“ … a considerable number of single-earner households where the earner is a higher-rate taxpayer, are in the fourth income decile i.e. in the lower half of the income distribution.
Higher rate tax reaches down into the bottom half of the income distribution.
Even if you are in favour of properly progessive, possibly even high, taxation, that should make you stop and think.
Two grandfather\’s ago those in the bottom half of the income distribution were barely paying income tax at all, let alone higher rate such.
Agreed, the fact that the sun rises each morning also confirms to me this point, but this does confirm to me the point that the real problem with the UK income tax system is that it starts at too low an income and rises too quickly: the higher rate kicks in at too low an income.
It\’s probably time to try and think again of the actual moral issues of taxation rather than carrying on tinkering with the accretions and barnacles that have glued themselves to the system over the past century or so.
Along the lines of, say, that absolutely no one on minimum wage should be paying income tax or NI (which, with the pensions reforms coming, is now just another name for income tax. That\’s the last real link between contributions and benefits gone). And that higher rate tax, if we\’re to have such, should really only kick in for the top 10% of earners: you know, those we might describe as rich? Or at least, \”high income\”?
We\’re limited in what we can tax at the top as well, that Laffer Curve thing. We can\’t go around having 70/80/90% tax rates at the top because such rates simply don\’t raise revenue.
Yes, this does rather box in revenue raising: the Treasury would lose some £30 billion by taking all those minimum wage people out of tax and NI (rough guess). We\’re not far off the upper band limit I\’ve suggested. It\’s roughly the top 10% of individual earners that pay higher rate: those figures quoted are pointing out that household income is really rather different from individual, that\’s all.
Whether or not the 50% rate is actually revenue raising is arguable (and people do argue about it). So that would mean no more rises at the top end.
Which leads us to, well, if we\’re to apply this simple morality tale to the tax system, that government needs to be taking in and thus spending £30 billion a year less.
For what is the moral justification of stating that you may not sell your labour for less than £6 an hour but, by the way, we\’d like 45%* of that when you do?
* Yes, 45%, two NIs and income tax.