Who pays too much/too little tax? ...Inspired (?!) by Jon the Hat

[Captain...]

I get the feeling sir Alf is one of those people who doesn't quite get the concept of incentives, and thinks that extremely hard working high earners will simply carry on working themselves to the bone even if you take away all of their money in tax

You mean like Footballers, working themselves to the bone, Richard Branson, he's got a hard life, all these poor landlords that have to work so hard collecting their rent once a month and fixing the toilet once in a while.

Or do you mean company directors who make the odd decision and then swan off to play golf while the ones that actually do the work, and are paid a pittance to do so actually work themselves to the bone just to be able to put food on the table? Doing things like night shifts, double shifts, unsociable hours second job working in a bar (I think you recently described them as scum).

The simple fact of life is the more money you have the easier it is to get more, without having to do very much at all, and the more money you have the more "tax breaks" you can afford to take advantage of, such as moving to other countries off shore banking, or limited companies to expensive when you are not earning much, but when you have a greater burden of responsibility then you somehow scrape the money together to pay an accountant to reduce your tax bill.

[James.]

Or do you mean company directors who make the odd decision and then swan off to play golf while the ones that actually do the work, and are paid a pittance to do so actually work themselves to the bone just to be able to put food on the table? Doing things like night shifts, double shifts, unsociable hours second job working in a bar (I think you recently described them as scum).

Come on, you're better than that.

Many company directors will have put the hard hours in to get where they are (and many will still put in hard hours). Many will be talented leaders capable of growing an organisation and as such employing more of the people "that actually do the actual work". I'm not denying that many people work fúcking hard for little reward but I also recognise that people who are highly paid are often (not in all cases admittedly) completely deserving of that reward in the context of their contribution to their organisation and the industry they work in.

[Alf Bentley]

I get the feeling sir Alf is one of those people who doesn't quite get the concept of incentives, and thinks that extremely hard working high earners will simply carry on working themselves to the bone even if you take away all of their money in tax

I don't know where you get that feeling from. I'm self-employed myself, so technically a "businessman" (though on a very small, low-earning scale) and financial incentives are one of the factors that motivate my work decisions...together with quality of life, whether I enjoy particular work etc.

Some people at all income levels work hard - and others don't. I've no idea of the correlation.

I certainly did not suggest that all of anyone's money should be taken away in tax. I merely calculated tax payments based on 2012-13 tax rates (the same % tax figures as Jon the Hat quotes: 0%/32%/42%/52%, ignoring minor N.I. discrepancies). I don't have enough knowledge to assess optimum tax rates. However, I certainly see no need for Osborne to reduce the 50% top rate to 45% for those earning £150,000+ when there is a public deficit crisis and real pay is falling for everyone else!

I repeat: After income tax/N.I., someone on £200,000 is currently left with £116,158 per annum....and still keeps 50% of anything earned above that. How much more incentive do they need, especially as they probably have a more enjoyable job than most people on £15k?! Plus they should be proud that their ability to earn large amounts allows them to contribute to the society that they're members of and might need one day!

[MooseBreath]

Should people who work a full week for a low income be unable to buy those things that are not VAT exempt - in your opinion?

As shrapnel points out the vat exemption rules aren't always immediately logical. But if what you're asking is should we reduce the tax burden on poor people purely to allow them to buy more things which they don't need then the answer is no, of course not.

[Guest]

As shrapnel points out the vat exemption rules aren't always immediately logical. But if what you're asking is should we reduce the tax burden on poor people purely to allow them to buy more things which they don't need then the answer is no, of course not.

I'm asking whether you think an honest person working hard for a full week doesn't deserve a few "luxuries" like a colour TV or a games console for his kid.

[Captain...]

Come on, you're better than that.

Many company directors will have put the hard hours in to get where they are (and many will still put in hard hours). Many will be talented leaders capable of growing an organisation and as such employing more of the people "that actually do the actual work". I'm not denying that many people work fúcking hard for little reward but I also recognise that people who are highly paid are often (not in all cases admittedly) completely deserving of that reward in the context of their contribution to their organisation and the industry they work in.

There are also plenty of people how really don't deserve the money they get.

I don't get the idea that being taxed more is a disincentive to work, it is an incentive to employ a very good tax lawyer, but nobody gives up a 200k a year job for a much lower paid job because they are taxed too much.

