People who work for a living in the UK pay a lot more tax than those who live off unearned income because there is no national insurance charge on unearned income. Is that right? What do you think?
Is it right that people with significant investment income do not pay a charge equivalent to national insurance and so pay a lot less tax than people who have to work for a living?
- No (73%, 358 Votes)
- Yes - but only in the case of pensioners because pensioners don't pay national insurance (18%, 87 Votes)
- Yes (5%, 26 Votes)
- I don't know (3%, 17 Votes)
Total Voters: 488
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Oh, dear I think I would have to say, it depends on A) the circumstances (not working may, for example mean ‘not able to work’); and B) should depend not on income, but proportionality of post-tax income to expenditures to put a roof over their head, and pay for the minimum requirements of a life – and that includes some form of capacity to participate in society (or they may be lost to it. So my answer is complex; but that is the world we live in, it isn’t 1923 any more. The problem is neoliberal voters, politicians, bankers and economists think nothing material has changed since 1923.
It is complex, hence my reference to pensioners (I would not treat pensions as unearned income). I would also allow a tax free element.
I was also thinking about the disabled, and also those who have spent their lives in difficult or troubled domestic circumstances and have few skills or the capacity or motivation to work; or have fallen under an addiction. We are all paying from failing to address these problems with sufficient basic compassion or decency, or even competent and robust decision making; and everybody pays the heavy cost, one way or another. Our prisons are collapsing under their weight.
The fundamental neoliberal proposition that work (in the sole interest of the neoliberal profit/property interest) is the prime motivation of life, or can be made (forced) to be the prime purpose of life, is simply wrong; and disastrous in its consequences. Work, in the very narrow, modern and often perverse sense of wording in a capitalist, money driven society, as the only important purpose of life worthy of their attention, is actually a quite artificial human construct. Work ‘works’ best for those already motivated to work or achieve for a vast variety of reasons, and mostly for themselves. The threat of poverty or rejection plays a small (positive, rather than equally or more, a negative) part in decision making, save in the romantic mythology of neoliberalism.
Work is not an absolute law of human behaviour; and our real problem is – we are no longer expected to value anything else, or believe that anything is more important that the profit motive; over absolutely everything. We would gain more from most people if we treated people as ends, not means (means to make a profit); especially by their own government. We are not born apprentices of a business. The thought is grotesque.
People should be the prime and only end of government, and that means everyone; everything else should be secondary in the goals of politicians. That means the resources of government should not be based on people requiring to earn the attention of government only through their economic commitment and contribution to profit making institutions; but rather the first duty of Government is to help each person to make the most of their lives and the fulfilment of their abilities. The profit seekers, and as we can see, the crooks, chancers – and abusers – that too often thrive best in our hypocritical, profit-driven society, without anyone in authority drawing the fair conclusion that nobody in power ever seems to care sufficiently energetically about the increasingly open triumph of the worst among us, or care to admit the triumph; instead of pursuing the supposed vast numbers of ‘work-shy’.
In short, I am utterly sick of it all
Pensioners should pay tax. In the USA, Social Security (over age 67) recipients do not pay tax on their Social Security benefit but they do pay tax on the “work” if they have an additional job and on private investment income.
If we continue to exempt people over pension age from NI on earned income then they should be exempt from NI on unearned income.
AND – I really think there is no justification for exempting people over pension age from paying NI on earned income. (this is turkeys voting for Christmas time, but it just seems inequitable not be paying NI on my earned income).
I agree – and I will be in that situation next year. It makes no sense at all.
If the basic principle is that all income should be taxed in the same way, regardless of source (and I think it should be), then treating pensioners differently makes no sense whatsoever.
My financial needs the day before my 66th birthday were identical to those needs on the day after. The fact that my main souce of income stopped being paid employment and became the state pension should make not the slightest difference.
Set tax free allowances at a level which is appropriate (between 15,000 and 20,000, I would suggest) and tax everything above that level at the rate set for that income level.
Rather than make special cases for pensioners and those with income to support them living with disabilities, set the income levels of those people at an appropriate rate.
If special cases are considered necessary, I would suggest that very careful thought should be given as to why, os that a clear and transparent explanation can be given for them.
Your principle is sound
I am being pragmatic
Some things are just not politically possible and so I do not propose them
I agree.
Here in France I pay CSG (Contribution Social Generalisé), which I think is the nearest equivalent to NI in UK, on all my pension, including that from the UK.
I voted ‘yes’ on general principle, but as always there will be exemptions. It partly depends on what is meant by unearned income as I’m not sure what counts. I’m aware of Pensions and state benefits, but that’s all.
