50% tax on earnings over 100,000

The liberals have proposed a local income tax to replace the council tax.

The 50% tax rate is to pay for further 'investment' in schools & hospitals.

Intellectually I like it, but I have some kind of mental block about paying half my income in tax.

Not there yet but hope to be!

It would be better than the proposal to base it on house prices without taking regional variations into account.

I live in the South West of the UK, which has some of the lowest wages (tell me about it!) and highest property prices in the country.

but I have some kind of mental block about paying half my income in tax.

You already do. You just don't know it.

Happily I live in Cornwall, where the climate is great, wages wonderful and property prices outrageous, but I disgress..

..I am not sure why this thread is here, I think it is trying to make a party political point, but while it is, I agree with the remark above

but I have some kind of mental block about paying half my income in tax.

You already do. You just don't know it.

What matters is not level of income tax, but total tax take by any government. Over the last 5 years tax revenue has risen in UK from 38% of GDP to 42% - income tax has not risen, but a bucketful of other taxes have been introduced to increase the government take. So as the previous poster said, you are in fact already paying damn nearly 50% of your income to the government

Over the last 5 years tax revenue has risen in UK from 38% of GDP to 42% - income tax has not risen, but a bucketful of other taxes have been introduced to increase the government take

And we are still running a massive budget deficit. So, I think the tax inventors are going to be busy for a few years yet.

Jack's right - it's not 42% - it's a lot more than that. A lot of Enron accounting goes on in any government. Reclassifying expenses as capital investments, understating pension liabilities (public sector pensions) etc. Government spending is probably over 60% of current level of GDP.

The problem with people is that many believe that higher taxes mean better services. They don't. Rich people are very important to keep the economy running smoothly. Apart from the innovation and foreign currencies they attract - they spend money and very few realise how important that is. That's why they shouldn't be the first targets when it comes to raising more tax. Because when they spend their money it does the economy more good than when that money is spent by a government.

For every £100,000 I earn I take home less than £10,000 after 17.5% VAT, 21% National Insurance, 40% PAYE, approx 8% business rates, another 5-10% on DPR/DTI licence/CH annual filing/statutory audit/one million other government imposed costs from administering their tax credit schemes to being a tax collector and tax enforcer etc. What's left in the company is then subject to 20% Corporation Tax i.e. I'm subject to a tax rate of over 90%.

The 10,000 I get to take home out of every £100,000 I earn is less than the unemployed lay-abouts in my local council estate make on benefits, child credits, housing benefit and fake disability payments for the "Stress" of coping with all this free money.

Maybe I'm baised but I think a 50% Income Tax rate is grossly unfair; it would push my overall tax rate to nearly 100%. However, the moment MPs agree to apply the same standards to themselves that the rest of us live by - from pensions to tax - I'll be happy to support ronin's plea.

I'm sceptical that anyone really needs a six figure salary

I can assure you I really need it. If I don't earn six figures my take home pay would leave me below the poverty line.

Me thinks he doth protest too much.

oddsod, come on.. you know as well as I do that nobody, not you, not me, not anybody pays tax like that.

I have not the slightest doubt that, like me, you employ an accountant (write expense of accountant off against tax) to keep your tax bills down. What tranche do you pay 40% on after allowances, and the lower 10 and 20% rates?

Part of the problem is that we all spend even more resources avoiding the taxes that exist, to take advantage of legal loopholes.

If you are self employed as I am, you can run a mix of limited companies and parterships to get the best of both worlds on allowances. You can charge things against the company for (legitimate) tax purposes. You can put money into a Self Administered Pension fund up to the limit of the 40% mark and get that tax added to your pension fund, you get tax breaks on your car, you can reclaim travel expenses against the company, you can even claim £150 a head for a Christmas party. Its all there for grabs.

Come on now, nobody, not even you, takes home only £10k out of every £100k. "Poorsod" in the council house does not have that freedom of "creative accounting" ;)

<snip>
1. "we all spend even more resources avoiding the taxes that exist": No, we don't. Our basic instincts are to protect what's ours. I know this sounds like a strange concept but money you earn is really yours. Tax used to be under 10% a long time ago. Then we started getting richer and western governments decided the same slice of a larger cake wasn't enough; that they could extract a larger slice of the larger cake. <snip>

2. "You can put money into a Self Administered Pension fund up to the limit of the 40% mark": Wow. I'm grateful that I have this chance of compensating for poor savings rates in the UK, tying my money up for many years and getting a tax concession for it. No, deferring consumption (almost indefinitely) is a big sacrifice to make for being able to retain your own money. I don't do it. I have "alternate" pension plans.

3. "write expense of accountant off against tax": I wouldn't need an accountant if the tax laws weren't so complicated. You don't write off the cost of the accountant. You add it to the other indirect taxes.