[MooseBreath]

I don't have enough knowledge to assess optimum tax rates. However, I certainly see no need for Osborne to reduce the 50% top rate to 45%

If optimum tax take at the expense of fairness is your goal then everything hinges having the knowledge to assess the optimum rate, doesn't it?

We seem to be in agreement that maintaining an adequate incentive to earn more is vital. So of you're wondering why they want to keep the 45% rate...

How much more incentive do they need?

Maybe that's your answer

[MooseBreath]

I'm asking whether you think an honest person working hard for a full week doesn't deserve a few "luxuries" like a colour TV or a games console for his kid.

They can spend their earnings on whatever they want. We have a tax free allowance and a minimum wage. These things exist to ensure a certain quality of life.

[foxesfan1989]

Not read the whole original post, but on the topic of the title I have always felt carers (esp those who have to give personal care to elderly/disabled people) should get greatly reduced tax to compensate for such a terrible wage. These people do a job that most of the millionaires out there would not do in their worst nightmares. These people do literally heroic work and deserve some sort of tax break to thank / compensate them.

[Benji]

I completely disagree - and refer you to my last paragraph re. taxing someone on the minimum wage and Richard Branson at the same rate.

As much as your posts are thought out and clearly do stand behind both substance and morals, your argument doesn't really match up.

You've based your figures on earnings up to £200,000 a year, but then use the basis of your argument as a 'Richard Branson'.

Richard Branson has a net worth in either the millions or billions. An extra 1% here or there for him might be a matter of figures only, but 1% here or there for someone on between 70k and 150k which your original post is based quickly becomes the difference between encouraging someone to work unthinkable hours and endure unhealthy stress levels, to working 9-5. The wage is often reflective and if you want people to sit in that bracket and pay into the tax system, you need an incentive balance.

As already posted, percentages alone make tax mathematically fair. Different brackets add a double penalty on earning. Further rises flicker on the realms of taking the pi55.

[Captain...]

Not read the whole original post, but on the topic of the title I have always felt carers (esp those who have to give personal care to elderly/disabled people) should get greatly reduced tax to compensate for such a terrible wage. These people do a job that most of the millionaires out there would not do in their worst nightmares. These people do literally heroic work and deserve some sort of tax break to thank / compensate them.

Nope they should get a higher wage, the tax system needs to be simplified not made more complicated by creating individual income tax brackets based on profession.

Some times it is a bit perverse, like paying teachers out of state funds then taxing it back, but it is already a complicated mess, and this would make it more complicated.

[Guest]

As much as your posts are thought out and clearly do stand behind both substance and morals, your argument doesn't really match up.

You've based your figures on earnings up to £200,000 a year, but then use the basis of your argument as a 'Richard Branson'.

Richard Branson has a net worth in either the millions or billions. An extra 1% here or there for him might be a matter of figures only, but 1% here or there for someone on between 70k and 150k which your original post is based quickly becomes the difference between encouraging someone to work unthinkable hours and endure unhealthy stress levels, to working 9-5. The wage is often reflective and if you want people to sit in that bracket and pay into the tax system, you need an incentive balance.

As already posted, percentages alone make tax mathematically fair. Different brackets add a double penalty on earning. Further rises flicker on the realms of taking the pi55.

I don't believe that 1% tax hike would stop any "striver" from working as much as possible.

The whole reasoning behind this type of person is that I get what I earn. whether that is taxed at 45% or 55% will not change that mentality.

[foxesfan1989]

Nope they should get a higher wage, the tax system needs to be simplified not made more complicated by creating individual income tax brackets based on profession.

Some times it is a bit perverse, like paying teachers out of state funds then taxing it back, but it is already a complicated mess, and this would make it more complicated.

Yep, paying them a higher wage is the ideal for sure. But failing that, a tax break is the minimum.

[Benji]

I don't believe that 1% tax hike would stop any "striver" from working as much as possible.

The whole reasoning behind this type of person is that I get what I earn. whether that is taxed at 45% or 55% will not change that mentality.

I think fundamentally we sit on different moral sides of the fence and generally speaking it's hard for people to not base their opinions on tax without arguing for the bracket they sit in. Let's face it 99% give or take one or two posts on here will be heavily influenced by the wage earned by the poster.

My point on the 1% is simply that there is no definite figure at which it goes from being a fair deduction to a punishment.

[Captain...]

