Timmy elsewhere

At the ASI.

Surreptitious Evil draws a chart for me.

Why don\’t we go back to the halcyon post war days when the personal allowance for income tax was 50% of average earnings?

26 thoughts on “Timmy elsewhere”

  1. Looking at that graph, doesn’t that show one Harold Wilson as being a principal culprit (from 64-70), or are my eyes playing games with me?

  2. @ PW
    The change from median to mean hides the extent to which Wilson was the principal culprit. The median income is significantly lower than the mean so 30% of median income is about 25% of the mean.

  3. @ Tim
    Even better – only start paying tax on incomes above the level where the state reckons you should be receiving benefits.

  4. Surreptitious Evil

    1952 – 1962 weren’t good either and the precipitous decline continued up to 1976.

    It is also interesting that 1981 and 1995 were the lowest figures – 20.9% and 21.0% – so there was no attempt to reverse this during the Thatcher / Major years.

    Please note, this is a hodgepodge of different surveys with different statistical biases and different ways of calculating annual tax allowances – I did the best I could but if the original data was captured using different and not directly comparable methodologies then there are limitations on what can be done. So look at it more for the general picture than specific numbers.

    Note: I had one term of stats in 2nd year at Uni. Which was notorious for the utter dullness as well as the historical nature of the lecture theatre. Mea culpa …

  5. “Why don-t we go back to the halcyon post war days when the personal allowance for income tax was 50% of average earnings?”

    To paraphrase Herbert Morrison, “The Durham Miners would never wear it.”

    Equally, it would require massive cuts in public spending, health and welfare, so our 3-party state would never accept it.

    Pity.

  6. Good grief!
    We have our very own Dr Eoin Clarke!
    Only this one can actually do statistics.
    Dr Evil, we salute you!
    (Bet you know bugger all about Irish feminists, though)

  7. Surreptitious Evil

    BiS,

    No, I can do Excel. I can’t do stats.

    Eoin, of course, can do neither.

    Remember, that’s Irish Republican feminists. Not the same thing 🙂

  8. Look they’ve all got bushy eyebrows & bristly shins. Who’d bother hanging around to hear their politics?

    You really should be using your honorary nowdoctorate, Dr E. It’s at least as valid as the guy’s with the misspelled name.

  9. Surreptitious Evil

    Okay, anyone know where I can get an elderly moggie a bleach perm? He’ll need hair extensions too?

    Short, fat and speccy, I’ve no problems with. Bald, well, give me a couple of years 🙂

  10. “Why don-t we go back to the halcyon post war days when the personal allowance for income tax was 50% of average earnings.

    John Galt says -Equally, it would require massive cuts in public spending, health and welfare, so our 3-party state would never accept it.

    Is that true? A) We keep being told by the right that the top few per cent are paying all the income tax B) income tax is only one third or one quarter of revenue C) there is nothing to stop taxes being raised for those above the median.

    Before point C makes anyone bleat laffer curve, yes, that might be a factor, but the laffer curve might apply for the low paid too. And how significant is the income tax of the lowest 50 %? I have no idea btw. 10k odd is income tax free, which takes some out altogether, and leaves plenty with little to be taxed.

    (And congrats SE)

  11. Surreptitious Evil

    A) We keep being told by the right that the top few per cent are paying all the income tax

    Anybody who tells you this is wrong not right. From HMRC:

    “the richest 1% of taxpayers by total income accounted for a 11.5% share of total income and 25.0% of tax liabilities.”

    and

    – the 10th decile by total income pay 53.5% of income tax

    B) income tax is only one third or one quarter of revenue

    That’s about right – according to the Treasury

  12. Surreptitious Evil

    Bugger – tries again.

    That’s about right – according to the Treasury gbp150bn of gbp548bn for 2010-11. Although HMRC figures a very slightly higher for the same period at gbp152bn.

    C) there is nothing to stop taxes being raised for those above the median.

    Yes – of course. And the Laffer curve does apply. As it does for the lower paid. With knobs on, because you have to factor in benefits withdrawal rates as well.

    The lowest 50% of taxpayers pay about 10% of income tax (sum of the lowest 5 deciles, lowest 3 being given as merely ‘<=2%' from fig 4 in the HMRC liabilities document so very guess-timate-ish).

  13. SE, on the top few, I think I agree with you – a high share of income tax, but not necessarily of tax liabilities as a whole.

    But lowest 50% pay 10% of income tax? So their income tax payment is about 2.5% of revenue? So cutting to n would not haveuch effect even before consider their extra spending leading to higher VAT income?

    (I know this leaves out fact that lower paid pay NI as well, but one thing at a time.)

  14. Surreptitious Evil

    But lowest 50% pay 10% of income tax? So their income tax payment is about 2.5% of revenue?

    Within the slightly spurious accuracy of my figures, you are right(-ish although clearly actually left 🙂 ).

  15. Surreptitious Evil

    Okay, so we’ve got the second sensible UKIP policy for the next election?

    1. Out of the EU.
    2. Raise the income tax allowance to the median income.
    3. Mumble, mumble, pander to internal factions, mumble, idiocy about defence mumble.

    Tim?

    Tim adds: I’m not, any more, involved in policy formulation. But, last I left it, income tax policy was to raise threshold to 12.5 k. 50% of median (give or take) and full year full time minimum wage. I would prefer NI and income tax allowance to be median wage. But little steps and all that.

