Why do rich people pay more tax ?

Steve,

I agree 100% with the idea of flat taxation (as long as there is a high enough threshold for people on low incomes). Lets simplify the whole process of taxation and make it cheaper to administer. Everyone would then benefit (apart from those administrators who live off the inefficiency and complexity of the current system).

What we must not lose sight of is that we are in a global economy and are competing with countries who have these kinds of low cost/ low regulation economies. We can't just ignore them and hope they go away (like continental Europe seems to be doing currently) If we do that in the long run we will suffer.

 

Also, there's a strong relationship between low tax and high growth rates.

Still, Robbo, we've got to stop agreeing like this. Are we getting old?

 

Possibly!

Seems like common sense to me though.

 

Chaps

Rob made a good point about competing with the global economy.

I am not rich but I suppose I am "comfortably off". I am retired and yet I still pay 40 pence in the Pound in tax. I have a pension and various other forms of income which I built up myself. When my mother died, I inherited £300, so my lifestyle is purely down to my own endevours.

My wife will soon be retiring and unless the taxation rates are lowered, we intend to sell up 100% and move out to Spain.

The cost of living out there is lower, as is the taxation.

When I pop my clogs, the Spanish treasurey will get the money purely because the UK one has been to greedy.

My children will inherit far more and I will have a higher disposable income. Hitting middle britain is rarely a wise move.

Regards

Mick

 

I can't believe a shrewd operator like you is still paying 40% tax.

 

But the average salary in the North West is about £17k the stats where published recently), not having a car will save me a good £3k a year possibly more, I reckon a lot of people spend about £5k a year on having a car without even realising it.

The average UK graduate salary is £16,300 but when you exclude London and Oxbridge its more like £15k, my universities is £15,900 so if £30k is not enough to live on these days my generation may as well give up now.

If you have a mortage of say £800 a month (for a £100k flat) that still leaves you with £1700 a month to live off, my parents manage to feed 4 people with less then that and pay the mortage of £400 a month.

I realise you will have to pay a lot of tax on that £1700 but just as a guess that is will be about £1200 a month income after the mortage, call it £300 for gas/electric and other bills that is still £900 a month to live off, which you can do easily.

So based on these rough calaculations I should be very comfortable on £30k a year. Even wehn I graduate and will on average earn £15,900 it will be enough to move out if I rent.

 

I think the Devil and myself are good examples as to why having a 40% tax bracket doesn't necessarily net more taxes. James obviously has a wheeze to avoid paying, and in my case I put my earnings over the 40% threshold into a company share scheme which avoids me paying any tax, NI or GCT on these earnings.

If there was a flat rate of tax, I am not sure I would bother with this (or at least I wouldnt put so much in) so Gordon would get more of my money than he does now!

 

But the flat rate thing dosn't take into account that poorer families will be poorer. If they had to pay say 20% tax they could not afford to live, so employees would have to simply put their wages up, this means companies profitis will be reduced thus less tax collected by the government.

What ever the tax rate is you're not generation new money, you're just changing the way the money is distributed.

 

Thats why you have a high threshold so that the low earners dont pay any tax!

 

That is fine in theory, but where is the cut of line? You can't say if you earn less than £20k you pay no tax, if you earn over £20k you pay 20% that simply isn't fair.

This is why we have variable rates to ease the cut off point.

 

AT,

I think you misunderstand how the income tax system works. You only pay tax on your earnings over the threshold.

Say you had a flat system with a threshold of £20k and a rate of 20%. If you earned £21K then you would only pay tax on £1k of your earnings, therefore you would only pay £200 tax.

 

Groannn.

amazingtrade, now that you've had the UK income tax arrangements explained, how do you feel about higher-rate tax, the cut-off for which is variable, depending on your tax code, but is approximately £32k per year (figure off the top of my head)?

IOW, why should high earners pay a higher proportion of their income in tax?

Many feel this isn't fair, and it does lead to people looking for ways of avoiding the higher rate altogether, which, as Robbo points out, reduces tax revenue.

