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How Much We Give The State In Tax – And How Much We Get Back

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http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/10638283/How-much-we-give-the-state-in-tax-and-how-much-we-get-back.html

Last week a report captured headlines when it warned that a huge and growing slice of the income tax burden was being borne by a tiny proportion of high earners.

The Institute for Fiscal Studies (IFS) think tank pointed out that just 300,000 very high earners, out of about 30 million income tax payers, paid 30pc of all income tax. It said that over a period the income tax burden had been pushed increasingly on to this narrow band of top earners.

..

It showed that the top 40pc of households, ranked by earnings, carried the burden. The lower-earning 60pc are net beneficiaries of the system, taking more back in benefits than they contribute in the many forms of tax to which we are all subject.

The point at which a household switches from being an overall “taker” to a “giver” is where disposable income, after all taxes and benefits are taken into account, passes a threshold of about £27,000, Smith & Williamson found. This would be where a household’s gross income fell somewhere between £35,000 and £38,000.

At that point a household is receiving benefits and paying taxes to the extent that the two cancel each other out. Above that, more tax is paid than benefits received, and vice versa.

Although an issue not discussed is that if the lower incomes didn't get a tax break like this perhaps the top 40% wouldn't be earning the money they are on as the velocity would stop.

Clearly the message is we need to give the wealthy more money.

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http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/10638283/How-much-we-give-the-state-in-tax-and-how-much-we-get-back.html

Although an issue not discussed is that if the lower incomes didn't get a tax break like this perhaps the top 40% wouldn't be earning the money they are on as the velocity would stop.

Clearly the message is we need to give the wealthy more money.

no, we just need to clean up the tax system so there is no opportunity for false accounting.

then we LOWER the tax rates...

theres a few taxes that really shouldn't be..

VED was one of them, TV licence is another.

but now we have to get serious about getting rid of UNNECESSARY REGULATION, as well as lowering taxes and streamlining the system,

high regulation CAUSES high taxation, because those who actually produce stuff in the country are made to jump through endless legal hoops when they should be making stuff....which in turn makes them less competitive to outside exports, which inturn reduces the tax revenue, which inturn forces the government of the day to start demanding ever more punitive collections from the domestic serfdom...which in turn forces many to leave to greener pastures...and then you get the death spiral)

big government has FAILED , EVERYWHERE it has been tried..and for a long,long time(even back in old testament biblical times we had jeraboam/rehaboam which IS a parable on big/small government...and it failed then too.)

Edited by oracle

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I wonder how they work that out. Am I considered a consumer of Planning Department services, for example?

I barely have any interaction with the government at all beyond the most basic (roads, judges, soldiers, etc).

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Those top earners are prolly going to be Public sector anyway.

....can't see how their tax helps ...it's purely an accounting off-set ..with no net value to the country... :rolleyes:

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The classic meme that the state is carried on the backs of people who pay lots of income tax is based on the widespread but false perception that income tax makes up a majority of tax receipts. In fact income tax is only 30% of the pie:

government-tax-revenue-pie-chart-500x351.png

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http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/10638283/How-much-we-give-the-state-in-tax-and-how-much-we-get-back.html

Although an issue not discussed is that if the lower incomes didn't get a tax break like this perhaps the top 40% wouldn't be earning the money they are on as the velocity would stop.

Clearly the message is we need to give the wealthy more money.

It's all nonsense anyway, because such articles make the implicit assumption that the incomes of those higher tax payers are a true reflection of the wealth they create.

But as we all know (or should by now if you are a long time reader here) the actual wealth you generate is pretty much irrelevant to what income you earn. In reality it's all about POWER in it's various forms, and the ability that gives to the individuals that have relatively more of it, to redirect income flows towards themselves.

Thus with the destruction of the unions the power of the average worker went down, with globalization it went down even more, and further still with mass immigration, to the extent that even in the 2000-2007 boom average worker salaries were stagnant, while at the same time the salaries of those in the top 1% boomed faster than ever before.

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The classic meme that the state is carried on the backs of people who pay lots of income tax is based on the widespread but false perception that income tax makes up a majority of tax receipts. In fact income tax is only 30% of the pie:

government-tax-revenue-pie-chart-500x351.png

..are the public sector contributions deducted to allow for the off set accounting....?

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The classic meme that the state is carried on the backs of people who pay lots of income tax is based on the widespread but false perception that income tax makes up a majority of tax receipts. In fact income tax is only 30% of the pie:

government-tax-revenue-pie-chart-500x351.png

+1

... and that "high earners = the rich". But you can own a sizeable chunk of countryside, rent it out to farmers, and live it up in your country pile that's been in your family for 500 years.