You have omitted mention of personal allowances, married person's allowances (oh, that's gone now), MIRAS tax relief (oh, that's gone now too), and stationery I nick from my business. But, you've also forgotten CGT I pay when I dispose of business assets, stamp duty on purchase of property (including shares), Livingstone's London road tax surcharge to drive into London, and lots more. It's not just income tax, NI and VAT. The point really is that we are already squeezed hard; squeezing any more will only reduce Britain's per capita as innovation, risk, and enterprise move abroad.

[edited by: stuntdubl at 3:37 pm (utc) on April 20, 2005]
[edit reason] no politics please [/edit]

Oh, I forgot. I get to really keep only 10% (less than 10% actually - if you look at the big picture) of money I work hard for. If I use it for my mortgage and other expenses, and then die, my kids will pay inheritance tax on what's left.

you can reclaim travel expenses against the company, you can even claim £150 a head for a Christmas party. Its all there for grabs.

<sigh> That is hilarious. You have really fallen hook, line and sinker for all the spin. Quit kidding yourself. You claim travel expenses only if they are genuine. It comes off of the Profit and Loss account and is a genuine business expense - like salaries and rent - why do you see it as some sop/concession? You aren't suggesting that fraudulent travel claims are allowed under the law, are you?

you can even claim £150 a head for a Christmas party

If you spend £150 per staff member for the Christmas party then it's spent and it doesn't benefit you. If you don't spend it and claim it as an expense it is called fraud. I will not resort to fraud to keep what I've worked hard for. Again, I fail to see how this is a way of saving taxes (though, I admit, it's marketed as such).

Really, think for yourself guys. Step back a bit. Ignore what accountants tell you - they're too "conditioned" - step back and look at the big picture. You're paying tax in many, many more ways than you realise. You're paying tons, tons, tons more than you think you are paying. It's not just what comes out of your paycheque. I'm happily married but if you're divorced and the Child Support Agency collects maintenance for your kids a large chunk is skimmed off to run the CSA - that's tax. Most of your mobile phone bill (after VAT) is tax - it's pay for those expensive 3G licences the phone companies bought from the government. It's the road tolls, parking at your local town centre to visit the council offices, congestion charge to drive into London. It's the prescription charge, the TV licence, and most of your petrol bill. It's the planning application, the stamp duty, the school repair fund. It's built into your home and car insurance and into your holiday flight tickets. It's all around you and most of the time you don't realise you're paying tax.

All of Europe (and, possibly, America) really does need to wake up to the biggest swindle of them all: TAX. The goose will keep getting plucked till the hisses are loud enough. (Anyone remember the old adage?). It's a shame that most people fall for the spin and don't realise quite how much they are really paying to a bunch of people who are largely inept, incompetent and usually dishonest.

What on earth are you guys all talking about?

This is: Professional Webmaster Business Issues

not "the relative merits of taxation in anglo-american society".

For those of us who earn close to or over six figures, (or can see themselves reaching it at some point), I started this thread to ask whether those people thought it fairer to pay a little more on the basis of their sizeable income or else keep paying the council tax which is determined by house size and residential area.

ie. would you prefer the tax based on where you live that you're currently paying to be exchanged for a tax determined by how much you pay yourself out of your business?

Well, as Jack_Hughes pointed out, there are two different taxes discussed in the first post:

1 - A local income tax (of around 3.5%) to replace the existing council tax
2 - An additional tax band of 50% for earnings over £100,000

I think the local income tax is easier to justify - it conforms to the principal that taxation is based on ability to pay. Council tax is based on market forces and house prices, not income.

I'm also in favour of the 50% tax rate, although I appreciate it's fairly controversial. Assuming that the purpose of the tax is realistic (scrapping student tuition fees, free personal care for the elderly), I reckon it's worthwhile.

not "the relative merits of taxation in anglo-american society".

No, it's about: Do you want more tax?

Assuming that the purpose of the tax is realistic (scrapping student tuition fees, free personal care for the elderly)

Irrespective of the claimed purpose it will go into a general tax pool and be largely wasted. All the road tax isn't spent on roads.

I started this thread to ask whether those people thought it fairer to pay a little more on the basis of their sizeable income or else keep paying the council tax which is determined by house size and residential area.

Neither. Politicians are very good at giving people only two choices to bamboozle them into choosing one or the other. :) Don't fall into that trap. It's an age old marketing trick - don't ask someone what they'd like to buy; ask them, "do you want to buy 50 or 100?" i.e. narrow the choice down for them, don't let them think.

Though this thread has been heavily moderated one bit seems to have slipped through - the political party's name in the title. And the clever presentation of that party's proposals for discussion here.

Irrespective of the claimed purpose it will go into a general tax pool and be largely wasted.

Well, that's a wider political argument - beyond the scope of the original discussion, and definitely arguable either way.

All the road tax isn't spent on roads.