 

I don't know I can see both sides of the story, I don't know enough about it to be able to offer an opinion, I am both left and right wing in my views

I don't agree that people should live of benefits and I don't agree that people should have a load of spare money either, and I don't mean £50k savings, I am talking millionaires here.

 

But if people work hard/have talent, shouldn't they be rewarded?

[Human nature & the politics of envy says that anyone who earns more than me should be taxed at 99%.]

 

Yes but sadly this isn't always the case, the problem is society means that a lot of poorer people are stuck in a trap, they will never probably get good jobs and its not their fault so the taxation system has to make sure that it dosn't punish people, if the governmebt collected less tax there would be less benefits for them.

Talant is just somthing you are born with like inheritance, its out of that persons control so I don;t think somebody should get paid millions just for being good at kicking a ball around. However if you're somthing like a doctor or similier who has worked very hard to get where they are of course they should be rewarded. I am not saying that everybody should earn the same amount, otherwise we would all get jobs as a pen pusher.

I am not diss mising your reasons for beliving it, I just think extreme cuation needs to be taken.

There is an assumption that the harder you work the more you earn that is simply not the case, its just a generalisaton. Being from the lower middle class part of society I am completly stuck in the middle.

Personaly I say introduce a London tax, if you live in London you pay 60% tax regardless, of course I realise this would make me some what unpopular and the policy is designed to fail on purpoe

At the end of the day in my ideal world I would like to make sure people are not in poverty, but at the same time the genuine hard working people are rewarded.

 

I can't quite see how all you lot in favour of a flat rate tax are also in favour of an allowance (and significantly raising its threshold). That's not a flat system is it?

That's 0% rate upto £20K (or whatever) and then 20% on anything above that. That's a two tier system, not a flat system. The current system is just a 4 tier version of that. Anyone who's really in favour of a flat system should apply it to all earnings with no allowance...only it doesn't look quite so appealing then does it?

The reasoning behind having an allowance (to help those on lower incomes) is exactly the same as the reasoning behing the current system, there's no difference. Instead of saying "OK, the rate is 20% but those earning less than £20K pay nothing" the current system says "OK, the rate is 40%, but those earning less than £32K pay 22%, those earning less than £7000 pay 10%, and those earning less than £4745 pay nothing". It's just 4 bands instead of 2.

OK, 4 bands is simpler than 2, agreed, but it's not fundamentally any different. A true flat tax system would have no allowance.

Michael.

 

Michael

The current system is very considerably more complex than you describe and the 'flat tax' system is considerably simpler.

I strongly recommend that everyone reads this brief paper by Andrei Grecu, (whether or not you think you agree with the proposals). I think that it's 'coming soon to a country near you' because, as has been pointed out, we live in a global economy and, whether we like it or not, everyone has to compete.

Flat Tax - The British Case

The paper also illustrates some historical instances of the effect of income tax changes on the overall tax raised.

 

There is an alternate to the personal allowance. It has been called 'Basic Income'. Basically the government pays every adult a sum of money (say £100 per week) regardless of their employment status, until death (so it also replaces the state pension). If you go out to work, you pay a flat tax of say 20% on all your earnings (but not on the Basic Income). With this system, there is no disincentive to work and nobody lives in poverty because the Basic Income is enough (just) for basic food and basic shelter. There is also no need for a benefits system and as already mentioned, no need for a state pension system.

 

Okay then, if you insist - no tax allowances to benefit the less well off

I suppose the minimum wage could be raised a bit to offset it but doesn't that then make our workers uncompetitive?

Of course, whatever you do the less well off will moan that the rich aren't paying enough tax just as they moan about how the rich benefit more from tax cuts.

Matt.

 

I've often considered that a 'negative taxation' scheme like this may have a number of benefits.

However, I suspect that it would act as a disincentive to work and may result in an 'underclass' of people who live in near poverty by not working and surviving on the allowance.

Pot Noodles and cannabis are both pretty cheap and would be better than working for many.