Tuesday, December 4, 2012

Time for a tax revolt!! ??

Britain’s families are ‘most taxed on the planet’

The report demonstrates that the UK's marginal effective tax rate – that is to say what people pay per pound earned - is much higher than the countries with the second and third highest tax rates: Ireland (64%) and Canada (61%). By comparison, Chilean families with one bread-winner pay just 7% tax - the lowest in the developed world, according to CARE's research.

Posted by mark @ 10:17 AM (3293 views)
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30 thoughts on “Time for a tax revolt!! ??

  • Thecountofnowhere says:

    I have been saying this for months. My real income tax rate is 70%+

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  • Another Title: Britain’s families are the laziest most apathetic people on the planet….

    Until there is blood on the streets nothing will change

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  • mark wadsworth says:

    Yes I have been saying this for years, it is public knowledge for anybody who can be bothered to look it up.

    On closer scrutiny, the actual effective marginal tax rate on basic rate employees (taking VAT, NIC and income tax into account) is about fifty per cent. The extra 30% – 50% comes from withdrawal of benefits, which is just disguised taxation.

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  • I thought this was a load of boIIocks, so I went away and did the maths myself. If anything, CARE are under-estimating the situation.

    Here’s their statement:
    “The UK’s Marginal Effective Tax Rate – on a married couple, with two children, where one parent stays at home whilst the other goes to work, earning 75% of the average wage – is 73% in the UK – higher than in any other developed country.”

    Let’s crunch some numbers. The average wage (median) is £26,500; so 75% of the average wage is just a smidge under £20,000. The standard definition of the marginal tax rate at this level is 20% income tax + 12% employee’s national insurance + 13.8% employers’ national insurance. That gives a total marginal tax rate of 45.8%: horrendously high but still a long way from CARE’s 73% rate. Their take-home pay is £16,132 a year.

    The other side of the equation is benefits tapering off. These are too complicated to work out by hand, so I’ve used figures from an online benefits calculator. (There are many such calculators and not all give the same results; but this one is by far the easiest to use.) Our hypothetical family receives around £5,000 a year in Child Tax Credit and a further £1,750 a year in Child Benefit. Depending on which online calculator I ask, they might also receive around £1,650 a year in housing benefit (Local Housing Allowance – I’ve assumed they live in Leicester and can claim for rent on a two-bedroom property). However since this is uncertain, I’ve left it out of the calculation. They receive no Working Tax Credit.

    Thus for a family with two young children, one parent working, the figures are:
    Gross income £20,000 / net £16,132 / benefits £6,785 => total £22,917.
    Gross income £22,000 / net £17,492 / benefits £5,965 => total £23,457.
    For a £2,000 salary increase, total income increases by £540.
    => That makes a marginal tax rate of exactly 73%.

    If we include housing benefit (still not sure if they qualify), then the figures look like this:
    Gross income £20,000 / net £16,132 / benefits £8,436 => total £24,568.
    Gross income £22,000 / net £17,492 / benefits £7,265 => total £24,757.
    For a £2,000 salary increase, total income increases by just £189.
    => Marginal tax rate of over 90%.

    You can crunch the numbers yourself using these two calculators:
    Online PAYE calculator
    Online benefits calculator

    Incidentally, these figures look even worse if you take into account Employers’ NI. (Although it is called “employers’ NI”, it is effectively the employee who pays it, because without it their salary would be higher.) To get that £2,000 increase in salary, the company has to pay an extra £276 in employers NI. Thus the true marginal tax rate goes up from 73% to 87%. In the example with housing benefit, that £2,000 pay rise actually makes the person and company (considered together) worse off!

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  • mark wadsworth says:

    Drewster, I did the figures, including Employer’s NIC and some allocation of VAT (either the consumer pays it or the supplier i.e. the worker suffers it, same difference) and the average overall marginal rates are about 80% for everything up to £25k – £30k a year gross (I posted on this but can’t track the figures down right now).

    In other words, by and large, a median earner in a median sort of family is only about £5,000 a year better off than if he packed it all in and went on the dole.

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  • Well I wouldn’t include VAT in the calculation, because it depends heavily on the mix of things you buy. Children’s clothes and cold food are zero-rated, as are bus tickets. Rent/mortgage payments don’t incur VAT either. All those would likely feature highly in the spending mix for poorer families.