I think fundamentally we sit on different sides of the fence and it's hard not to base opinions on tax without arguing for the bracket you sit in. Let's face it 99% give or take one or two posts on here will be heavily influenced by the wage earned by the poster.

My point on the 1% is simply that there is no definite figure at which it goes from being a fair deduction to a punishment.

It is never a punishment, unless you are earning less post tax, than if you had a lower income.

Nobody would ever turn down a pay rise, because they would actually pay more out in tax, despite getting more in, and nobody would think why am I working so hard when the tax man gets half my money, they will think why am I working so hard and getting so little reward, I work my fingers to the bone and don't get anything for it, at this point you demand a pay rise, and you evaluate it on post tax, not pre tax, would it make any difference if you were paid 100k taxed at 75% or 50k taxed at 50%? No you still end up with the same amount. We shouldn't be concerned how much tax we pay, we should be concerned about how much we take home and negotiate salaries based on that.

[Guest]

I think fundamentally we sit on different moral sides of the fence and generally speaking it's hard for people to not base their opinions on tax without arguing for the bracket they sit in. Let's face it 99% give or take one or two posts on here will be heavily influenced by the wage earned by the poster.

My point on the 1% is simply that there is no definite figure at which it goes from being a fair deduction to a punishment.

We may sit on different moral sides, though I'm pretty sure that I'm not arguing dependant on my wage bracket.

My point is that people with "aspirations" aren't going to lose those aspirations because they are taxed an extra percentage point. In fact most will use that to earn / charge a little more. I'm surprised you don't agree with that when you are arguing from an aspirants pov.

[Alf Bentley]

If optimum tax take at the expense of fairness is your goal then everything hinges having the knowledge to assess the optimum rate, doesn't it?

We seem to be in agreement that maintaining an adequate incentive to earn more is vital. So of you're wondering why they want to keep the 45% rate...

By "optimum tax rates", I certainly did NOT mean "optimum tax take at the expense of fairness"!

Optimum tax rates would take account of tax take, of course, but also fairness (through progressive taxation) and incentives to earn.

Taking a hypothetical example, I'm sure adding 1% to PAYE income tax, while reducing the rate for self-assessed income tax for the self-employed would increase the tax take, as PAYE is harder to avoid and few would bother....but it wouldn't be fair at all.

They do not "want to keep the 45% rate", they plan to reduce the current 50% rate on earnings above £150,000 to 45%, at a time when there is a chronic public sector deficit, and to fund this tax cut for the super-rich by cutting public services.

[Benji]

It is never a punishment, unless you are earning less post tax, than if you had a lower income.

Nobody would ever turn down a pay rise, because they would actually pay more out in tax, despite getting more in, and nobody would think why am I working so hard when the tax man gets half my money, they will think why am I working so hard and getting so little reward, I work my fingers to the bone and don't get anything for it, at this point you demand a pay rise, and you evaluate it on post tax, not pre tax, would it make any difference if you were paid 100k taxed at 75% or 50k taxed at 50%? No you still end up with the same amount. We shouldn't be concerned how much tax we pay, we should be concerned about how much we take home and negotiate salaries based on that.

Although with hindsight not clear, my post was about changes to tax, not the general ethos of people earning more paying more.

It is a punishment if one day you earn X and pay Y, but another X (which is now worth less with inflation) pays Y + an increase caused by tax changes which people like to argue for anyone who isn't considered as poor. It's not the employer's fault if tax levels change and often people in the middle ground don't have the leverage (especially in this market with so many looking for work and being over qualified) to demand a proportionate rise.

We may sit on different moral sides, though I'm pretty sure that I'm not arguing dependant on my wage bracket.

My point is that people with "aspirations" aren't going to lose those aspirations because they are taxed an extra percentage point. In fact most will use that to earn / charge a little more. I'm surprised you don't agree with that when you are arguing from an aspirants pov.

Of course not. But that's no reason to start adding on %'s plucked from thin air to sort out an already arbitrary tax system. Businesses and the self-employed can obviously charge more, but employees cannot. My point is simply that it's not as simple as saying of X earns more, tax him more. There's a breaking point for everyone at some point. Even at my incredibly low stance on the pecking order I think what the hell's the point when the deductions come in.

[Daggers]

I think the one thing that all people should be able to agree on whatever their political persuasion is and that is that it's far too complex.

