us earn over £20,000 each and so have never been able to buy a house. I wouldn't like to borrow any more than we could afford to pay back and so selfishly i am hoping for house prices to come down a lot more. We live pretty frugally, never go on holidays, have an allotment and are generally careful with money. I would like to have our own home - somewhere our DDs can call home instead of living in other people's houses. Yes, a real change needs to happen - and someone at work said a couple of weeks ago that what this country needs is a revolution but that it would never happen.

Sorry, I may have misunderstood, but the underlying theme in your questions seems to me as the tried & failed method of communism - that everyone should earn same or similar amounts of money, that everyone can do another's job, etc.

I realize that it is fashionable to blame all "bankers" (including subsectors totally unrelated to mortgages or even credit markets in general) for the current economic mess. So we now hear a lot of comments (not just from you) on how they all should be paid less, should get no bonuses, etc.

The reality is that a good investment banker makes zillions for his firm, and hence will always be paid very well. His salary & bonus will still be a fraction of what he makes for his bank. It is not easy to replace these people, either, because the subject matter is complex and requires specific education that takes a long time.

And what about people who work on mainly commission ?
(When I'm employed) My basic salary is around £25k after 10 years in my job and responsibility for a team of 30ish, I'd do a 60 hour week and triple my salary in bonus so do you really think I should loose 75% of that in tax ? Where would be the incentive, I'd just demand a basic of £60k and then maybe work hard or maybe not.
Plus whatever I make in commission the company keeps the other 80% of and pays tax on that too.

No, I'm not saying that everybody should be paid the same. Not at all. I am saying though that there should be a more progressive tax system that aims to reduce some of the inequalities in the system. I am not an economist or a politician or a banker so I am not sure quite at what income which rates should kick in but I do think that people on very high income levels should pay more tax on their income over a certain threshold. A good banker would still be a good banker if he was taxed more heavily over say £250k and surely would continue to make money for his bank. He (or she!) would still be rich and he'd still be richer than most of the population, because the taxation system would be progressive. He may not be quite as rich in absolute terms as he is now, but he'd still be able to afford the best houses, in the best areas (for example) because he'd be paid more than most other people. If he says that reduces his incentive to work harder, then I'd say ... never mind! And if he says he wants more money, do you think we could ever get to a position where that admission was rather embarrassing and socially unacceptable, rather than the current situation where suggesting in polite society that bankers get paid too much is akin to saying ... well, that you're a communist! I know we're talking about bankers here by the way but I obviously mean that these rates would be applied across the population!

The thing about this is that for example, City lawyers working in finance often get paid less than the bankers they work with. Often in my experience they moan about this, especially because they say they work harder. A few of them decide to become bankers. But not all, because I guess other push and pull factors weigh in. That's just one example, but I just don't agree with the argument that for example, this is a simple, you work X% harder for every additional £X amount you earn, especially once you have reached a threshold.

No, I'm NOT saying that all bonuses should be taxed! If you triple your salary in bonus, presumably your total gross is less than £150k? So you wouldn't pay the higher tax rate at all. I'm only suggesting that this rate would apply to anything earned over, say, £150k or perhaps £250k.

Well yes I agree the middle bands seem to pay the most proportionally, I wish I earnt £150k, they could tax me, I would care

wouldn't care

To bring this back to the original question though it does seem as if the focus of this govt is to get back to where we were asap with no mention of changing our ways and trying to avoid that situation again.Most home owners who aren't forced to sell are waiting until their house goes back to 2007 price and then all will be fine.In order for any real good to come of this huge sacrifices have to be made and the house as pension scenario quashed

waiting to get back to 2007 house price levels could take quite a long time. 10 years or longer would not surprise me, assuming another 20% fall.

re: taxing higher incomes. Finance is a global industry and it will always gravitate to the most attractive tax regimes.

That said, banking and executive pay have reached silly levels under the auspices that there would always be half a dozen competitors willing to pay as much or more. I think that argument is really breaking down as shareholders start exercising their rights to veto pay deals. Regulators are also stepping in to break the link between bonuses and risk taking.

The glory days are over for investment banking ... at least for a while.

I agree back to 2003 prices and then rises only in line with inflation for years.Those waiting for a return to the glory days will have a long wait.

Riven, that's exactly what I think, it's the open and unchallenged greed that currently exists that really upsets me. Most people I know in RL just seem to shrug their shoulders and say oh well, that's life, and that upsets me even more.