    If our hypothetical £20k family packed it all in and went on the dole, then…. yes they would receive £20,411, i.e. just £4,157 less than if they were in work. Hardly seems worth it!

    To properly game the system, you have to work enough hours to qualify for working tax credit. A single parent with two kids working part-time and earning £10,000 a year would receive an additional £13,500 in benefits. No wonder nobody wants to work!

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  • Usual doublethink headline.
    Are the single people taxed less than families?

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  • mark wadsworth says:

    Drewster, as a matter of logic, observation and fact, VAT is largely borne by the supplier, so if you work for a VATable business, it is reasonable to assume that your gross wage has been depressed by about 1/6 (20/120). And if you work for a non-VATable business you suffer very little VAT.

    If it were true (which it isn’t) that VAT is paid by the consumer, then yes, it depends partly on how you spend your money, but by and large and on average (which is what we are talking about), VAT is almost a flat percentage of each household’s spending, whether high or lw earner (somewhere in the range of 7% – 10% of gross income or total spending).

    On this basis, VAT is actually mildly regressive (it’s a poll tax on booze and fags and petrol and electricity and gas).

    If you ignore VAT on the basis that a few people do not suffer it or pay very much, then you might as well ignore Employer’s NIC on the grounds that the self employed don’t pay it, and you can ignore Employee’s NIC on the grounds that people under 16 or over retirement age don’t pay it, and you might as well ignore income tax on the basis that some people reduce their income tax bill to zero with various tax planning schemes.

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  • Ok I’ve crunched the numbers again, this time using the Joseph Rowntree Trust’s list of minimum expenditures. Out of the average poor family’s expenditure, roughly half their expenditure is on zero-rated or 5% rated goods & services; so I’ll factor in a 10% average VAT rate. Your mileage may vary. (Rent and mortgage payments are of course VAT-free: anything else would upset the home-ownerist applecart. The most tax-efficient form of spending is on your own home.)

    Thus the true marginal tax rate is 83%: that is to say, of the £2,000 salary increase received by the employee, 83% of it eventually finds its way back into government coffers.

    I also didn’t factor in council tax, which is of course another tax. Our hypothetical family will spend maybe £1,200 a year on council tax, representing a 6% additional tax rate on that £20,000 salary. However this doesn’t affect the *marginal* tax rate at all.

    Why do I still live here….?

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  • mark wadsworth says:

    Drewster, good work.

    No Council Tax does not affect the marginal rate, and if it weren’t a Poll Tax with a small “house size premium” it would be a very good tax indeed. What does muck things up is Council Tax Benefit which is means tested and contributes another 5.5% to the total wirhdrawal/tax rate of lower earners.

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  • Big deal – we have known for years that low earners can face a massive percentage loss of benefits with small increases in wages.

    What is sinister is the agenda of the people publishing these figures.
    They are big time god botherers who disapprove of people living in sin. They want the government to produce tax incentives for marriage.

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  • There are a lot of anomalies in the tax system caused by benefits thresholds and allowance thresholds. Another good example is the income tax rate of 60% at 100k. This does include both types of NI and everything else. Although this obviously doesn’t get as much sympathy as those at the median income level. Margin tax rates are important to look at due to incentives, but the net rate should be the focus. Most working people are paying over 50%. which is half way to slavery.

    All this talk of taxation is just a distraction from the fact that our government is far too big. Taxes can’t be raised too much more, laffer curve and all that, and we still can’t run a balanced budget. Even if we could increase taxation to close the budget, the politicos would just find another needy cause to buy votes and spend more money, and straight back to deficits.

    Of course the other action is talk the talk and spin, but actually do nothing, cept print money. I really don’t see how this is going to end well.

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  • sorry should have been doesn’t include both types of NI

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  • boys, you forgot one more BIG tax:

    Student loan repayments at “From 1 September 2012 until 31 August 2013, the interest rate for ICR loans taken out in 2012 will be 6.6% (RPI, plus 3%)”

    whilst technically not a tax, it is a tax!

