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April 17, 2006
We’re Overtaxed
One small point to show how completely crocked our tax system is:
And the National Minimum Wage is set for another
inflation-busting increase this October - from £5.05 to £5.35. Its
introductory rate in 1999 was just £3.60. The
Government's enthusiastic ratcheting up of the rate, in the name of
"fairness", comes at no direct cost to them, of course. On the
contrary, with personal allowances a paltry £5,035, the taxman will be
knocking at your door if you are on the minimum wage and working just
20 hours a week.
Working half-time on the minimum wage and you pay income tax? What a pathetic piece of nonsensical malarkey.
A rational or fair income tax system would have no income taxes at all upon the poor. The tax simply shouldn’t impact upon those on, say, less than median incomes. Of course, doing that would do two things, reduce the amount of money El Gordo has to throw around (ahh, what a shame) and also reduce his ability to favour groups with allowances, rebates and credits (ahhhhhh, what a shame).
But is there anyone actually willing to defend this absurdity? That the poor are paying for the middle classes?
April 17, 2006 in Your Tax Money at Work | Permalink
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Comments
The political party that devises proposals to simplfy taxation, making it much more transparent and making it possible to see where money goes, will do itself a lot of good. Everyone can see the case for income tax - though not at the lower end of the scale - and for VAT, but some of the other taxes we pay (inheritance), and the effect of fiscal drag are just crazy. We're almost at the point where the pips are squeaking, though people haven't realised it yet.
Posted by: icedink | Apr 17, 2006 9:15:07 AM
Icedink's comment is a classic example of a lack of political consensus - apparently inheritance tax is 'crazy', when of course a lot of people think actually it's the tax that makes most sense. Then again apparently we're almost at the point where the 'pips are squeaking' but also 'people haven't realised it yet'. Which is crazy.
Tim, on your last point, then I doubt you'll get many defenders, though I was unaware you were planning a tax system which is was only ever progressive. Presumably you'll be dropping your support for fuel taxes?
Tim adds: There is a very good argument for fuel taxes (as well as other environmental taxation): externalities.
Income taxes? Yes, fine with their being progressive. I’d argue quite strongly that only the rich (which of course is a moveable feast to define) should pay them at all. And I’d lump in NI with income taxes too.
Posted by: Matthew | Apr 17, 2006 9:56:15 AM
Talking about Tax Transparency, we mustn't overlook the amazing revelation in today's Daily Telegraph of the hitherto undisclosed additional "EU financial instruments" we shall be obliged to pay for:
"The European Union's next budget is £20 billion more than Tony Blair admitted when he unveiled a British-brokered deal last December, a leading Brussels official will say today.
"In a severe embarrassment to the Prime Minister, Dalia Grybauskaite, the budget commissioner, will describe public statements issued so far about the size of the next EU spending package as 'not accurate'."
http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2006/04/17/weu17.xml&sSheet=/news/2006/04/17/ixnewstop.html
Posted by: Bob B | Apr 17, 2006 10:28:39 AM
I agree with Tim. Our system is a mess and has been for decades. I can remember a time (just about) when it was the accepted wisdom that those below the average income should not pay income tax. That went, as I recall, in the 1960s.
Much talk about the wonders of the UK economic performance in recent years is pure propaganda. 2-2.5% growth on average is nothing amazing. Again, I can remember a time when that sort of rate was regarded as downright unsatisfactory. We dress up mass unemployment with large numbers of people on incapacity benefit and then boast how well we are doing. The historians will not be fooled.
Posted by: william charles | Apr 17, 2006 11:43:02 AM
I don't really understand the claim that the 'poor pay for the middle classes'. I think you might be confusing the idea that the rich pay a higher proportion of their income in tax than the poor with the fact that the rich pay more in pounds tax than the poor. It'd be hard to justify your claim.
Tim adds: Taxes fundsuch middle and upper class entitlements and pleasures as the Royal Opera House and so on. The poor pay taxes. The poor pay for the pleasures of the upper and middle classes.
Posted by: Matthew | Apr 17, 2006 12:03:51 PM
Start paying tax once you reach 5,035 pounds! Luxury! Here in Oz we pay tax as soon as income reaches about AU$7,800; about 3,275 pounds.