If tax experts can't understand it, if it needs court cases to interpret the system then there's something fundamentally wrong and at odds with a democratic society.

Spot on.

They all rely on the smoke and mirrors in order to fleece us and line their pockets. Along with the political system, the tax system needs binning altogether and we start anew.

[Rincewind]

I work to live not live to work so I want something for doing it.

When I get a job that is.

[Captain...]

Although with hindsight not clear, my post was about changes to tax, not the general ethos of people earning more paying more.

It is a punishment if one day you earn X and pay Y, but another X (which is now worth less with inflation) pays Y + an increase caused by tax changes which people like to argue for anyone who isn't considered as poor. It's not the employer's fault if tax levels change and often people in the middle ground don't have the leverage (especially in this market with so many looking for work and being over qualified) to demand a proportionate rise.

Well it is a mistake, people should negotiate their wage based on post tax earnings, and have it written into their contract, therefore the company takes the burden of any tax rises, something to bear in mind if you are negotiating a new contract.

[Alf Bentley]

As much as your posts are thought out and clearly do stand behind both substance and morals, your argument doesn't really match up.

You've based your figures on earnings up to £200,000 a year, but then use the basis of your argument as a 'Richard Branson'.

Richard Branson has a net worth in either the millions or billions. An extra 1% here or there for him might be a matter of figures only, but 1% here or there for someone on between 70k and 150k which your original post is based quickly becomes the difference between encouraging someone to work unthinkable hours and endure unhealthy stress levels, to working 9-5. The wage is often reflective and if you want people to sit in that bracket and pay into the tax system, you need an incentive balance.

As already posted, percentages alone make tax mathematically fair. Different brackets add a double penalty on earning. Further rises flicker on the realms of taking the pi55.

I used the Richard Branson example to clearly show that "proportional" isn't necessarily "fair". I'm amazed at how many people on here disapprove of progressive taxation, as it has been the system throughout my lifetime (I'm 50), though I appreciate that some people now advocate "flat taxes" (proportional above a tax-free allowance), which is different.

However, I simply do not believe that someone earning £75k-£150k for doing a demanding job would significantly reduce their effort if they had to pay 1% more tax (much larger amounts, perhaps, but I don't support punitive taxation, as I've said) - they'd probably ruin their career, apart from anything else.

If someone did have such a bad attitude, they'd really want to have a good look at themselves. The median income is about £25k, so they're on 3-6 times the average wage, with a disposable income of about £50,000 after tax and basic needs and they're refusing to work properly because they want another £600?!? What a greedy, selfish, grasping bastard such a person would be!

But then, the argument of the right has always been that pay increases act as a disincentive to the poor and reduce their productivity, whereas they act as an incentive to the rich and increase their productivity! That must be why the British economy is doing so much better than the German economy, where workers' pay is higher and executive pay lower....eh?!?

Nice link here: http://mindfulmoney.co.uk/9621/economic-impact/executive-pay-across-the-world.html

I prefer to remember a lesson learned from childhood, when I did a paper round: it was the people from the smaller houses that gave a Xmas tip; the people from the bigger houses kept a tight grip on their money.

[MooseBreath]

However, I simply do not believe that someone earning £75k-£150k for doing a demanding job would significantly reduce their effort if they had to pay 1% more tax

They probably wouldn't if it was only 1% from where we are now. But then where do you stop adding 1%? There has to be a cutoff point.

[davieG]

Can we please not assume that only highly paid people work hard, unsociable/unhealthy hours in stressful jobs.

The vast majority of people are not paid more on less on how hard they work but on how fortunate they were to be born with and then using a brain that allows them to do more complex work.

As I've said many times on here before having worked in large organisations but in the private and public sector I've seen plenty of people literally flogging themselves to death and even dying on the job in some case some were low paid and some were high earners and I've also seen plenty of low paid and highly paid do next to FA, their main skill being the ability to always look busy whilst producing next to nothing.

[DANGEROUS TIGER]

The "Absolute cvnts" thread recently included a few comments re. who pays too much or too little tax.

Jon the Hat suggested that tax should be paid "proportionately", that the "entire tax credits system should be removed" and that "there is no reason whatsoever why anyone should ever have to pay more than a total of say 40%, including national insurance".

Being a sad git with (currently) time on his hands, I thought that I'd get some approximate figures together to challenge my own strong disagreement with those comments.

