Tuesday, Nov 24, 2009

A bit more lefty stuff

Guardian: Cool the cutting fisticuffs – take a long, hard look at tax

Some interesting stats in this
"The tax system has become more regressive in the last 30 years, so that the poorest tenth pay 46% of their earnings in tax while the richest tenth only pay 34%.... the richest fifth of households take 51% of national income while the poorest fifth receive 3%."

Posted by letthemfall @ 03:41 PM (1458 views)
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17 Comments

1. doomwatch said...

Isn't it funny how LAND VALUE TAX never gets a mention.

Tuesday, November 24, 2009 04:03PM Report Comment
 

2. general congreve said...

I used to work for Government and was shocked by the waste of taxpayers money. If they think they're having any more from me to sp*nk up the wall they'll have to kick my front door in to get it.

Sovereign Debt Default is the way forward! Come on UK's creditors, gilt strike now! Gold to the moon!

Tuesday, November 24, 2009 04:03PM Report Comment
 

3. general congreve said...

@2 - Typo- 'use to work'.

Tuesday, November 24, 2009 04:04PM Report Comment
 

4. Bean Counter said...

I also once worked in the public sector for a summer. (NHS finance). I was working to earn some money before going to Uni. It was my first proper job and I was living away from home for the first time; to be honest I was having a whale of a time and work was low on my list of priorities! I was called to a meeting with the Director. I thought 'Oh, oh, I've been caught out slacking'. I went in fully prepared to apologise, ask for a new start etc. But no! It seemed I was considered one of the hardest working people they had and they wanted to help sponsor me etc. I declined.
That was more than a decade ago. Maybe my experience isn't representative anymore. But even if things have improved greatly I suspect there is still quite a few 'passengers' cluttering up the public sector payroll.

Tuesday, November 24, 2009 04:39PM Report Comment
 

5. cynicalsoothsayer said...

I worked in the public sector for eight years, and I came to the conclusion that anyone with get-up-and-go, well, got up and went. Those left are usually just waiting for their pension.

Tuesday, November 24, 2009 05:31PM Report Comment
 

6. stillthinking said...

So presumably the Guardian rules out a VAT rise.

"Assuming a 10% cut in the 5 million public employees, 500,000 would lose their jobs. The sums here show that the gains are small compared with the cost to the state of added unemployment – and that's without the upfront cost of redundancy pay."

This is the problem. Brown expanded the state. Actually, nobody wants the public sector to become unemployed, just for them to work efficiently and the surplus workers to -shift to the private sector-. I am guessing that 500,000 unemployed people at £65 a week probably does give a fairly large saving to government, but if they successfully moved to the private sector the government gains enormously as they drop say 25K a year in after tax costs and gain a 10K tax on the private sector job. Thats 35K per worker. Quite a lot.

It also puts into perspective the debt situation because it only improves gov. revenue by 17.5 billion, nowhere near enough, and there isn't enough employment demand privately also.

Further, the banks didn't make huge profits by "appropriately allocating capital", they did so by taking a slice of debt run up by stupid Labour voters, who now can't pay it back and eat at the same time. So taking a slice of these debt profits, or the even more circular tax on money currently being sluiced by government, doesn't get round the problem that stupid Labour voter can't pay it back ! The same problem as 2007. No different.

Polly Toynbee IS guardian reader. Clueless and on a cushy number desperately needing to dress up their own gain as social justice.

Tuesday, November 24, 2009 05:33PM Report Comment
 

7. Dbc Reed said...

@doomwatch
Polly Toynbee has written in favour of Land Value Tax in The Guardian as has Economics Editor Larry Elliott. Neither is as solid in support as Ashley Seager of Guardian or practically the whole of FT team: Martin Wolf ,Sam Brittan .Both Seager and Brittan spoke at the LVT seminar in House of Commons attended by Vince Cable.LVT has not been a marginal or crank notion for some time .

Tuesday, November 24, 2009 05:55PM Report Comment
 

8. mr g said...

Polly Toynbee, the epitomy of the bleeding heart liberal and a scion of a socialist dynasty.

This article is the left's equivalent of some of the tosh published in the Express and Mail.

Tuesday, November 24, 2009 06:17PM Report Comment
 

9. mark wadsworth said...