Your "income" might be an unremarkable (say) £40k pa, but by any other measure you are stinking rich, as you don't have to work and you live rent (and mortgage) free.

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They don't create the wealth they steal the wealth created by everbody else.

The taxation system isn't meant to be a savings account. It's a progressive taxation system. The more you steal from everyone else, the more you must give back.

The problem at present is that most of the wealth that is stolen isn;t given back it's funnelled off by the criminal elite in London and hidden in nominee accounts in British tax havens and elsewhere.

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Many doctors, say, pay a lot of tax because they earn so much because they are part of a union that holds the country to ransom. Oh to be a high earner.

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The classic meme that the state is carried on the backs of people who pay lots of income tax is based on the widespread but false perception that income tax makes up a majority of tax receipts. In fact income tax is only 30% of the pie:

government-tax-revenue-pie-chart-500x351.png

More like 50% Don't forget about the NI which is just income tax pretending to be something else.

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Standard use of misleading stats.

As others have pointed out:

1) Income tax is actually a smallish proportion of total tax. Other taxes (Vat, council tax, etc) fall much more heavily on the poor than the rich.

2) Saying how much of income tax is paid the rich (as opposed to the rate) simply shows how much of income is "earned" by the rich.

Edited by gadget

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More like 50% Don't forget about the NI which is just income tax pretending to be something else.

NI drops to 2% at the 40 % income tax rate.

Plus the biggest earners are not employees and so pay no NI

EDIT: I see you meant in that pie chart 50% is income tax + NI. However the telegraph article says how the biggest earners pay 30% of "income tax" They mean just of income tax ( the 30% bit) as they will pay almost no NI

Edited by gadget

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NI drops to 2% at the 40 % income tax rate.

Plus the biggest earners are not employees and so pay no NI

I was responding to the point that incomne tax is only 30% of the tax take. NI is a tax on income and makes up an additional 19% of the tax take. So ~50% of the overall tax take comes from income.

If you consider the whole thing as income tax then the NI drop is more than offset by the increased IT rate, so higher rate tax payers are still paying a higher rate overall.

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I was responding to the point that incomne tax is only 30% of the tax take. NI is a tax on income and makes up an additional 19% of the tax take. So ~50% of the overall tax take comes from income.

If you consider the whole thing as income tax then the NI drop is more than offset by the increased IT rate, so higher rate tax payers are still paying a higher rate overall.

They don't pay anywhere near 30% of all income tax and NI tough.

And these people do tend to receive all their income tax back and MORE. As they are the most likely to own property, and the unearned increment in their property value exceeds the income tax paid.

The alcoholic on benefits who does a bit of cash in hand work on the other hand, can quite easily be a net payer of tax, and he receives none of the tax back, as he owns no property.

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They don't pay anywhere near 30% of all income tax and NI tough.

And these people do tend to receive all their income tax back and MORE. As they are the most likely to own property, and the unearned increment in their property value exceeds the income tax paid.

The alcoholic on benefits who does a bit of cash in hand work on the other hand, can quite easily be a net payer of tax, and he receives none of the tax back, as he owns no property.

To me it`s self evident that by and large the rich get more out of society than they put into it.

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If income is taxed and you happen to be among the small group of people who earn most of the income it's hardly a surprise that you turn out to be paying most of the income related tax.

It's also true to say that in the days of slavery the cost's of feeding and housing the slaves was borne entirely by their owner- does this mean we should therefore feel sympathy for the owner? Only if we choose to ignore the fact that the wealth he is using to cover those costs was derived from exploiting the slaves he is paying to feed and house.

There is a simple way to equalize the burden of income tax- ensure a more equitable distribution of income in the first place.

Edited by wonderpup

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More like 50% Don't forget about the NI which is just income tax pretending to be something else.

NIC has an upper earnings threshold of £805 per week. Earnings up to that level are liable to employee NIC at 12%. Earnings over that amount suffer employee NIC deductions of just 2%. The primary threshold for NIC is just £153 per week (£7956 per annum) so poorer workers start paying it before they hit the income tax threshold and on a greater part of their income. High earners pay a much lower portion of their total income in NIC than the average worker particularly if it is rolled into an end of year bonus. Indeed once NIC is added to the picture the marginal rate of tax for high earners looks not that different from many ordinary earners who are increasingly being caught in the 40% tax band due to Osborne's lowering of its starting threshold. Moreover more than half of the £105 billion NIC received by the Treasury each year comes from the employers 13.8% contributions which is not paid by employees directly from their income. Top earners pay nothing like 30% of all NIC

http://www.hmrc.gov.uk/rates/nic.htm

If top earners pay 30 % of all income tax that is less than 10% of all British taxes paid coming from their earnings. That is hardly paying the bulk of UK tax.