I’d say pensions up to a certain amount [20/25K?] should be excluded from tax completely for everyone over state pension age. State benefits are not taxed, but they do count towards taxable income, but should they? If you’re on state benefits are you in a position to earn much else? I wasn’t when I was drawing job seekers and housing benefit. [Benefit fraud is a different matter]
The complexity seems to come down to individual circumstances which no set of rules or laws can take into account.
In regards to NI, have we now reached the point, where it is no longer relevant and should be merged into Income Tax? What changes would need to be made to employers NI if we did?
[Please be kind in your responses. I’m not an economist or accountant and am here to learn while occasionally commenting]
All fair points
Did you read the note I linked to?
I missed that link. I shall have a read.
I am also not an accountant, but can you tell me your reasoning for voting Yes, It is right that people who have unearned income pay less tax than those in work ? (I am not talking about basic pensions or benefits here, but interest on high savings, dividend income etc ?)
[coughs in embarrassment]
I voted ‘no’, not yes. I re-read my comment’s first sentence, put my head in my hands, sighed, then wished the ground would swallow me up whole. I think I was saying ‘yes’ in agreeing with previous comments.
I DO think unearned income should be taxed properly.
[slinks into the corner and hopes to disappear from life]
I admit I worded it so that people had to think about it
For once I did not want to be accused of flagging my chosen answer
There is still a link between NI and pension entitlement. I guess the rationale is that when you reach pension age you are making the transition between paying in and drawing out?
There used to be a distinction between entitlements eg to unemployment benefit if you had paid enough NI by previously being in employment, and discretionary payments ie social security if you were destitute, that was not dependent on your having previously paid NI. I don’t know when that was lost.
It seems to me that the whole system is now a mess, but it does enable wily chancellors to claim they are not raising income tax, while quietly raising NI. Both NI and income tax kick in at around the same (earned) income level, which makes the apparent tax rate much higher.
You can still claim ‘New Style JSA’ which is based on your contribution record, not your household income.
Entitlement to the state pension depends on the number of years in a person’s NI record. Years are added in several ways – either paying contributions (which are levied at 0% of pay for the very low paid) or by credits which are made in a variety of circumstances. Some other non-means tested benefits are also linked to the NI record – principally New Style Jobseekers Allowance (this used to be called Contributory Jobseekers Allowance), which is payable for up to 6 months, and Contribution-based Employment and Support Allowance, which is payable either for up to 12 months or indefinitely depending on circumstances.
Informed as I am by the work of Clara Mattei and Michael Hudson to name but two, there is a bias to those with wealth in the tax system to reward money accumulation on the twisted basis that somewhere the rich are ‘savers’ or ‘good with their money’.
This simplistic outlook ignores where the wealthy’s money comes from (a trait that Steve Keen points out is a major blind spot in Neo-liberal thinking – Neo-liberals think that God money or something like that – it was ‘just there’) – further compounded by theories like ‘trickle down’ – the assumption that this accumulation is used as some sort of ‘social good’ (Ha!) to promote investment and produce and maintain infrastructure and services that society needs.
What I observe is this:
That the money does trickle into goods and services but seems extractive in nature – look at dental charges or even the price of a railway ticket or how takeovers just seem to result in asset stripping and transferring wealth away from others and to themselves.
Secondly, the untaxed unearned income seems to trickle into the political system and the money is used as leverage when funding political parties which is a form lobbying really in plain sight that undermines your vote – which is your only form lobbying it seems we have given that demonstrating is now being made more criminal.
Or even worse, such money ends up supporting something like BREXIT for example. What a fine spectacle that was eh?
Mr Warren sends a just and cautious shot across the bow with regard to those who cannot work etc. In general support, I’d recommend reading Prof Paul Spicker’s work. In ‘How Social security Works’ (2011) in Chapter 7 (pp. 67-77) he gives a very concise critique of how NI works – or rather how it does not.
Essentially Spicker sees the faults in NI as follows (I quote verbatim from pp. 76-77):
‘The central problem has been the assumption that National Insurance has to follow the pattern of private mutual insurance. There is nothing in the concept of NI which says that contributions have to be set with benefits in mind or on an actuarial basis. (Beveridge’s request for funding of 50% from the Exchequer emphasises the point). There is no obvious reason to limit the duration of entitlement . It is not necessary to exclude people on the basis of their individual circumstances; when Beveridge wrote that divorce was not an insurable risk, he had lost sight of the principle of social protection. The choice of low level contributions to provide provide low level benefits has proved fatal to the scheme; it meant that basic protection for retirement, sickness and maternity was inadequate, and that the scheme had to be supplemented by other schemes’.
He also goes on to say that using poverty as a test for social security is a big mistake when related to NI and that although it works to prevent those on low incomes being tipped into poverty, it is too low a bar for everyone else who might need help.