Posted by: Peter D. | Apr 17, 2006 12:22:27 PM
"Taxes fundsuch middle and upper class entitlements and pleasures as the Royal Opera House and so on"
But you can't pick and choose like that. You need to look at an individual's total taxes paid and total money received back. You're arguing that someone who pays £100 in VAT and receives £1000 in housing benefit is subsidising the boxes at Covent Garden. This is deeply silly.
Tim adds: No Matthew, it isn’t silly. The poor pay taxes and then the political process decides how those taxes will be shared out in spending. It’s harldy a new thought that that political process is colonised by the upper and middle classes now is it? Who decide how that money gets spent?
Far better not to take the taxes off the poor in thte first place.
Posted by: Matthew | Apr 17, 2006 12:37:11 PM
It is interesting that it is politcally correct of our media to say how silly the French are for not accepting a lower teenage minimum wage but not to criticise our government for this.
Posted by: Neil Craig | Apr 17, 2006 1:00:55 PM
@ matthew. Well, we agree at least on National Insurance and income tax being lumped together. Good debate.
Posted by: icedink | Apr 17, 2006 2:33:15 PM
Those spoiled Aussie brats: in NZ there is no personal allowance. Nil. You pay tax on your first dollar. Then when you retire you get a state pension that is two-thirds median wage, so quite a lot of the ill-paid get a pay rise on retiring.
Posted by: dearieme | Apr 17, 2006 2:38:31 PM
By the standards of most EU15 countries, Britain seems rather under-taxed.
Source: Total Tax Revenues as a Percentage of GDP, and Taxes on the Average Production Worker in OECD Factbook 2006:
http://puck.sourceoecd.org/pdf/fact2006pdf/09-03-01.pdf
http://puck.sourceoecd.org/pdf/fact2006pdf/09-03-02.pdf
Perhaps that is why some in the EU want to harmonise taxes.
Posted by: Bob B | Apr 17, 2006 3:02:39 PM
Nobody has defended it yet, but I favour the NZ system. The reason is that I think one major detrimental consequence of 'taking people out of taxation', which seems to be in vogue, is the effect on democratic accountability.
If only rich people pay income tax, then should the non-taxpayers be allowed to vote? They have every incentive to vote for a party which promises to increase taxes and spend more of other people's money.
Posted by: FishAreFun | Apr 17, 2006 3:49:43 PM
This is something for El Gordo to really proud about. He stipulates that the minimum wage rises by 10p an hour and he can claim 3p of it and be seen as the good boy. How’s that for a stealth tax. One thing he will want to keep quite is the fact that, since the introduction of the minimum wage, the numbers on the lowest level of income have increased dramatically as employers are now letting the Government set the wages. I thought we had dispensed with a discredited Incomes Policy and all of its distortions with Harold Wilson or is this it creeping in the back door.
Posted by: Dave Brooks | Apr 17, 2006 5:41:14 PM
"the numbers on the lowest level of income have increased dramatically"
How do you define 'level'?
Posted by: Matthew | Apr 17, 2006 5:52:35 PM
Bob, by EU standards we are undertaxed. But also a higher proportion of business actually pay tax rather than existing outside of the tax system in the black economy.
In the USA the untaxed economy is even smaller, and they have even lower taxes.
http://tinyurl.com/nbfb6
Posted by: chris | Apr 17, 2006 8:02:18 PM
When the lower socio-economic groups no longer expect me to subsidise their fecklessness and irresponsibility, and to pay the costs of their criminal and anti-social behaviour, and when taxes overall have been slashed accordingly, I will be delighted to pay the full and unsubsidised cost of my opera ticket, Radio 3 etc. Until then, I cannot afford to subsidise both culture and the lower orders, so the latter can make a modest contribution to the former -- after all, most would only spend the money on lottery tickets, fags and fattening foods, etc, rather than in improving their life-chances.
In advanced, welfarist economies, `poverty` is largely a lifestyle choice.
Posted by: paul (in lower case) | Apr 17, 2006 8:53:51 PM
The poor pay for the pleasures of the upper and middle classes.
Truer words were never spoken.
paul:
Which advanced welfarist economies are you talking about?
