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[hairyears]

Anyone seen this, From the Tax Reseach blog?

Please Don't Argue That We're Overtaxed.

I don't mind paying more than the average; I earn more than the average. I do mind that people earning more pay less.

Comments

[ext_208701]

> I do not see why I shouldn't keep 50p in every extra pound I earn;

Optimist for only 50% tax rates. Increase your salary from £100k to £101k. Tax is £400. Reduction in personal allowance is £500 which incurs a further tax bill of £200. National insurance is £20. Student loan on the new scheme would be £90. So that's £690 removed, increase in take home pay £310.

It's not hard at that point to start realising that setting up a consultancy company and leaving the money in the company and paying out £99k as dividends skipping all your NI seems very very enticing.

[htfb]

That's a pretty specific example. It's hard to have sympathy for the person negotiating their pay-rise to £101k who hasn't yet paid off their student loan, or who doesn't feel like putting their income over £100k into a pension.

Most ridiculous effective marginal tax rates occur much lower down the scale. Crossing the Working Tax Credit boundary brings a zone of 73% EMTR. Coming off Income Support with a few hours' work a week brings 100% EMTR (and an increased risk of random misadministration by the DWP for even the first hour or moment worked, with a total loss of IS and infinite EMTR). This poverty trap is a far more severe problem than the potential underutilisation of the £101k earners.

[ext_208701]

It's the one with the easiest maths to use as a demonstration. Tax credits are much harder to work out :-)

But it's a lovely nice shining example of how marginal tax rates are not a monotonic increasing function of income which they really should be.

However, it's not that implausible for a £100k earner to have a student loan with todays setup - if you study medicine you can end up with a £90k loan, with new 5.5% interest rates it starts to become implausible to ever pay it off.

At a mere £75k salary, you'd be making a payment of 9% of £54k = £4860/year. The interest is £4950/year so you're not actually making any net repayment at all.

[htfb]

The state has such huge natural advantages as a supplier of social insurance services---for example maximal diversification of risk, and criminal sanctions to back up its loss-adjusting---that it's utterly perverse to want to exclude it. Unless you're an insurance salesman, as so many people are.

[davywavy]

It's worth observing that no UK government has ever - and the postwar 95% top rate etc is included here - managed to take more than 38-39% of gdp in tax. People just push back.

"Taxes should be simple, compulsory, and low"

[hairyears]

Indeed people do: no-one enjoys forking over their money and the social lubricant for that is a fair sense that all of us should, and mostly do

Re: "Taxes should be simple, compulsory, and low"

[davywavy]

I don't think what you're saying matches the data; if it were a collapse in tax compliance we'd've needed IMF help in the mid 1960s and the early 1990s as well.