Tax Freedom Day for some
The Adam Smith Institute copies a US right wing think tank in publishing a ‘tax freedom day’ for the UK. They claim it is on 2nd June.
But that’s a very selective view of ‘tax freedom day’. That happens to be the day when, they say, a taxpayer on average income, including indirect taxes, local taxes and National Insurance contributions, has paid all their taxes for the year, their remaining earnings being theirs to spend as they then will.
But there’s a major problem in that calculation. Not everyone pays tax at the rate a person on average earnings pays. Far from it in fact.
One third of the UK’s largest companies do not pay tax. For them tax freedom day arrived on the stroke of midnight, this morning.
There are millions of offshore companies in the world, many of them used to fraudulently evade tax. They pay no tax on their profits. For them tax freedom day also arrived on the stroke of midnight, this morning.
In 2006 Grant Thornton calculated that the 54 billionaires in the UK paid tax at an average rate of 0.14%. For them tax freedom day arrives at about 12.15pm today.
The message is clear: tax freedom day for some arrives on the first day of the year. For the poorest in our society it arrives last. They have the highest tax burden of all - at almost 50% of their income. Their tax freedom day is at the end of June.
So let’s stop the nonsense of discussing tax freedom day, and let’s ask the real question, given that the wealthiest are now, without doubt, the greatest beneficiary of government largesse as the economic bail out proceeds. Let’s ask instead about the justice in the way tax liabilities are distributed, and make sure that 2009 is the year that progressive taxation is put firmly back on the agenda. Nothing else s acceptable in the current economic climate.
“For the poorest in our society it arrives last. They have the highest tax burden of all - at almost 50% of their income. Their tax freedom day is at the end of June.”
Which is why, of course, that very same Adam Smith Institute argues that the personal allowance should be raised to £12,000 so as to take said poor out of the income tax net altogether.
You write for the Guardian, start there. They use trusts and sophisticated tax avoidance strategies unavailable to ordinary taxpayers. They had an effective tax rate of 4.99% last year, so their tax freedom day comes in mid-January. Shame on them!
Guido
http://www.taxresearch.org.uk/Blog/2008/07/30/the-guardians-accounts/
Richard
Tim
http://www.taxresearch.org.uk/Blog/2006/06/12/what-is-flat-tax-all-about/
Richard
Richard
Without diverting the discussion into that of ‘flat tax’, I think you should acknowledge that Tim, and others, including the Adam Smith Institute, propose that the poor be taken out of income tax altogether by raising the personal allowance (to £12,000 currently; higher if possible).
Lasting change in nortmal times should be in steps, not in great leaps, in Adam Smith’s view (including on tariff reductions).
What have you got against that reasonable, and overdue proposal?
Gavin
I read it
It’s a dishonest attempt to cut the size of the state that makes no attempt at all to say how the cut would impact and which would provide no fiscal stimulus at all
Given its incoherence I’m not surprised it has been ignored
I’m not wasting time debating it because it is not a serious proposal: it is poor politics at best
Richard
No fiscal stimulus? Christina Romer indicates that the multiplier for tax cuts is 3. Ms. Romer, you might note, is not some “neo-liberal”, she’s just been appointed Chair of Obama’s Council of Economic Advisors.
The cost of raising the personal allowance by £1,000 is some £6 billion. The cost of raising the personal allowance to £12,000 would thus be around £36 billion, providing extra GDP of some £118 billion, or somewhere in the 6-8 % of GDP range.
That is, of course, assuming that the UK economy is roughly like the US. But £30 billion or so is the size of the fiscal boost that people are saying the UK needs, no?