The Budget

badger1963 posted:

my experience from a personal view on what is the appropriate higher rate of tax is as follows.

I am very lucky in being well paid working in the private sector,  in my 50’s, and reaching my earnings peak after 30 something years of work. I pay a lot of tax, entirely appropriate given I am fortunate compared to most. I pay my tax in full, and abhor tax evasion amongst higher earners.

i too was taxed at 50% a few years ago, now the higher rate is 45%. The problem is that when government takes (more than) half of what you earn, the incentive to work harder, earn more, and therefore pay more tax to the state diminishes. Which is a no win situation. What the state does not want is people working hard for 6 months of the tax year, and then taking their foot off the gas, because they reach a point where they are working more for the state than themselves. 

i hope my post is not taken the wrong way, as I appreciate I may attract some abuse as a “whinging higher earner”. I know I am fortunate, but I have used my skills in my chosen area of work to move my career along.

but to me 40 or possibly 45% “feels about right” in terms of maximising the total tax take without running the risk of disincentivising the taxpayer.

I agree completely ..... their is certainly a fine line between what I would call a fair tax system and one that encourages TAS’s .... the incentive to have the benefits of the fruits of your labour cannot be underestimated ...

It’s important to remember that these tax bands apply only to earnings within the band, and not to total earnings. It’s always been a challenge to know how high taxes can be pushed without reducing tax income through avoidance or tax planning. The IFS link posted by Bruce above demonstrates this. Anyone who has studied elementary economics will know of the Laffer curve. 

The 45p rate starts at £150,000. That is a very significant income - six times the national average, and I strongly believe that this rate should be 50%. Those earning £150,000 still pay 20% up to £50,000 (from next year) and 40% between £50,000 and £150,000. If you apply the 50% to the Laffer curve, tax take will increase if the rate was 50 rather than 45%. A 50p rate is of course Labour policy. 

While I am a party member I am very much on the moderate side and I strongly believe there is a place where most people would feel happy, so long as the system is perceived as fair. The idea of Labour simply screwing the rich or the Tories helping their rich friends while people are using food banks won’t get us far and only leads to division and discontent. 

People need to know that everyone is paying their way - which means clamping down further on avoidance - and that the tax paid is being used efficiently, which includes a safety net for those who need it. 

There is too much complexity in the system. For example reducing the personal allowance progressively over £123,000 or whatever, rather than leaving it in place and simply having a higher top rate. No wonder people get confused. 

hungryhalibut posted:

It’s important to remember that these tax bands apply only to earnings within the band, and not to total earnings. It’s always been a challenge to know how high taxes can be pushed without reducing tax income through avoidance or tax planning. The IFS link posted by Bruce above demonstrates this. Anyone who has studied elementary economics will know of the Laffer curve. 

The 45p rate starts at £150,000. That is a very significant income - six times the national average, and I strongly believe that this rate should be 50%. Those earning £150,000 still pay 20% up to £50,000 (from next year) and 40% between £50,000 and £150,000. If you apply the 50% to the Laffer curve, tax take will increase if the rate was 50 rather than 45%. A 50p rate is of course Labour policy. 

While I am a party member I am very much on the moderate side and I strongly believe there is a place where most people would feel happy, so long as the system is perceived as fair. The idea of Labour simply screwing the rich or the Tories helping their rich friends while people are using food banks won’t get us far and only leads to division and discontent. 

People need to know that everyone is paying their way - which means clamping down further on avoidance - and that the tax paid is being used efficiently, which includes a safety net for those who need it. 

There is too much complexity in the system. For example reducing the personal allowance progressively over £123,000 or whatever, rather than leaving it in place and simply having a higher top rate. No wonder people get confused. 

I agree with everything here. I also think there needs to be a new tier and a 1:1 approach for the "super-rich". It's these individuals who the Government are probably most mindful of taxing because these people have the ability to base themselves anywhere in the world they wish. It's these people (pop stars, comedians, Mrs.Brown's Boys actors, radio presenters, Fund Managers, etc), who they need to strike an arrangement with because the tax system is too much of a blunt instrument. These people clearly resent paying what they feel is an unfair level of tax and have the money to throw at avoiding it if possible. 

I think the same approach is needed for the global conglomerates who sell their products and services here. What's even worse about the Amazons and Starbucks of this world is they're not even exploiting any loop holes because HMC has created a mechanism specifically for them. Phil's 2% is a start but really, 2%? 2020? What about 2019? If smokers have to cough up a few hours after the Budget is announced (please excuse the distateful term), why do these tech giants get more breathing space?

hungryhalibut posted:

.......Anyone who has studied elementary economics will know of the Laffer curve. 