Posted by: Amit Kulkarni | Apr 18, 2006 1:12:32 AM
Chris - But Denmark has a high tax burden even by EU standards. Despite that, Denmark ranks among the most competitive countries in the world and it has an unemployment rate of only 5%.
http://news.bbc.co.uk/1/hi/world/europe/4849694.stm
The Nordic countries seem to have a way of combining protective social models with relatively dynamic and competitive economies.
http://www.euractiv.com/Article?tcmuri=tcm:29-146338-16&type=PolicyNews
But their recipes may depend on having relatively small populations which enable them to generate and sustain a national consensus on the mix of government policies which EU countries with large populations can't match - hence the recent riots in France and the almost evenly split result of the election in Italy.
PS Of course, like Britain, Denmark has opted to stay outside the Eurozone - at least for the foreseeable. It incresingly looks as though the benefits of European monetary union were seriously oversold to gullible electorates in the EU.
Posted by: Bob B | Apr 18, 2006 1:50:45 AM
"In advanced, welfarist economies, `poverty` is largely a lifestyle choice."
One big hurdle to overcoming poverty of outcomes is that in some localities not much has changed since George Orwell wrote this in 1936 for the book that became: The Road to Wigan Pier (1937), chp.7:
"And again, take the working-class attitude towards 'education'. How different it is from ours, and how immensely sounder! Working people often have a vague reverence for learning in others, but where 'education' touches their own lives they see through it and reject it by a healthy instinct. The time was when I used to lament over quite imaginary pictures of lads of fourteen dragged protesting from their lessons and set to work at dismal jobs. It seemed to me dreadful that the doom of a 'job' should descend upon anyone at fourteen. Of course I know now that there is not one working-class boy in a thousand who does not pine for the day when he will leave school. He wants to be doing real work, not wasting his time on ridiculous rubbish like history and geography. To the working class, the notion of staying at school till you are nearly grown-up seems merely contemptible and unmanly."
http://www.george-orwell.org/The_Road_to_Wigan_Pier/6.html
As David Miliband put it a few years ago when he was minister for school standards:
"It must be one of the most stunning statistics that we are 20th out of 24 OECD countries for staying-on rates [in education] at 17"
http://news.bbc.co.uk/2/hi/uk_news/education/2238424.stm
Posted by: Bob B | Apr 18, 2006 2:03:53 AM
Bob B,
Jobs like flipping Burgers at McDonalds or counting change at Wal-Mart don't require education, and the big problem is that in the advanced economies service sector jobs are increasing. Also, some jobs are tailored such that educated workers are deliberately discriminated against.
Posted by: Amit Kulkarni | Apr 18, 2006 3:15:54 AM
The Royal Opera House has recorded its third consecutive financial surplus (ie profit) last year so can we perhaps find another comparison for Tim's populist point please?
Tim adds: ENO? WNO?
Posted by: dsquared | Apr 18, 2006 8:00:06 AM
Amit - I really don't understand the point you are trying to make.
As Miliband's comment shows, Britain is way out of line with most other OECD countries - almost all of which have indicators showing increases in the percentages of their respective GDPs which derive from service activities because that is what happens in affluent economies. The shares of GDP generated by primary activities (agriculture, fishing and mining) and by manufacturing are declining.
Much commentary in the British press is about shortages of IT and other technician level skills - which indicate insufficient take-up of post-17 further education and training opportunities.
Posted by: Bob B | Apr 18, 2006 9:02:08 AM
I don't underdstand the premise of the article-that somehow straying above the personal allowance and paying a tiny amount of income tax is a bad thing.
The minimum wage earner will be paying much more VAT and NI.He or she will also be (indirectly) paying some of the employer's NI contribution.
James
James
Posted by: james C | Apr 18, 2006 1:45:00 PM
Bob,
For some jobs having an education is a serious disadvantage. Do you need a college degree for learning how to drive a commercial truck for long hours? For being a cop on the beat? etc... Education forces a man to think, and some jobs do not require a person to think, just to obey and do it.
The college education puts a man in debt to the tune of 30-50 thousand dollars. People from poor families are forced to enlist in the National Guard just so their education can be covered by the US Army. The ads for joining the Army trumpet this very fact.
Personally, though I am a product of the education system, I am starting to question the real use of education. For many jobs which "require" education, a basic level of literacy, and domain specific knowledge picked up on the job is sufficient. I hope you get my drift...
Posted by: Amit Kulkarni | Apr 18, 2006 10:23:31 PM
