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sossij

Public Sector Income Tax.

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Ok, I know I’m not the smartest when it comes to matters of economics but I can’t get my head round this one. I work in the private sector and pay income tax on my earnings. Leaving aside the contentiousness of this for a moment, this money goes to the treasury and some of it is used to pay public sector workers etc. Now, these workers also have income tax deducted from their pay… and this is where my brain doesn’t compute… do they really pay income tax? That is, was there ever any money paid to them that is then deducted as income tax, or is it merely the amount of money that they receive that the government actually pays out? If they do pay income tax, then isn't it a kind of "second order" tax as it was originally taken from private sector and, if so, how is it counted .... twice?

Can anyone explain what happens? Thanks.

Edit: to remove confusion about income tax as opposed to additional taxes, e.g VAT etc

Edited by sossij

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Ok, I know I’m not the smartest when it comes to matters of economics but I can’t get my head round this one. I work in the private sector and pay tax on my earnings. Leaving aside the contentiousness of this for a moment, this money goes to the treasury and some of it is used to pay public sector workers etc. Now, these workers also have tax deducted from their pay… and this is where my brain doesn’t compute… do they really pay tax? That is, was there ever any money paid to them that is then deducted as tax, or is it merely the amount of money that they receive that the government actually pays out? If they do pay tax, then isn't it a kind of "second order" tax as it was originally taken from private sector and, if so, how is it counted .... twice?

Can anyone explain what happens? Thanks.

\\The individual departments, eg MOD, df work and pensions foregn offce tec all have individual budgets allocated to them, much as a company would recieve "profits". As such, the employees pay tax back to the treasury, but yes, you are correct, when you look at the salaries introduced by these non- Job W@nkers, you should really deduct the tax, as the govt are getting work at a discount.

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\\The individual departments, eg MOD, df work and pensions foregn offce tec all have individual budgets allocated to them, much as a company would recieve "profits". As such, the employees pay tax back to the treasury, but yes, you are correct, when you look at the salaries introduced by these non- Job W@nkers, you should really deduct the tax, as the govt are getting work at a discount.

Which then gets me even more confused. Mortgages are based on gross earnings, yes? But if what happens is as you say (and I don't doubt you for a moment) isn't there a huge distortion of the market place by public sector workers quoting their gross pay when buying a house as this money is never in the system at all, either in the hands of the gubmint or in the private sector?

Edited by sossij

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Yes they really pay the tax - the treasury doles out the money every FY to various departments and then does everything it can to get as much of it back as poss. Although I dare say the expected treasury clawback figure is taken into account when deciding how much money to hand out in the first place. I'm not up to date with what happens now but a few years back it was the usual practice for the treasury to not only claw back any unspent funds at the end of each FY but then to also punish the underspending department with a reduced allowance the following year. This was not an incentive for departments to ever try to save money. I remember the scrabbling around every Feb/March to find suppliers who could supply and invoice us any old crap so that all the allocation was spent by end of FY.

Sickening.

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\\The individual departments, eg MOD, df work and pensions foregn offce tec all have individual budgets allocated to them, much as a company would recieve "profits". As such, the employees pay tax back to the treasury, but yes, you are correct, when you look at the salaries introduced by these non- Job W@nkers, you should really deduct the tax, as the govt are getting work at a discount.

Those non-job w@nkers would be the doctors who treat your nearest and dearest, the policemen who risk their lives to protect your property and life, the firemen who go into burning building to save people, ambulance men who scrape up the injured from the roads, the teachers who train the next generation, I could go on... Please, stop and think a little about before posting such arrogant and unpleasant tosh.

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Which then gets me even more confused. Mortgages are based on gross earnings, yes? But if what happens is as you say (and I don't doubt you for a moment) isn't there a huge distortion of the market place by public sector workers quoting their gross pay when buying a house as this money is never in the system at all, either in the hands of the gubmint or in the private sector?

Why? Everybodies gross pay is what is considered for mortgage purposes.

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Yes they really pay the tax - the treasury doles out the money every FY to various departments and then does everything it can to get as much of it back as poss. Although I dare say the expected treasury clawback figure is taken into account when deciding how much money to hand out in the first place. I'm not up to date with what happens now but a few years back it was the usual practice for the treasury to not only claw back any unspent funds at the end of each FY but then to also punish the underspending department with a reduced allowance the following year. This was not an incentive for departments to ever try to save money. I remember the scrabbling around every Feb/March to find suppliers who could supply and invoice us any old crap so that all the allocation was spent by end of FY.

Sickening.

Thanks hellsbells. Do you know how this "clawed back" tax is accounted for? Is it counted as additional tax to the treasury or is it simply used to "pay back the overdraft" as it were?