Having studied economics to ‘A’ level in 1971 I am aware of the concept of taxable income elasticity (courtesy of Keynes), but have never encountered the Laffer curve! Relieved to discover that’s because Laffer didn’t popularise it until 1974, so I, and those even older, can breathe a sigh of relief that our education isn’t quite as lacking as the above might imply!

 

 

As a point of principle though - nobody should ever pay 50% or over on earned income to the state, imho of course.

Ray

Most of us pay more than 50% of earned income to the state, one way or another.  20% tax (ignoring the upper bands) plus some 10% or more on NI plus the employer's 10% or more on NI plus 20% or more of what's left on VAT/Duty etc.  

That’s not really right. The employers’ NI is not relevant as it’s not part of personal taxation. And of course no tax is paid on the first £12,500 from next year. So someone on an averageish £25,000 pays 20% on £12,500, which is £2,500, or 10% of their gross income. There is of course no vat on food or children’s clothes, which make up a bigger proportion of the expenditure of the lower paid. So it’s not just a case of adding up all the rates. It’s much more complex. 

hungryhalibut posted:

That’s not really right. The employers’ NI is not relevant as it’s not part of personal taxation. And of course no tax is paid on the first £12,500 from next year. So someone on an averageish £25,000 pays 20% on £12,500, which is £2,500, or 10% of their gross income. There is of course no vat on food or children’s clothes, which make up a bigger proportion of the expenditure of the lower paid. So it’s not just a case of adding up all the rates. It’s much more complex. 

EVen factoring in both personal NI and employers NI, which arguably are a form of taxation, one would have to earn £120k before reaching 50% direct taxation.

if one considers indirect taxation as well, in the form of VAT, someone earning £50k wouldn’t reach 50% even if every penny of take home pay was spent on something VAT-able - in reality one would have to earn maybe £60k or more before reaching that point, which is a small proportion of society.

Those calculations are at current taxation rates - with the allowance changes in the budget the thresholds will be higher.

This is an interesting discussion and I don’t find myself disagreeing too much with anything said above. At least no one is proposing rates of income tax at 70 or 80%. Now that would really disincentivise entrepreneurship and risk taking.

What does make my blood boil are celebrities comedians pop stars and premiership footballers using tax evasion schemes to reduce their personal tax bills, consequently shifting the burden onto the rest of us. Then claiming ignorance of their actions whilst blaming “their advisers”. 

hungryhalibut posted:

It’s important to remember that these tax bands apply only to earnings within the band, and not to total earnings. It’s always been a challenge to know how high taxes can be pushed without reducing tax income through avoidance or tax planning. The IFS link posted by Bruce above demonstrates this. Anyone who has studied elementary economics will know of the Laffer curve. 

The 45p rate starts at £150,000. That is a very significant income - six times the national average, and I strongly believe that this rate should be 50%. Those earning £150,000 still pay 20% up to £50,000 (from next year) and 40% between £50,000 and £150,000. If you apply the 50% to the Laffer curve, tax take will increase if the rate was 50 rather than 45%. A 50p rate is of course Labour policy. 

While I am a party member I am very much on the moderate side and I strongly believe there is a place where most people would feel happy, so long as the system is perceived as fair. The idea of Labour simply screwing the rich or the Tories helping their rich friends while people are using food banks won’t get us far and only leads to division and discontent. 

People need to know that everyone is paying their way - which means clamping down further on avoidance - and that the tax paid is being used efficiently, which includes a safety net for those who need it. 

There is too much complexity in the system. For example reducing the personal allowance progressively over £123,000 or whatever, rather than leaving it in place and simply having a higher top rate. No wonder people get confused. 

The tapering out of the personal allowance starts at £100k and will end at £123k when the new £12.5k personal allowance takes effect. It is very complicated and hard for people to work out for themselves. It also means that those effected pay a marginal tax rate of over 60% within this band (40% + the 20% on PA lost + NI). 

Yes, it would be far simpler to let everyone have a tax free allowance and adjust the higher rate bandings and percentages accordingly. It’s all done, of course, to meet election pledges not to increase tax rates, but all it does is to over complicate things. It’s like the artificial distinction between tax and NI. 

NI is something of an oddity and often overlooked when people look at their tax position. But there are some material differences from the point of the tax-payer.  For example, if you have several part-time jobs, you get the equivalent of the NI personal allowance in each one, whereas for PAYE you have one personal allowance across all of your employment income.  That's of real value to, say, relatively low paid women who juggle several part-time jobs with childcare. Another, which you will no doubt be aware of HH, is that NI isn't applicable to pension income.      