@ Doomwatch, yup, one flat tax on incomes and one flat tax on land values, scrap everything else is my motto. That'll shut up the Guardian if nothing else.

@ Stillthinking, good numbercrunching. That's exactly how I see it. Only there aren't five million public sector, there are eight million. Which is about twice as many as we can possible need, two million proper frontline like nurses, teachers, coppers plus as many again for margin of safety. The Rep of Ireland has barely half as many public sector workers, per capita, as the UK and it's not exactly a Victorian/Third World hell-hole.

Tuesday, November 24, 2009 10:13PM Report Comment
 

10. shipbuilder said...

Err....so does no-one actually care that the richest pay proportionally less tax than the rest of us, the main point of the piece?

Tuesday, November 24, 2009 11:05PM Report Comment
 

11. Mmm_ok said...

No matter how much I earn, the thought of paying 50% tax (that's half - think about it - half of everything you work hard for!) to pay for MPs expenses and bombing people in tents...

Erm, no thanks. Let's *just* pay 25% tax...and cut out the bombing people, corruption etc. Deal?

Tuesday, November 24, 2009 11:20PM Report Comment
 

12. Phil S said...

I thought it was an excellent article - why should the rich pay proportionately less tax??

Wednesday, November 25, 2009 12:24AM Report Comment
 

13. letthemfall said...

Well, this article received the responses I expected, mostly the usual old prejudices. I've worked in both private and public sectors and found good and bad people in both (though no one who actually boasted about being bad as bean counter above). But many people in the public sector work out of a sense of public service, where highly qualified people are modestly paid compared to the private sector.

stillthinking: You are assuming that the public sector employees are doing nothing useful. What useful things might they do in the private? If the private sector is shrinking what does that say about the value of the lost parts? Banks, to use your example, made huge "profits", that turned into losses, by misallocating capital (what are your estimates for public waste?). Tell me the value in that part of the private sector, especially in view of the support from the public purse. Public spending has increased (beyond the bank bailout, that is), yes, but mostly where it was sorely needed, particularly education. And your remark about "stupid Labour voters" really betrays your one-sided take. Are Conservative voters all sensible? Do you really believe this is purely a party political problem, in which Cons will make everything right?

mark w: Then again, continental countries spend far more on the public sector, but they don't have our economic problems.

shipbuilder, as ever, gets to the heart of the matter. Why do we accept a system in which the rich contribute less to the country than the least well-off? I can only assume that all the resistance to higher tax payments by the most well-off is a matter of defending ones own position - I'm all right Jack and I intend to stay that way.

I conclude from all this, if the responses on this site are typical of views throughout the country, that we live in a narrow-minded society in which we are prepared to watch the rise of the far-right, crime, ghettos of poverty, while evidently incompetent sections of the economy - notably the banks - continue to pay themselves for abject failure at our expense; and rant against and abuse journalists who challenge the status quo that is allowing these iniquities to continue.

Wednesday, November 25, 2009 10:02AM Report Comment
 

14. kruador said...

Yet again people here do not realise that income tax is very different from Stamp Duty Land Tax. You DO NOT pay, ever, anyone, 50% of your income in tax. For a start the new higher rate hasn't yet come in. You don't pay 40% of your income in tax either.

What you pay is in three bands:

1. Income up to your personal allowance is untaxed.
2. Income from your tax code up to £37,400 above your personal allowance is taxed at 20%
3. Income above 37,400 + personal allowance is taxed at 40%

That means that someone earning £35,000 with a standard personal allowance of £6,475 pays 20% tax on the difference between their salary and their personal allowance, i.e. 20% of £28,525, or £5,705. That's a marginal rate of 16.3%. Someone earning £20,000 pays £2,705 or marginal rate of 13.5%. Right down at the bottom, let's say you move from £6,000 to £7,000, just starting to pay tax. You pay tax only on £525 of your income, so £105 which is 1.5%. The income tax system never causes your net income to drop if you start to earn more than the next threshold.

For those who earn high incomes there is a higher rate. Someone who earns £43,875 is just outside - at this point their marginal rate is a hair over 17.0%. Someone earning £44,000 pays £7,480 at the lower rate, plus 40% of £125 which is £50 for a total of £7,530, a marginal rate of 17.1%. Someone earning £100k pays £7,480 at lower rate and 40% of £56,125 = £22,450 for a total payment of £29,930 or 29.9%. As income rises it trends toward a 40% marginal rate, but it never actually gets there.