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Those non-job w@nkers would be the doctors who treat your nearest and dearest, the policemen who risk their lives to protect your property and life, the firemen who go into burning building to save people, ambulance men who scrape up the injured from the roads, the teachers who train the next generation, I could go on... Please, stop and think a little about before posting such arrogant and unpleasant tosh.

Hi Opto. I meant no offence by posting this thread, indeed I merely wanted to know the economics behind how it works. I tried to word my OP as uncontentioulsy as possible, sorry for any offence caused.

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Thanks hellsbells. Do you know how this "clawed back" tax is accounted for? Is it counted as additional tax to the treasury or is it simply used to "pay back the overdraft" as it were?

Now that I don't know. We need a tresury bod to tell us - any out there this morning?

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The net pay of a government worker is effectively paid by the tax of a non government worker.

The fact that government workers pay tax is a bit of a red herring. The government could pay their net salaries tax free and it would be exactly the same as paying their gross salaries and taxing them.

The bigger the public sector the more the private sector is taxed to pay for it.

Edit. The government is saying to its employees, "here is your £2000 salary" and then saying "give me back £1000 in taxes", so they are only paying out £1000. A private employer does the same but has to hand the £1000 taxes to the government which pays the net salary of the public employee. (I am assuming an effective tax rate of 50%). Two people employed (one public one private) on £1000 net - total cost to government £0, total cost to private employer £2000.

Edited by insidetrack

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Why? Everybodies gross pay is what is considered for mortgage purposes.

Indeed, maybe I'm getting this wrong but as I see it a private sector gross salary contributes to the UK economy an amount of "disposable income" and some tax to the treasury, whereas a public sector salary contributes disposable income only as the tax "deducted" is paid back to the treasury (a zero sum taxation, if you like)... is this wrong? If not, then isn't there a distortion of the economy as a whole if gross salaries are used to calculate mortgages multiples?

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Hi Opto. I meant no offence by posting this thread, indeed I merely wanted to know the economics behind how it works. I tried to word my OP as uncontentioulsy as possible, sorry for any offence caused.

Sossij,

My objection was to mbga9pgf's. Your post was just fine and raised a good question.

I always wonder the same thing, about why Government grants to build schools aren't exempt from VAT. Would make building schools a lot cheaper. I think the point is that the public sector workers pay tax, public sector projects pay tax, and it all recycles into the wider economy. Same deal if a private sector company takes on a government contract.

By the way, does anyone work for a company that doesn't have significant public sector input? Even if you sell ipods, a good fraction of your customers work for the public sector, and their wages come from the public purse. Try opening a shop and putting in place a policy that says you'll only sell to people who work for the private sector, and can prove their income is also solely from private sector too.

It is all part of one large economy.

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The net pay of a government worker is effectively paid by the tax of a non government worker.

The fact that government workers pay tax is a bit of a red herring. The government could pay their net salaries tax free and it would be exactly the same as paying their gross salaries and taxing them.

The bigger the public sector the more the private sector is taxed to pay for it.

Thanks insidetrack.

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The net pay of a government worker is effectively paid by the tax of a non government worker.

The fact that government workers pay tax is a bit of a red herring. The government could pay their net salaries tax free and it would be exactly the same as paying their gross salaries and taxing them.

The bigger the public sector the more the private sector is taxed to pay for it.

Quite right and remember the tax paid on company profits as well, which is much the same thing. But how about indirect taxes paid by government workers - VAT, fags'n'booze, stamp duty etc? All in all a large chunk of the taxes we pay.

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Indeed, maybe I'm getting this wrong but as I see it a private sector gross salary contributes to the UK economy an amount of "disposable income" and some tax to the treasury, whereas a public sector salary contributes disposable income only as the tax "deducted" is paid back to the treasury (a zero sum taxation, if you like)... is this wrong? If not, then isn't there a distortion of the economy as a whole if gross salaries are used to calculate mortgages multiples?

Ah - I see your point now. Well for everyone the tax deducted goes to the treasury whether or not they are public sector. This might be a completely wrong analogy but from what I've read on other threads about fractional reserve banking, it just seems that the treasury is acting in the same way as the banks in this respect ie. most of the money loaned out by banks into the ecomony was never there in the first place either or else is counted through the system many times.

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The net pay of a government worker is effectively paid by the tax of a non government worker.

The fact that government workers pay tax is a bit of a red herring. The government could pay their net salaries tax free and it would be exactly the same as paying their gross salaries and taxing them.

The bigger the public sector the more the private sector is taxed to pay for it.

Edit. The government is saying to its employees, "here is your £2000 salary" and then saying "give me back £1000 in taxes", so they are only paying out £1000. A private employer does the same but has to hand the £1000 taxes to the government which pays the net salary of the public employee. (I am assuming an effective tax rate of 50%)

I think you are overlooking a major political difference.