And hurrah for that. A pension of X gives so much more than a salary of X. There is no NI and, of course, there is no pension contribution. One thing people might not be aware of is that if you retire before the state pension age and don’t have sufficient years to get a full pension once you get there, you can buy up to six years for £700 or so per year. Each £700 gets you about £4 a week, giving a payback period of about three years. It’s a very attractive option. 

hungryhalibut posted:

Yes, it would be far simpler to let everyone have a tax free allowance and adjust the higher rate bandings and percentages accordingly. It’s all done, of course, to meet election pledges not to increase tax rates, but all it does is to over complicate things. It’s like the artificial distinction between tax and NI. 

replying to a few of your points:

1. I think a 50% top rate is at the edge of reasonable (I wouldn't have cut it back to 45%). The reason why I say on the edge is that with NI it means that the State takes more than half of every extra pound you earn - I think the point at which you are working more for the state than yourself is unreasonably illiberal

2. You claimed earlier that the Laffer curve shows that a 50% rate would raise more. That is a creative assertion. The Laffer curve is a concept rather than a firm guide. The best information we have about the 50/45 rate are the years before and after Osborne cut the rate. Tax take in that band went UP when the rate was cut. Now there were likely some timing distortions there but as I remember the IFS and the OBR concluded that the 50/45 choice was largely irrelevant as a revenue raising measure  - didn't matter very much one way or another. The reason I wouldn't have cut it is as a signal about us "all being in it together" rather than because it really helped the deficit.

3. SO the key point  - if you look at Nordic countries with better public services and more generous benefits the big difference is that taxes are much higher on MIDDLE INCOMES. If you really want to provide more funding for public services you need to go where all the people are - the 20% and 40% rate AS WELL as the higher rate. That's really what I've been getting at in this thread - people think we can have much better funded services without 90% of the population paying more tax. It just isn't realistic.

You are absolutely right in my view. Focusing increases on relatively few makes it disproportionate. The most important thing is that it’s widely seen as fair. 

JedT posted:

3. SO the key point  - if you look at Nordic countries with better public services and more generous benefits the big difference is that taxes are much higher on MIDDLE INCOMES. If you really want to provide more funding for public services you need to go where all the people are - the 20% and 40% rate AS WELL as the higher rate. That's really what I've been getting at in this thread - people think we can have much better funded services without 90% of the population paying more tax. It just isn't realistic.

 

So, you're talking about the so-called "squeezed middle", Tony Blair's "Mondeo Man" then?  What would be the incentive for a lower tax payer to aspire for a higher paid job only to find when they get it they're paying a disproportionately higher percentage of taxed contribution then the people below and above them? I guess that's democracy in action for you though.

This issue highlights why, in my view, it’s wrong to push the personal allowance too high, as it reduces the tax base, so that fewer are ‘all in it together’. The rise from 40% to 45 or 50% isn’t that great and I’m not sure it’s really a disincentive, and certainly not one that would make people turn down a better job or a pay rise. 

I tend to agree that 50% is about right for the top rate, but it still seems wrong that people can get £1m bonuses and keep half, when people can’t feed their children. More equal societies are happier places. 

The overwhelming reason people can't feed their children in the UK is not because of the top rate of tax is 45% instead of 50%; its caused by the disadvantaged/the underclass (whatever today's terminology is) making poor life choices, such as drink and drugs addictions. Its laudable that HH wants to save the world, the reality is though that you can't save people from themselves no matter how good your intentions.

Ray

Jonners posted:

 

So, you're talking about the so-called "squeezed middle", Tony Blair's "Mondeo Man" then?  What would be the incentive for a lower tax payer to aspire for a higher paid job only to find when they get it they're paying a disproportionately higher percentage of taxed contribution then the people below and above them? I guess that's democracy in action for you though.

 

Because they absolutely would still take home a lot more money than in a lower paid job, if less more in proportion. No ‘poverty trap’ there.

thebigfredc posted:

The overwhelming reason people can't feed their children in the UK is not because of the top rate of tax is 45% instead of 50%; its caused by the disadvantaged/the underclass (whatever today's terminology is) making poor life choices, such as drink and drugs addictions. Its laudable that HH wants to save the world, the reality is though that you can't save people from themselves no matter how good your intentions.

Ray

Ignoring whether your assessment of the root cause is correct,  what is your solution to them? 

And how much would that save?

Innocent Bystander posted:

Jonners posted:

 

So, you're talking about the so-called "squeezed middle", Tony Blair's "Mondeo Man" then?  What would be the incentive for a lower tax payer to aspire for a higher paid job only to find when they get it they're paying a disproportionately higher percentage of taxed contribution then the people below and above them? I guess that's democracy in action for you though.