If we are to work within the mental cage that taxes pay for things, increasing taxes on unearned income might be put to better use in the NI system to address these shortcomings and redistribute through a more generous system that does not pauperise you in order to get help. It hardly reinforces faith in the system amongst the population – a better system would get more buy-in.
My final comment is that money seems to be out of control these days of the entity that made it – our Government. It’s time that changed.
Thanks
People save through their working life to fund a lifestyle for when they can no longer work. Throughout their working life NI and tax will be paid to the full. Now they no longer can earn why should they continue to pay NI? It makes no sense.
It’s really weird Joan – but do you know you became Keith six minutes after posting that comment? Is that a miracle, or are you a really a rather stupid troll who does not know I can spot such things?
Troll or not – this is very simplistic.
You save if you can.
When there is inflation it is harder to save.
Richer people will save more because even rich people don’t need more clothes or food than anyone else. Rich people save because they have more income to save from. Not because they are wiser or better people or manage money better.
People whose lower income is consumed for day to day living AND inflation could do without NI or just a really low rate – or, better still higher pension rates.
We live in a rather queer world that lets those who can pay not pay, whilst letting those who can’t suffer. Even those rich in this situation accept that that is a bit silly and they could and are willing to pay more https://www.theguardian.com/society/2023/oct/29/right-to-buy-housing-crisis-home-ownership-britain-property-rowan-moore
Troll or not, I’m afraid you sound like a stuck record. We’ve heard all this before and it does not stack up.
You are right
I just found it tedious
Joan Said “People save through their working life to fund a lifestyle for when they can no longer work. Throughout their working life NI and tax will be paid to the full. Now they no longer can earn why should they continue to pay NI? It makes no sense.”
Who the hell pays Tax/NI on their savings anyway?
Income arising from savings, yes… but savings? What a load of nonsense.
Most people I have talked about the subject regard NI as the way they save up for their state pension. From this point of view it makes no sense to pay NI on any income once one is in receipt of the pension. So I would anticipate a lot or resistance to pensioners being required to pay NI on any of their income earned or unearned.
My own view is that it is better viewed as just another tax. Once the basic pension and any benefits have been taken into account, I can’t see why everyone should not be taxed in the same way on all income.
It is just another tax…..
Since 1948 NI has in essence been a Social Security Tax. However, it’s definitely not “saving up” for the state pension given that pension entitlement has no link to the amount contributed. There was a link to the amount of Additional Pension payable to some people who reached pension age before 6 April 2016 but the Additional Pension was abolished (in the name of “simplification”) for those of us young enough to reach pension age on or after that date.
The rationale for people over pension age not paying NI contributions is that they cannot accrue further entitlement after that point. For example, to receive the full post-2016 pension you have to have 35 years in your NI record (that’s a simplification) but if you haven’t accrued 35 years by the date you reach pension age it’s impossible to add any more years to your NI record by paying NI beyond that date. Neither can you gain entitlement to other benefits based on having made NI contributions as those benefits aren’t payable to anyone over pension age.
So, we let benefit accrue after pension age
Problem solved
“The rationale for people over pension age not paying NI contributions is that they cannot accrue further entitlement after that point.”
Except, that doesn’t work. I reached maximum contribution levels at least 6 years before I retired, but still had to pay NI for those 6 years. I accept that entitled me to claim a small number of contribution related benefits.
Me too…
Several posts suggesting different regimes for pensioners/disabled/benefits claimants etc.. but I think the correct answer is a single regime for all.
Now, political considerations might suggest a different tactical approach but the end point surely should be –
1) Same tax rate for income wherever it comes from – wages, interest, dividends. pensions and benefits AND capital gains
2) Abolition of NI with it “rolled into” Income tax rates (transitioned by 1% per annum to allow people to adjust)
2) 0% rate tax band up to a level at least equal to the Living Wage.
(Possibly with extra allowances for very old age, disabilities etc.)
3) State Pension and other benefits linked to the Living Wage.
Think I voted yes when I meant no. My bad…read the question properly before replying, she berates herself.
It is not right that unearned income is taxed differently.
Income is income.
Tax thresholds should be altered upwards so as to allow everyone a small but reasonable living before being taxed…then we should pay tax gladly. We should be encouraged to take pride in the useful things our governments choose to spend on to support our whole society. Having enough wealth to pay tax should be a source of pride. Instead we are taught that taxes are something to be avoided at all cost.
I understand your remarks about pensioners…we are a tough bunch it seems.
There are swings and roundabouts. I am fortunate that the state has paid me for the last 16 years since retiring, but some of my friends and relatives who died soon after retiring have lost out.
When it comes to Income Tax surely all sources of income earned, investment, and pensions, should be added together and tax paid on the resulting total, subject to a universal tax allowance.