Obviously, detailed tax analysis is fiendishly complex and individual/family circumstances vary in a multitude of ways, so I've kept it as simple as possible, just looking at TOTAL income tax & national insurance paid by individual employees on particular income levels.....

Individual on £15k per year: Pays 15.12% of income in income tax/N.I; left with £2,732 DIAB

Individual on £25k per year: Pays 21.87% of income in income tax/N.I; left with £9,532 DIAB

Individual on £35k per year: Pays 25.13% of income in income tax/N.I; left with £16,206 DIAB

Individual on £50k per year: Pays 31.66% of income in income tax/N.I; left with £24,168 DIAB

Individual on £100k per year: Pays 36.84% of income in income tax/N.I; left with £53,158 DIAB

Individual on £200k per year: Pays 41.92% of income in income tax/N.I; left with £106,158 DIAB

"DIAB" stands for "Disposable Income After Basics", my own concept - just deducting an arbitrary figure of £10,000 per year from gross pay. I take the view that it would be hard to live decently on less than this (think food, rent, travel, utility bills, council tax etc.)....though plenty of folk have to. In fairness, I should recognise that some better off people will have higher fixed commitments, but while some of these (e.g. higher council tax) are compulsory and bring no personal benefit, most (e.g. large mortgages, higher VAT on spending) are optional or bring personal benefits.

(If anyone is an even sadder git than me and wants to see how I calculated those figures, just let me know, but I assumed it would be best to avoid further complicating things!)

My conclusions:

- You have to be seriously mega-rich (£150k-plus?) before you pay "a total of 40%" in income tax/N.I. Maybe Jon meant "a total tax rate of 40%", in which case you pay 52% from £34,370 p.a.....but ONLY on income above that level, not on your first £34,370!

- In truth, many individuals on higher incomes pay much lower tax rates than those quoted: white-collar professionals who become companies so as to pay much lower tax; cash-in-hand tradesmen etc.

- Mega-rich major corporations (Starbucks, Amazon, Facebook, banks etc.) often use offshore ruses to pay tiny amounts of UK tax...so Joe Public ends up subsidising their millionaire executives!

- If Jon really believes - like George Osborne - that, in times like these, the priority is to reduce tax on individuals earning £200k, so that they can have a disposable income of £100k+...I disagree!

- Yes, people in the first 2 categories may be entitled to tax credits, but not large amounts, except if they have kids and earn £15-20k (tax credits are minimal above £15k for the childless, and above £25k, for all but massive families)

- I'm not sure why tax credits were set up separately from the tax system, so Jon may have a point there. However, if it was all one system, they'd have to assess 2 spouses/partners separately...and what if the income of one was rising and the other's falling? Of course, you could revert to taxing couples jointly, but that would open a massive can of worms. Something else that I didn't realise was that our tax credit system was started by the Tories (Family Credit in 1996), though it was Labour that mainly expanded it. Also, given falling real pay / rising prices, you'd create terrible poverty if you just "removed the entire tax credit system"....if you cut taxes to compensate, whose would you cut? His or hers (to be briefly heterosexist)?

- N.I. is indeed now "income tax" by another name, as Jon implies. The reason for that is that governments of all persuasions know that "tax rises" cause whinging and lose them votes, whereas "N.I. rises" garner less opposition; I think they should be prepared to argue the case for tax, but I'm probably naive!

- If Jon seriously meant that nobody should pay tax-plus-N.I at a rate of more than 40%, he is suggesting a 12% tax cut for everyone earning more than £35k and a 22% cut for those earning more than £150k....Particularly in times like these, that would create a massive budget deficit. How would that be offset? Unprecedented public spending cuts (Eliminate the benefits system? Make the NHS a user-pays system? Half defence spending? Increase school class sizes to 60 per class?). Alternatively, as well as clamping down on benefit fraud, the government could devote attention to the much bigger - and more fiscally lucrative - priority of stopping tax avoidance by wealthy, self-seeking individuals and corporations!

Tax should NOT be "proportionate", it should be fair but "progressive", so that (within reason) those who earn more pay more - and pay a higher proportion of their income in tax. If you tax someone on the minimum wage at 40%, their life isn't worth living; if you tax Richard Branson at 40%, he might possibly have to do without the gold-plated taps in the 7th bathroom of his villa in the Bahamas!

Top quality post, and I agree ( I think ).Yes, I do.