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  • mark wadsworth says:

    Khards, the interest rate is one thing, but that does not actually act as a tax on income, i.e. “the more you earn, the more you pay”

    The relevant figure is 9 per cent of your gross pay

    http://www.hmrc.gov.uk/paye/payroll/day-to-day/student-loan.htm

    which is worse than 6.6%.

    That said, the lower threshold for making repayments is quite high, and at that level of income, you are out of most of the means testing so you’re back to 20% income tax + 23.8% NIC + 7% VAT (on average) + 9% student loan deductions + privately collected tax (location rent) which is of course so close to 100% as makes no difference.

    But at least all these taxes are not “taxes on aspiration” unlike Land Value Tax, which is what the Homeys want you to believe 🙂

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  • And yet even the Tories are not calling for lower taxes. Just a horrid state of affairs. We need tax cuts NOW!!!!

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  • The marginal tax rate pre-world war was right about 10%. That is why all our industry went off shore, because the marginal tax rate soared so bloody high.

    And they want to bring in Austerity? The joke of it, we already have austerity and spades!

    They used to call it slavery, and back in Feudal times they would only take 20% of what you earned.

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  • Mark W, here’s another “privately collected tax”: On our electricity bills, a small but fast-growing component is the electricity company’s obligation to buy expensive renewable energy. We have no choice but to pay it (therefore it’s a tax) and we can’t set up a competing electricity supply company without also paying it (therefore it’s a tax). To add insult to injury, much of this tax is handed directly to landowners with wind turbines and to homeowners with solar panels on their rooftops. They disguise it with terms such as “Renewables Obligation Certificates” and “Feed-in Tariff”, but ultimately it’s just another tax.

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  • Lets just assume the ‘real’ rate of tax is 50% (forget 73%!), what this obviously means is that for every hour you work 50% goes to the taxman. So……..
    If you do a 8 hour day & start work at 9am it’s not until 1pm that you start earning for yourself
    You work for the state the whole of Monday, Tuesday and Wednesday morning
    You don’t earn anything for yourself until July in each year
    If you start working at 16 and retire at 67……………..

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  • OR to look at it another way

    We are all skint due to years of government taxation hikes and outright theft of public money from corporations to ministers

    why do we all put up with it?

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  • happy mondays says:

    @ mw – Just curious on LVT, how does this work with high earners who own no land or property?

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  • mark wadsworth says:

    Drewster, besides land rents, there are lots of little privately collected taxes, such as the surcharge on electricity bills, it arises with many monopolies, all the way down to (trivial example) the extra income which taxi drivers can earn if there is a limited number of taxi driver permits.

    HM, how do you mean? That’s like asking “How does booze duty work with high earners who are teetotal?” Fact is, high earners tend to live in nice houses (whether they own or rent), why wouldn’t they? And if a “high earner” is happy to stay in his Mum and Dad’s spare room, then good luck to him, all the more houses for the rest of us; the price or rent on nice houses will come down, yippee, hooray. The idea of LVT is not really to collect LVT, it is to prevent private appropriation of national wealth and to ensure efficient allocation of land and buildings.

    And, as things stand, most “high earners” are just rent seekers or monopolists. Landowners, bankers, mineral extraction, quangocrats, PFI leeches, most “professions” and so on. There’s no point letting them get away with it and then taxing them, just sort things out so that there is no rent to be collected privately.

    So, by analogy, instead of saying “taxi drivers have a privileged position because they are protected from competition, so they should pay income tax on their earnings” it is far better to scrap the limit on the number of permits, or just to make them pay a fixed annual fee for the privilege of having a permit.

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  • happy mondays says:

    mw – nicely explained, so earn as much as you like & enjoy the benefits of a wealthy income, but start buying up the country & you pay for the privilege, so hopefully distribution of the land will be fairer & cheaper.. 🙂

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  • mark wadsworth says:

    HM, correct.

    If some bloke slaves away doing overtime or building up his business or going to night school to get better qualifications, then why punish him? He’s mainly doing it for his own benefit, but it still spills over into benefits for the rest of us, even if he pays less tax on his earned income or none at all.