The new 50% rate will be a new rate for earnings over £150,000. Let's assume that's £150,000 after personal allowance. That means someone earning £200,000 would pay £7,480 at lower rate, £45,040 at the 40% middle rate, and £21,762.50 at the 50% rate. The total of £74,282.50 is then 37.1% of his income. At current rates he would pay £69,930, 35.0%.

The system is highly complicated due to taxable employee benefits, the taxman clawing back money if your company buys you something for work use which is also of personal benefit, and due to tax credits such as Working Tax Credit and Child Tax Credit. Those all affect your personal allowance, so in practice most people in the country have their own individual tax rate.

Labour have done a heck of a lot of tinkering with the income tax system. In 1997, your personal allowance was £4,045 with a Lower Rate of 20% up to £4,100 (after personal allowance, i.e. £8,145); then a Basic Rate of 23% up to £26,100 (£30,145 with personal allowance); then 40% Higher Rate above that. In 1999 they replaced the Lower Rate with a Starting Rate of 10% but cut its impact by reducing the threshold for the basic rate to £1,500; in 2000 Basic Rate was cut to 22%. In 2008 they then removed the Lower Rate completely (except for savings income) and cut Basic Rate to 20%.

The Personal Allowance and thresholds have generally increased faster than inflation as well, so overall Labour have been cutting income tax. Yes, they have increased other taxes to compensate - largely Council Tax by providing less central government funding.

The impact of 'flat taxes' I suspect won't be what most posters here would actually want. By cutting taxes for the highest-paid 10% or so, taxes would have to disproportionately increase for the other 90%, which I bet most of us are in. The highest paid do pay a higher proportion of the overall tax take, but that is because they are the most able to pay it. Evening that out means taking higher proportions of lower-paid workers' salaries.

I do support Land Value Taxes, because I think there are a lot of well-off people out there who aren't paid salaries (either not employed, or paid in kind, through 'consultancy', share options, or otherwise taking only a nominal salary) and should be paying a lot more tax. The very highest-paid have often settled for a fixed tax assessment simply because it's too complex to unwind their affairs. Closing off more of the taxable benefit loopholes and removing the personal allowance adjustments would make it simpler - does it really matter that much that I'm getting health insurance with an assessed benefit value of about £500 when that means getting about £100 more tax from me?

Wednesday, November 25, 2009 02:29PM Report Comment
 

15. Kruador said...

Incidentally I would prefer to see SDLT, if it remains, adjusted to be a continuous system like Income Tax so we don't have these stupid steps that people resist crossing. It harms the market overall.

I know I didn't cover National Insurance either. For people getting the standard personal allowance it acts like an extra 11% on the Basic Rate and an extra 1% on the Higher Rate since the thresholds were set to match the income tax standard thresholds a few years ago. However, the rate thresholds do not vary with taxable benefits, ending up misaligned so depending on whether your tax code is higher or lower than standard, you can either pay 31%, 51%, 41%, or 11%, 31%, 21%, 41%, depending on which way. Very, very confusing. If we didn't have tax software it would be impossible to work out.

Wednesday, November 25, 2009 02:36PM Report Comment
 

16. kruador said...

Incidentally I would prefer to see SDLT, if it remains, adjusted to be a continuous system like Income Tax so we don't have these stupid steps that people resist crossing. It harms the market overall.

I know I didn't cover National Insurance either. For people getting the standard personal allowance it acts like an extra 11% on the Basic Rate and an extra 1% on the Higher Rate since the thresholds were set to match the income tax standard thresholds a few years ago. However, the rate thresholds do not vary with taxable benefits, ending up misaligned so depending on whether your tax code is higher or lower than standard, you can either pay 31%, 51%, 41%, or 11%, 31%, 21%, 41%, depending on which way. Very, very confusing. If we didn't have tax software it would be impossible to work out.

Wednesday, November 25, 2009 02:36PM Report Comment
 

17. tom101 said...

Kruador, Many thanks for the explanation. Many will appreciate it and understand taxation a little better.

Wednesday, November 25, 2009 06:01PM Report Comment
 

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