And as you say people could still be very rich. If you earned £350,000 and that last £100,000 was taxed at 75% by my calculations you'd still take home an extra £2k a month. And if you earned £500,000, and the last £250k was taxed at 75%, you'd still take home an extra £5k A MONTH on top of your existing salary. So you would still be absolutely and comparatively very very wealthy. If that isn't sufficient incentive, I'd say take your skills to Bulgaria, Monaco anywhere else, and try it out!

I don't think this is separate from the original question, I think it's absolutely part of it. The economy is a system and part of not wanting to return to how things were is to say let's also not tolerate the gigantic levels of income inequality that have arisen in this country.

Would voting Vince help?

I don't understand the "logic" of some posters. They condemn the highly skilled and high earning as "greedy" but are perfectly at ease with the idea that those "greedy" people should pay a lot of tax to subsidise other people's lives.

Punitive taxation for the highly skilled and high earning has never, ever made economies grow.

Sadly, taxing the income of the rich will not help. They will just leave or convert income to capital gain. There are not enough of them anyway.

Cutting back on wasteful public expenditure ane making sure everyone who pays the same flat rate of tax after a generous tax free personal allowance is the way to go.

I think it is a disgrace and quite demeaning that anyone on minimum wage has to pay tax and NI and then claim tax credits. I also think that childcare costs should be offsetable against personal tax so parents can afford to go out to work. It would also help ensure that no one is trapped on benefits.

I agree with your sentiment entirely, ABetaDad - it is (morally) quite wrong to make people pay tax and then claim it back as tax credits.

It's a moral issue because there is an underlying assumption that money individuals earn is there to be claimed by the state and returned to them as and when and how the state sees fit. Which is wrong. Money is earned by individuals, for them to spend as they need and think fit. The state should be taxing and administering spending of the bare minimum.

But Bonsoir, doesn't all tax go to 'subsidise' other people's lives to some extent? It's just a question of degree? If it doesn't make any difference to tax the rich as there's so few of them (which I can understand), or if economies don't grow with 'punitive' tax systems, how does much of the rest of the western world manage to be less unequal than the US and the UK? I'm asking this in the spirit of genuine enquiry and I'd love someone to tell me. More equal societies still have functioning economies (in 'normal' times) don't they? Or maybe not? Surely for an economy to work you don't have to have enormous disparities in income?

Riven - a parent would only be able to claim the tax back if they actually work and ten only up to the amount of tax they actually paid. Anyone on lowish pay with 12 kids in full time childcare would get no more tax rebate back than someone with say 3 kids in full time childcare.

It would not be like say Child Benefit where the more DCs you have the more you get.

I don't think that it is right to think of taxation as a way of subsidising other people's lives. Taxation ought to be there to make society as a whole function optimally.

There is a lot of talk on this thread and others of "more equal societies" but all modern capitalist societies have massive income and standard-of-living discrepancies.

I think it's a question of definition. Saying that tax is being used to subsidise other people's lives is emotive and suggestive of scroungers/layabouts etc etc. I think it's the kind of terminology used by people who are ideologically opposed to progressive taxation. Fair enough.

Saying that it should be used to make society as a whole work more optimally sounds more positive. But in my view society as a whole works more optimally when some people's lives are 'subsidised' by a progressive tax system, to some extent at least. For example, the rich pay more for state education through the tax system than the less wealthy, who are therefore 'subsidised', but aren't we all better off in a country where the mass of people are educated?

This is based on an idea of social justice which I adhere to, that everyone benefits from redistribution, not just the relatively poor. Personally, I genuinely believe that my quality of life would be enhanced if I knew that there was less of a disparity between rich and poor, even if that meant that I was slightly less well-off myself. I am also very happy to know that healthcare in this country is free at the point of delivery in this country and am happy to 'subsidise' this. Again, I would refer people to The Spirit Level which shows that more equal societies are better off on many many measures, from quality of life to violence, crime, etc etc.

Bonsoir - I agree. Economists calculate something called the Gini Coefficient as a measure of the inequality of income or wealth in a society.

I believe the USA and UK have the most extreme income and wealth inequalities of all the G20 nations and it has got worse in the last decade as wealth and income has accumulated in fewer and fewer hands via capital markets.

Many poor countries have very extreme Gini Coefficients as the poor are very poor and the rich very rich. It is the main catalyst for revolutions when it becomes too extreme.

This link has a page of Gin and other wealth/income ineqality measures fr a range of countries. Click on the top of column 5 'CIA Gini' to sort Gini by rank.

Income or Wealth Inequality for Countries