    Conversely, if some landowner or banker is just sitting there collecting location rent (and the cartel privilege of being a bank), well, that is of no benefit to anybody apart from themselves (in fact, it is of great harm to everybody else), we might as well tax those rents to the hilt and dish them out among ourselves*. By definition, if LVT is dished out again as universal benefits or LVT rebates, we are all effectively getting a bit of rental income which is sufficient to pay the location rent on an average house, so the number of owner-occupiers will quickly rise to nearly 100% and most households won’t actually pay very much tax at all.

    * Obviously, the Faux Libertarians like Libby are free to waive their entitlement or b-gger off abroad.

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  • My daughter is at uni in the UK. She is not going to work there for the next 30 years because of the loan (EU WHO UN and most Foreign jobs are better anyway – and because you do not work in the UK you don’t have to repay )

    I suspect they may well have to introduce a “golden hello” in the UK to recruit graduates that studied something useful (hard).

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  • MW:

    “How does booze duty work with high earners who are teetotal?”

    Not really. You have frequently suggested replacing all other taxes with LVT. I haven’t heard anyone suggest we replace all other taxes with booze duty which would be the correct analogy.

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  • ontheotherhand says:

    The subject of hidden taxes is fascinating. The American phrase for this is a ‘tollbooth economy’. Just as private groups built turnpikes of old to be able to collect the ‘rent’, we now have private groups running the Congestion Zone, we are now charged for passports and VC groups charge us for going to the Zoo. All these things used to be included in our tax, so making like for like comparisons to the burden in the 60s and 70s impossible.

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  • OTOH, there’s nothing wrong with private companies running public services. The operation of the congestion charge is contracted out to the lowest bidder. I’d rather have Capita run it than a bunch of overpaid civil servants with fat pensions and 35 hour working weeks at city hall. We also have private companies emptying parking meters, issuing parking tickets, and in some cases running council car parks. This has brought in some innovation (e.g. pay-by-text parking), and having a written contract seems to be a good way to ensure decent levels of maintenance and security in car parks. (My local council car park, not outsourced, is in a very grim state of disrepair.) There’s no evidence to suggest that these companies perform any worse (for the same cost) than doing such things in-house. It would be inefficient for each council to have to set up its own online payment system and its own pay-by-text system.

    The “tollbooths” arise when it’s not just the technical cash collection that is outsourced, but rather when the actual revenue stream is sold off. In Chicago they sold off the street parking rights to a private company for a song. In the UK many school playing fields have been sold off to property developers. PFI is essentially a way of creating tollbooths in places where they don’t naturally exist (e.g. DBFO of hospitals, schools, prisons). The jury is still out on the privatisation of our water companies; but if they’re a good enough investment for the Ontario Teachers’ Pension Plan then they should have been good enough for our own pensions.

    With a tollbooth economy, countries like the US and the UK get to proclaim themselves as free-market business-friendly environments; but for the 99% of businesses which aren’t given the right to collect & keep tax, it’s of no advantage. Indeed insofar as these factors make it difficult to recruit staff from overseas, or push skilled Brits to emigrate, they are net negatives for the economy.

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  • From Michael Hudson’s seminal article:

    The Toll Booth Economy
    There are no calls to restore state and local property taxes to their Progressive Era levels so as to collect the “free lunch” of land rent and use its gains over time as the main fiscal base. This would hold down land prices (and hence, mortgage debt) by preventing rising location values from being capitalized and paid out as interest to the banks. It would have the additional advantage of shifting the fiscal burden off income and sales (a policy that raises the price of labor, goods and services). Instead, most reforms today call for further cutting property taxes to promote more “wealth creation” in the form of higher debt-leveraged property price inflation. The idea is to leave more rental income to be capitalized into yet larger mortgages and paid out as interest to the financial sector. Instead of housing prices falling and income and sales taxes being reduced, rising site values merely will be paid to the banks, not to the local tax authorities. The latter are forced to shift the fiscal burden onto consumers and business.

    Sounds familiar?

    [*At the start of the Progressive Era, roughly 1890-1930, the US had high property/land taxes and virtually no income taxes. By the end of that era they had introduced a nationwide income tax and corporation tax, and they were starting to subsidise farmers (landowners) rather than tax them.]

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  • mark wadsworth says:

    Hudson is top man, even though he disses Georgists as a group, he is in fact a Georgist himself.

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