Public sector workers see that they pay tax too, and it is a factor which decides how they vote. If their salaries were lower and tax free, then they wouldn't make the same marginal decisions.

Personally, I'd have a flat tax system, and have everyone paying the same rate. I'd include people on benefits in that too. Increase the amount they receive and take off an amount in tax. That way they would have a stake in the decision making process. I also think it would reduce vandalism and anti-social behaviour. Currently if I am a young thug on benefits, and I choose to smash-up a bus shelter, then the cost of the repair doesn't affect me. If however, I were on benefits and paying tax, then I would be paying towards the repair. Seems a small difference, but I think it is important.

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Ah - I see your point now. Well for everyone the tax deducted goes to the treasury whether or not they are public sector. This might be a completely wrong analogy but from what I've read on other threads about fractional reserve banking, it just seems that the treasury is acting in the same way as the banks in this respect ie. most of the money loaned out by banks into the ecomony was never there in the first place either or else is counted through the system many times.

Do you see why I get so confused now? :D

But isn't the private sector tax the only money the treasury has - even if it comes from a fractional reserve source, ignoring government borrowing (that I'm sure adds yet another gigantic can of worm confusion!) ?

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Those non-job w@nkers would be the doctors who treat your nearest and dearest, the policemen who risk their lives to protect your property and life, the firemen who go into burning building to save people, ambulance men who scrape up the injured from the roads, the teachers who train the next generation, I could go on... Please, stop and think a little about before posting such arrogant and unpleasant tosh.

There are a lot of wasters on the public payroll, many policemen rather book your granny for her wrongly stuffed recylcing bin instead of actually hunting criminals (that might be dangerous, eek), likewise, many GPs are simply sitting there for the money, not interested at all in their patients' welfare.

About 50% of people on the public payroll are useless and would not survive in a free market economy, and many government jobs are total non-jobs too.

As for him posting 'arrogant tosh' -- I think it's far more arrogant to put those people collectively onto a pedestal instead of admitting that there is a range of quality, which is in very dire need of improvement.

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I think you are overlooking a major political difference.

Public sector workers see that they pay tax too, and it is a factor which decides how they vote. If their salaries were lower and tax free, then they wouldn't make the same marginal decisions.

Personally, I'd have a flat tax system, and have everyone paying the same rate. I'd include people on benefits in that too. Increase the amount they receive and take off an amount in tax. That way they would have a stake in the decision making process. I also think it would reduce vandalism and anti-social behaviour. Currently if I am a young thug on benefits, and I choose to smash-up a bus shelter, then the cost of the repair doesn't affect me. If however, I were on benefits and paying tax, then I would be paying towards the repair. Seems a small difference, but I think it is important.

Hi again Opto... isn't this just semantics though? The person on benefits isn't really paying tax, are they? I do agree that politically its a nice idea, I just don't understand the underlying economic mechanism :(

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Hi again Opto... isn't this just semantics though? The person on benefits isn't really paying tax, are they? I do agree that politically its a nice idea, I just don't understand the underlying economic mechanism :(

Allocation of resources is not the same as allocation of money.

Production of resources is not the same as production of capital (under a fiat system).

The above is just something ot think about.

There are a few reasons that the government taxes public sector employees that I can see.

1) They might have a private sector income of some kind and so their "fair share" must be calculated properly.

2) They do do work which has an economic value. The actual value is hard to calculate because their is no price discovery but the government likes to pretend that it's the same as private sector work because it also likes to pretend that people want it's goods and services, which is manifestly untrue.

3) The treasury pays the bankers who own the government, and they want their pound of flesh frm everyone in the system.

4) NI, pensions etc all operate on the tax system but are actually insurance schemes (made by Ponzi, natch) and the accounting has to be right for those.

5) Taxation is used to give fiat currency value. The more people who pay it, the more value it can have.

6) It provides a useful method for spying on the public sector half of the population. If no tax was paid, there would be no fear of a knock on the door.

7) Pointless busywork gets even more people into the system, which is more power for the government, and more people to tell what to do. Those extra taxmen vote labour, you know!

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There are a lot of wasters on the public payroll, many policemen rather book your granny for her wrongly stuffed recylcing bin instead of actually hunting criminals (that might be dangerous, eek), likewise, many GPs are simply sitting there for the money, not interested at all in their patients' welfare.

About 50% of people on the public payroll are useless and would not survive in a free market economy, and many government jobs are total non-jobs too.

As for him posting 'arrogant tosh' -- I think it's far more arrogant to put those people collectively onto a pedestal instead of admitting that there is a range of quality, which is in very dire need of improvement.

Okay, if you want to continue this insulting and unpleasant angle.