But no major party is claiming that "Road Tax" is solely for spending on the transport infrastructure.

Politicians are very good at giving people only two choices... [politicians] don't let [people] think.

Local government services need to be funded one way or another. At the moment it's a mixture of council tax and funding from central government. Under these proposals a local income tax will replace council tax. There aren't any other choices from the three major parties because there *are* no other realistic choices at the moment.

Though this thread has been heavily moderated one bit seems to have slipped through..

Yeah, I'm not sure this thread really belongs in Professional Webmaster Business Issues - it seems more suited to Foo to me...

Local government services need to be funded one way or another. At the moment it's a mixture of council tax and funding from central government.

I agree. However, the overall tax we pay should be enough to cover all local services. As you point out there are two components -
1. tax collected directly from people who live in the area (already fairly "equitable" in that people with more expensive houses pay more) and
2. A cut of the total taxes collected by the central government.

Why the automatic assumption that if local authorities need more money it's got to come from (1) and not (2)?

Personally, I believe that Local Authorities waste far, far too much anyway and that they don't need more money - they just need to cut all those millions of non-jobs like "Social Inclusivity Coordinator" and "Grief Counselling Trainer".

Quote from Politics Against Markets 1985:
As the incidence of taxation grows…the tax system automatically loses its potential for progressive redistribution. Under conditions of heavy expenditure, the bulk of taxes must be collected among the largest income brackets, and that happens to be workers and middle-level white collar employees.

Other quotes (2004):
1.8 million people earning over £50,000 will pay £55.6bn in income tax this year. That’s 43.7 per cent of all income tax. But it’s only 12.2 per cent of the £454.7bn the government will raise this year (officially) ...This means that even if the government could double income tax receipts from people earning £50,000 or more – which might not be possible - the rest of the population would still have to pay three-quarters of the money raised by government."

The premise of the original post that it's equitable to tax rich people more is itself not backed by either economics or facts.

low income households will actually be slightly better off

The figures suggest that they won't.

I'm trying to keep the discussion on the general area of taxation rather than on a particular political party's manifesto.

[edited by: oddsod at 9:55 am (utc) on April 21, 2005]

The main problem with property based taxes is where a disconnect appears between local property prices & local earnings.

The classical expample of this is, at the moment, the south west where an influx of down shifting Londoners & pensioners have forced property prices sky high. And yet, local wages have not kept up. Therefore, the south westers will be rebranded as living in really expensive property but will not necessarily have a wage to match.

All told hardly a satisfactory solution. The libs local income tax I think is a welcome proposal that would be more 'fair'. It will never happen though because it would cause too many losers. Multi-income homes would scream blue murder.

Jack, the bigger the government and the larger the range and the complexity of taxes the more such quirks you'll find... and the larger the percentage of tax spent on collecting, managing, administering and enforcing.

Really smart nations, like Poland, are working on simplifying their tax systems with a flat rate low level tax. It's a shame no party in the UK has the vision to make any radical change to the tax system here. I'm not talking 35 billion. I'm talking in the range of £100 billion plus. For starters.

got to agree oddsod. Believe it or not, it costs between 10-20% (the figure is from the economist, I'm not making it up) of the gross tax take to administer the tax system.

The entire tax system is a joke. No politician has the b*lls to tackle it.

I am very much in favour of council tax becoming a local income tax rather than the current tax on property values. I too live in Cornwall, retired, and my house is my main asset - and security for when I get really, really, old, and need to avoid being carted off to a retirement home to spend my days dribbling in front of a television. Like most pensioners I make few demands on local services, but my council tax bill is the same as family of four.

What the UK needs is a real reforming Chancellor who would eliminate all the red tape, the enormous number of claim forms, exceptions, etc. In fact to simplify the tax system and make it transparent. But no politician is ever going to do that, are they?

I am very much in favour of council tax becoming a local income tax

Be careful what you wish for. You'd pay less initially, they'd pay more and, in time, your extra disposable income would be targeted in another way (e.g. removal of the current discounts for single occupants/surcharge for larger houses not "fully" occupied). Overall result: They pay more and you pay at least how much you pay now. People just need to keep pressing for council tax to be abolished altogether.

no party in the UK has the vision

No politician has the b*lls

no politician is ever going to do that

As non-politicians (?) we have the liberty of not being shackled by party whips, not having to parrot official party soundbites, not worrying about getting re-elected. What radical ideas does anyone here have? "Blue sky thinking" - anything goes. From moving government out of high cost London to having an elected body of accountants to vet government books and sack MPs.

Here's an interesting meter, it's a real time measure of how fast the government is spending your money [taxpayersalliance.com] :)
I think it's IE only, doesn't seem to work in Firefox :(

What, no mention of the tax on beer?:)

Don't get me started on the lifestyle penalties like taxes on beer and cigarettes! :)