There is much kerfuffle in the media about the fact that the top 1% of taxpayers are now paying maybe 29.6% of all income tax in the UK.
That's not 29.6% of all tax, I stress: income tax is less than 25% of all tax. So let's not let anyone say they pay 29.6% of all tax: they don't.
But then look at this table from the same HMRC statistics report that the 29.6% data comes from. It shows the share that the top 1% and others make of all taxable personal income:
In twenty years highest income earners are pulling, very persistently, away from the rest. Is it surprising that they pay a bigger tax share as a result, as this table shows?:
The real questions to ask are:
- Why do they earn so much?
- Are they worth it?
- Why is their share increasing?
- What is the cost of it doing so?
- Why are they given such enormous tax privileges despite this by enjoying low corporation tax rates, low savings tax rates, massive tax deductions, low capital gains tax rates and other exemptions in things like VAT that only they can really enjoy despite this?
And maybe, why have those on what are called middle-class incomes done so poorly in comparison?
Plus, remember that the data is manipulated: millions who do not pay tax are not in it at all. For them the situation is much worse.
Why do these people pay so much? Because they can, is the answer. Do they pay enough? Almost certainly not is the answer. We have a tax system still horribly skewed to the well off: it's just that selective reading the income tax statistics that let them claim otherwise. But that selective reading does not reveal the whole truth.
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Looking at the problem like this doesn’t really get us anywhere though does it ?
This is deckchairs on the Titanic stuff because shuffling tax rates about to make them look ‘fairer’ doesn’t address the underlying question of what taxation is for.
In eighteen-hundred-and-something Louis D Brandeis observed “We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can’t have both.” He was talking of the US at the time, but it applies everywhere.
The familiar hockey stick income and wealth distribution graph tells us very clearly what we have. A society where great wealth is concentrated in the hands of the few, whom somebody from the Blair government famously said they were very relaxed about. By implication they were presumably very relaxed about democracy too. And we’ve seen already the evidence of big money interests ‘buying’ election results in their favour.
Since tax doesn’t (as we well know, now) raise money for government spending we need a proper debate in the right circles about what it is we expect and need from our tax system in order to shape the society we live in.
The reason the people at the top of the hockey stick graph need to be taxed at 100% of income (and have their accumulated wealth curtailed) has bugger-all to do with government spending and everything to do with what manner of society we wish to live in.
What that society might look like is the discussion we aren’t really having. Politicians and public alike have been hoodwinked into believing we can only have the society we can afford. That is abject nonsense. We have politicians behaving as middle management administrators for an increasingly wealthy elite and pretending they are making ‘hard choices’ and earning their over-inflated salaries. (with generous expenses and perks).
We must somehow change the parameters of the discussion.
Point accepted
Andy wrote: “…we need a proper debate in the right circles about what it is we expect and need from our tax system in order to shape the society we live in.”
Absolutely spot on, but to try to rewrite the massive, rambling, byzantine tax code of the UK while it still has to remain active (and therefore still evolving) will be a huge complex task. This was the unsung potential (and, sadly, unachieved) bonus of the 2014 Scottish Indyref: it was a one-off opportunity to develop a principles-based tax system from scratch and, once these principles were agreed, to enshrine them in a “Scottish Tax Constitution” to ensure some measure of protection against future ideology-driven attempts to alter these principles. The new system could then be built upon these principles and designed to avoid the proliferating complexity which characterises the current UK system.
In Scotland this could be achieved during the post-independence Transition Period while the UK system continued to be the vehicle for assessing and collecting tax, so that the new system could be activated on Independence Day. However, to attempt to introduce new principles-based elements into the current UK system would be likely to produce unintended consequences, given the rambling and ever-changing nature of the UK system.
It’s a task I would love to see done in the transition to a Scottish state
Dammit, it’s a task I’d like to do…..
Richard, it would be great to contrast the figure with one that takes all taxes into account. Some, like inheritance tax will be far more skewed to the top, many, like VAT are much more regressive, but how do they stack up in total? Is that data available?
There is some data
I’ll try to search it out – but unlikely before the weekend
The only number that counts is tax paid as a percentage of your total income (including capital gains) . As there is tax relief on savings the bottom line is always that people who spend the largest fraction of their income pay the most tax and people that save (and acquire capital gains) pay the least. As the 1% save the most and have the most capital they pay the least tax as a percentage of their total income.
We can start to fix the problem by making income tax more progressive as it used to be, and or taxing wealth plus we should decouple wealth from political influence, i.e. tax political donations.
Spot on Charles
Charles – your claims don’t stand up to basic scrutiny, not least because the poorest don’t have any direct income and receive benefits which is effectively negative tax.
They are just paying taxes out of someone else’s money.
Of course it’s right that these people should receive this money but it makes a nonsense of the comparison you are trying to make.
This is the last comment from you I post – since this is a police for intelligent debate
A) You need to appraise yourself of who is poor in this country and their relationship with work
B) Government funds are never – not even remotely – someone else’s money. That’s as absurd as a suggestion that after you paid a retailer they might spend your money. It also reveals a completely lack of understanding of how government spending is paid for.
When you have acquired a modicum of economy literacy try again. I think that night take some time.
When I pay taxes however far up or down the income scale it is always someone else who has created the money and those things I am able to buy. The money I spend has been created by the government. The goods and services have been created by the endeavours and imagination of people, rich or poor, providing them.
Money is a medium of exchange to enable each of us to provide for ourselves and others.
We cannot and should not live in a society that denies the basics of life to people even when they make real efforts, blame them for their predicament and denies them no opportunity to escape.
It is so easy to blame and say they deserve their poverty but, quite obviously in a society which gives too much to some others whilst others have so little than a DECENT government should ameliorate those inequities
24% of revenue comes from income tax, but 19% comes from the far less progressive NI contributions and 14% from VAT.
Working people do not differentiate between income tax and NI, just seeing the total deduction from wages. They are right to do so because although NI implies insurance, it is just another tax and is collected as such.
I cannot find information on NI distribution by percentile but I am guessing that when the two sets of deductions are combined, the ultra rich percentage of ‘total tax on income’ falls below 20%.
Are there accurate numbers on this?
NI has always seemed to me to be a way of hiding the real level of tax on poorer people and hiding the low tax burden on the wealthy. It is regressive and unfair.
I am an example of the unfairness, being retired and paying no NI, despite many with lower incomes than me having to pay.
Regarding banning Steve Moffet. It was a perfectly reasonable point. He also stated that net recipients obviously need assistance. You banning him in such an extreme manner completely discredits you – I know it’s your blog, your rules but it just comes over as childish when he hasn’t said anything remotely offensive.
Oh come on….he was a far right troll writing nonsense on deficits, borrowing, poverty (which he clearly does not know or recognise to be an ‘in work’ issue), and I strongly suspect from your tone that you are exactly the same
And for very good reason I am really not in the slightest bit interested in engaging with the idiots who undertake such trolling
This is why ‘Tax Funds Spending’ is so…..so dangerous.
It says that we must all be thankful to the 1% for paying for 30% of our public service.
No – this is wrong.
Instead, people should realise that the money the government invests into public services, floods straight up to the top 1%. And, its much more than the 30% tax they pay, and return to the government – because this doesn’t take into account the chunk of money they are able to save after they’ve paid their tax.
Agreed Tony