Can you substantiate anything you say. How many grannies have been prosecuted for putting the wrong stuff in their bins? Is that a criminal matter? I doubt it.

As to the GPs, they do the job because they are paid. If they don't do the job, they won't be paid. Their partners in the GP practise will notice that they are slacking off, and get rid of them. Their insurers will refuse to continue their cover if they consistently fail to spot illness because they will be sued. Why do you do your job? Is it primarily for money, I suspect that is the case. Would you turn up at work if you weren't paid? I think not. Why should GPs be any different?

Where does your 50% figure come from? Is it based on any evidence or fact, or is it simply your personal opinion?

Arrogant to put those people on a pedestal? Well tell that to the people unluck enought to have been on tube trains during the London bombings. You want those people there. If you are unlucky enough to one day need their services, then you will want them there.

I am not saying that public sector is perfect, in fact far from it, but I think there are services which are collectively required (like police and ambulance, like emergency medical) where there is no better system than a public one. Personally I'd be happy to see people pay something towards those services at use, because I think it would lead to better service. However, that is a political opinion about how best to run public services. Not one about the worth of public sector jobs.

You are calling me arrogant for putting the public sector on a pedestal? Well, there are some pretty revolting jobs that get done, so that you can sit at your PC supporting an obnoxious post that denigrates the contribution of public sector employees. Well, if you want to call that arrogant, then I'll accept that term, rather than see your mealy mouthed views go unchallenged.

Optobear

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Okay, if you want to continue this insulting and unpleasant angle.

Can you substantiate anything you say. How many grannies have been prosecuted for putting the wrong stuff in their bins? Is that a criminal matter? I doubt it.

As to the GPs, they do the job because they are paid. If they don't do the job, they won't be paid. Their partners in the GP practise will notice that they are slacking off, and get rid of them. Their insurers will refuse to continue their cover if they consistently fail to spot illness because they will be sued. Why do you do your job? Is it primarily for money, I suspect that is the case. Would you turn up at work if you weren't paid? I think not. Why should GPs be any different?

Where does your 50% figure come from? Is it based on any evidence or fact, or is it simply your personal opinion?

Arrogant to put those people on a pedestal? Well tell that to the people unluck enought to have been on tube trains during the London bombings. You want those people there. If you are unlucky enough to one day need their services, then you will want them there.

I am not saying that public sector is perfect, in fact far from it, but I think there are services which are collectively required (like police and ambulance, like emergency medical) where there is no better system than a public one. Personally I'd be happy to see people pay something towards those services at use, because I think it would lead to better service. However, that is a political opinion about how best to run public services. Not one about the worth of public sector jobs.

You are calling me arrogant for putting the public sector on a pedestal? Well, there are some pretty revolting jobs that get done, so that you can sit at your PC supporting an obnoxious post that denigrates the contribution of public sector employees. Well, if you want to call that arrogant, then I'll accept that term, rather than see your mealy mouthed views go unchallenged.

Optobear

Sorry Opto, but with no price discovery, you cannot say that the public sector jobs should even exist, let alone whether they are useful or not. There is an easy to make and simple case to be made that the public sector has no jobs within it that anyone wants doing, otherwise they wouldn't be in the public sector.

It's this -

If you have to steal to pay for something, no one really wants it doing..

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Hi again Opto... isn't this just semantics though? The person on benefits isn't really paying tax, are they? I do agree that politically its a nice idea, I just don't understand the underlying economic mechanism :(

Actually they are paying tax. If they shop they pay VAT. I am simply saying that it would be better if they entered the income tax system and saw that their benefit after tax is £59 per week, with them having paid £30 towards taxation. So their income support is £89 per week, but the government have decided to spend £30 per week of that money for them. The current system encourages the view that the money they receive is pure gift, and at no cost.

Optobear

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Actually they are paying tax. If they shop they pay VAT. I am simply saying that it would be better if they entered the income tax system and saw that their benefit after tax is £59 per week, with them having paid £30 towards taxation. So their income support is £89 per week, but the government have decided to spend £30 per week of that money for them. The current system encourages the view that the money they receive is pure gift, and at no cost.

Optobear

Sorry, my OP was supposed to have been about income tax... not indirect taxation. I'll edit it now to make it clearer.

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Actually they are paying tax. If they shop they pay VAT. I am simply saying that it would be better if they entered the income tax system and saw that their benefit after tax is £59 per week, with them having paid £30 towards taxation. So their income support is £89 per week, but the government have decided to spend £30 per week of that money for them. The current system encourages the view that the money they receive is pure gift, and at no cost.

Optobear

Nulabor may do it. At zero cost they could increase benefits gross and tax them down to a net value equal to their current level.

They could then claim a massive rise in benefits and a massive rise in tax revenue. Result! :lol:

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  • 298 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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