 

Because they absolutely would still take home a lot more money than in a lower paid job, if less more in proportion. No ‘poverty trap’ there.

They would probably have no choice in the matter anyway, unless they are an employee of their own business and can choose what they want to pay themselves in any given tax year. That journey from low pay to higher pay up through the tax brackets is in all likelihood to be a long one during which time they'd have taken out mortgages, PCPs on cars, nice holidays and raised a family. By the time they get there they probably won't feel like they're living the middle-tax payer dream.

Interestingly the Uk is listed 10 in the minimum wage league table....

quite a number of European countries above us...

Its not always consistent that higher wages equates to more tax revenue but it would certainly increase the chancellor’s coffers....

thebigfredc posted:

The overwhelming reason people can't feed their children in the UK is not because of the top rate of tax is 45% instead of 50%; its caused by the disadvantaged/the underclass (whatever today's terminology is) making poor life choices, such as drink and drugs addictions. Its laudable that HH wants to save the world, the reality is though that you can't save people from themselves no matter how good your intentions.

Ray

Gosh! That's a pretty sweeping statement, Ray. No doubt there are some parents that make some poor life choices impacting negatively on their children, but I suspect there are many, many people who find themselves in such situations through no fault of their own.  As a taxpayer and fellow citizen I'm happy to contribute, through taxes, to help them. Despite increasing divisions eg over Brexit, immigration, the UK is still predominately a civil society, thank goodness.     

Innocent Bystander posted:

thebigfredc posted:

The overwhelming reason people can't feed their children in the UK is not because of the top rate of tax is 45% instead of 50%; its caused by the disadvantaged/the underclass (whatever today's terminology is) making poor life choices, such as drink and drugs addictions. Its laudable that HH wants to save the world, the reality is though that you can't save people from themselves no matter how good your intentions.

Ray

Ignoring whether your assessment of the root cause is correct,  what is your solution to them? 

And how much would that save?

I am sure that UK benefit levels are sufficient to buy food in most cases but not if a parent has a serous drug habit which will take priority over everything else and everybody in their lives.

As for the solution....education partly maybe...but crikey cleverer people than my have been having a crack at it in the West for the last forty years and failing....so what chance have I got on a forum.

My observation wasn't really posited in the area of saving tax payers money.

MDS posted:

thebigfredc posted:

The overwhelming reason people can't feed their children in the UK is not because of the top rate of tax is 45% instead of 50%; its caused by the disadvantaged/the underclass (whatever today's terminology is) making poor life choices, such as drink and drugs addictions. Its laudable that HH wants to save the world, the reality is though that you can't save people from themselves no matter how good your intentions.

Ray

Gosh! That's a pretty sweeping statement, Ray. No doubt there are some parents that make some poor life choices impacting negatively on their children, but I suspect there are many, many people who find themselves in such situations through no fault of their own.  As a taxpayer and fellow citizen I'm happy to contribute, through taxes, to help them. Despite increasing divisions eg over Brexit, immigration, the UK is still predominately a civil society, thank goodness.     

I am okay with helping someone through the welfare system if they have fallen on hard times through unfortunate circumstances or global slumps perhaps but yes I  really object to financing peoples personal vices, such as gambling, drinking, drugs or even smoking. To not be able to afford food probably places the individual into one of these groups.

thebigfredc posted:

MDS posted:

thebigfredc posted:

The overwhelming reason people can't feed their children in the UK is not because of the top rate of tax is 45% instead of 50%; its caused by the disadvantaged/the underclass (whatever today's terminology is) making poor life choices, such as drink and drugs addictions. Its laudable that HH wants to save the world, the reality is though that you can't save people from themselves no matter how good your intentions.

Ray

Gosh! That's a pretty sweeping statement, Ray. No doubt there are some parents that make some poor life choices impacting negatively on their children, but I suspect there are many, many people who find themselves in such situations through no fault of their own.  As a taxpayer and fellow citizen I'm happy to contribute, through taxes, to help them. Despite increasing divisions eg over Brexit, immigration, the UK is still predominately a civil society, thank goodness.     

I am okay with helping someone through the welfare system if they have fallen on hard times through unfortunate circumstances or global slumps perhaps but yes I  really object to financing peoples personal vices, such as gambling, drinking, drugs or even smoking. To not be able to afford food probably places the individual into one of these groups.

But, Ray, practically speaking, how could DWP properly discriminate between those people 'deserving' of welfare and those that it suspects might have contributed to their plight?  How could government legislate for such an outcome? And, in any case, even if it could, why should the children of such parents suffer?

Applying moral judgement here is fraught with difficulty even if a few Red Top newspapers can make seem simple.