    I’m told that that will also be part of the Lib Dem platform at the next GE. And yes, that is also me getting people to think that’s a good idea. That’s me wearing the ASI hat of course: we don’t give a shit who puts good ideas into law, we just want to see good ideas put into law.

    And SE: just to make clear: ta v muchly for that research you did. I shall be using that a lot in the months to come.

  16. “Within the slightly spurious accuracy of my figures, you are right(-ish although clearly actually left ).”

    Left? Depends on your view point. I reckon culturally a bit left, economically a bit right. But I like to think I change my mind when given new evidence (like yours).

  17. @ SE
    Thanks for the reference. Strong evidence for negative effect of the 50% tax rate – the share of the top 1% of total taxable income fell by 17% when the rate went up 11% from 45% to 50% (so presumably the actual amount fell by 20% and the tax take by just over 10% rather than 8% unless the remainder actually increased their taxable income by 3% in real terms, which we know didn’t happen). Pity – I have no personal objection to a 60% higher rate if that gets the poor out of paying tax.
    FYI the text on page 13 says that the tax paid by the bottom 50% is 11.3% – your estimate is close enough for the purpose of argument.
    For the lower paid, Laffer curve with knobs on. A moderately underpaid working couple with (a) disabled child(ren) at school and one at university have a marginal tax rate in the 90%+ range.

  18. John 77, I agree with a lot of your comment, but the alleged negative effect of 50% tax is bollocks.

    It may well be right that such a rate has an effect. But if you keep monkeying around with the rate (and tell people in advance it will go up or down) anyone with a braincell and a degree of flexibity will game the system. Even I can issue invoices early. (Yes, that only works in early years of a business, but I am one of these entrepreneurs who the Tories think will save them.)

  19. @ #14 Luke
    A lot of the bottom 50% pay no income tax at all. The Treasury was famous for counting candle-ends so a loss of 3% (11.3% of 150/548) of revenue is unacceptable to them while we are running a near-record deficit. I beg to differ on the grounds that the economic benefits would lead to higher total tax revenue but as I am not Geoffrey Howe they don’t have to listen.
    The top 1% pay a disproportionate share of income tax (25% of tax on 11.5% of income in a bad year, more than 30% of tax in a good year) but they also pay a lot more than 1% of other taxes (top band council tax, excise duty on petrol and booze which latter is higher on wine and whisky than on cider, NI, but less so because they all pay up to the upper earnings limit and then 2% above that).
    The income tax alone paid by the top 1% is 7% of total government revenue.

  20. John 77. And? Lets’s say high earners pay more tax than low earners, both absolutely and as a proportion of income. So what?

  21. @ #19 Luke
    No its not bollocks. I can remember the schadenfreude among youngsters in the City about lots of ridiculously overpaid, frequently arrogant, tax consultants losing their jobs after Howe cut the top rate of tax to 60%. If the cost of tax avoidance gets close to the amount of tax saved, a lot of people decide they might just as well pay the tax.
    Invoice timing only works if you are a lawyer. Gordon Brown was told that a lot of lawyers were exploiting the cash basis of accounting to reduce their tax payments. So he made it illegal except for lawyers (what is the most common profession for New Labour PMs and MPs?), making life much more difficult for honest guys like me as I have to apportion receipts between tax years based on an estimate of the value of work done [this is a massive pain in the neck when a fixed-price contract runs over into a third tax-year because my client’s client messes around]. My tax payments do not depend upon the timing of the invoice, and as far as I know that applies to 90-odd% of higher-rate taxpayers other than lawyers. What I *have* observed are people converting taxable income into tax-free receipts – in one case a company where two directors and their families own a majority of shares, the most junior director is the highest-paid and the company has replaced dividends with a “return of capital” which can be tax-free. This costs because they need a court order every time but that costs less than tax at 50%: previously they didn’t bother. So YES, there are negative effects.
    In the 1990s there were some threats to emigrate if Labour increased the tax rate to 50% which scared them into leaving it at 40% – interestingly, all those who told me that they would emigrate/”offshore” were self-declared Labour supporters, so Blair may have over-estimated the impact. The aristocracy (Percy, Douglas, Howard, Cavendish, Stanley, Grosvenor etc) cannot offshore but Labour supporters can.

  22. @ #21 Luke
    “So what?”
    My response has always been “so they should”
    When I was a young bachelor I was taught that the NI system involved bachelors subsidising widows: my reaction was: “good idea”. If I was earning (and I do mean earning, not just getting paid) enough to support a wife that I didn’t have then I could jolly well afford to pay something into the NI system to subsidise widows.

  23. I’m not sure this is relevant, but here goes: Does any of this take in to account transfer of tax between spouses?

  24. Surreptitious Evil

    Bastard, bastard, bastard …

    john77

    FYI the text on page 13 says that the tax paid by the bottom 50% is 11.3 % – your estimate is close enough for the purpose of argument.

    Yes, sorry. I did that between turning the oven on and putting the pizza in. As I said – approximate. But as you point out, the difference between 10% and 11.3 % (I actually calculated 11% and rounded it down to a more realistic accuracy – I’m flabberghasted I was quite so close to the real number 🙂 ) of the income tax take is immaterial in terms of proposals and their outcomes.

    SimonF

    Does any of this take in to account transfer of tax between spouses?

    Hahahahahahahha, err, no. For a bleg, simply getting the basic tax and income stats took enough of my time. Although the tax figures for married man’s tax allowance are available, there isn’t an equivalent median household income stat.

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