And as has already been said earnings alone are not a real measure of wealth.

The claim that the rich pay the bulk of UK tax is a lie - pure and simple

Edited by stormymonday_2011

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There is a simple way to equalize the burden of income tax- ensure a more equitable distribution of income in the first place.

That would surely be an impossibility. It makes me think of attempts at communism.

Another way to do it would be to legislate that the total tax take may not exceed 10% (all taxes in all forms) constitutionally, and all governments had to work within that.

Precipitating a detailed debate about the role of the State and how far it should extend and the extent to which "socialism" (read as: forced redistribution) can be used to make things easy for governments to get re-elected by buying votes.

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NIC has an upper earnings threshold of £805 per week. Earnings up to that level are liable to employee NIC at 12%. Earnings over that amount suffer employee NIC deductions of just 2%. The primary threshold for NIC is just £153 per week (£7956 per annum) so poorer workers start paying it before they hit the income tax threshold and on a greater part of their income. High earners pay a much lower portion of their total income in NIC than the average worker particularly if it is rolled into an end of year bonus. Indeed once NIC is added to the picture the marginal rate of tax for high earners looks not that different from many ordinary earners who are increasingly being caught in the 40% tax band due to Osborne's lowering of its starting threshold. Moreover more than half of the £105 billion NIC received by the Treasury each year comes from the employers 13.8% contributions which is not paid by employees directly from their income. Top earners pay nothing like 30% of all NIC

http://www.hmrc.gov.uk/rates/nic.htm

If top earners pay 30 % of all income tax that is less than 10% of all British taxes paid coming from their earnings. That is hardly paying the bulk of UK tax.

And as has already been said earnings alone are not a real measure of wealth.

The claim that the rich pay the bulk of UK tax is a lie - pure and simple

The employers NI comes from the budget/funds the employer had available to pay salary costs, so is effectively an income tax on the employee but clumsily hidden from their view.

You -- and others -- are correct to point out the slight of hand with NI rates that is unknown to most people and causes higher rate tax payers to pay lower overall income tax levels (IT + NI) than most people believe that they do. Indeed, I know higher rate tax payers who aren`t aware that this is how it works.

What we can't do however is ignore NI when we talk about income tax, because it is effectively part of income tax, and when we misrepresent the figures to make a point we do ourselves no favours.

All that being said, proper wealth comes from accumulated capital. While it`s possible to accumulate capital through earnings most wealthy people inherit theirs, or have gained it some other way (like HPI). In a way IT could be seen as a way of holding back people from gaining sufficient capital to compete for assets.

It is also very useful to the very wealthy to conflate wealth and income, and push the line that taxing income is taxing wealth.

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NICs are effectively engineered, and have to be implemented, in a manner to support the notion that the government is putting them in a jar, with your name on, for your pension. You might think no-one would be daft enough to believe that but, I suspect, rather a lot think it works along those lines.

The conceit/charade nature of the state, and it's taxation methods, always has to be remembered when considering a more commonsense approach to taxation or how it landed up as convoluted as it is.

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The employers NI comes from the budget/funds the employer had available to pay salary costs, so is effectively an income tax on the employee but clumsily hidden from their view.

You -- and others -- are correct to point out the slight of hand with NI rates that is unknown to most people and causes higher rate tax payers to pay lower overall income tax levels (IT + NI) than most people believe that they do. Indeed, I know higher rate tax payers who aren`t aware that this is how it works.

What we can't do however is ignore NI when we talk about income tax, because it is effectively part of income tax, and when we misrepresent the figures to make a point we do ourselves no favours.

All that being said, proper wealth comes from accumulated capital. While it`s possible to accumulate capital through earnings most wealthy people inherit theirs, or have gained it some other way (like HPI). In a way IT could be seen as a way of holding back people from gaining sufficient capital to compete for assets.

It is also very useful to the very wealthy to conflate wealth and income, and push the line that taxing income is taxing wealth.

I agree with the last point. I think aspirational/ambitious types in some middle-management role pulling in £75k, or so, may well be doing the heavy lifting, where the tax take is concerned, but they aren't rich/wealthy.

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