There has been much wailing about the proposed 50% income tax rate, and I fully agree that we should not be increasing tax rates on production and incomes - the MW manifesto is to roll VAT, National Insurance, Income Tax and corporation tax into a single flat rate tax, the lower the rate the better, of course, but the 'flatness' is just as important as the lowness.
But let's not forget that the 50% rate will only affect the top one or two per cent of earners. The fact that the bottom TWENTY per cent of earners face effective tax rates of at least 70% (i.e. 31% basic rate income tax/Employer's NIC and 39% Tax Credits withdrawal) is seldom mentioned.
I'm guessing that subjecting five or six million people to a tax rate of 70% is a much bigger drag on the economy (or indeed impediment to social mobility) than subjecting a couple of hundred thousand high earners to a tax rate of 50%, which is why the MW manifesto is to reduce the withdrawal rate of benefits to the same rate as the flat tax rate that applies to everybody else.
Just sayin', is all.
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4 comments:
Oh agreed. Agreed. The fact of the banding creep and the benefits withdrawal rate are a complete indictment of Browns epic failure. Quite why anyone earning about £15,000 or less a year has to pay income tax at all escapes me.
So your plan will
a) leave poorer people better off
and
b) stop annoying top earners in to leaving the country.
and
c) help the economy keep moving.
They'll never vote for that.
In general I rarely disagree with what you post, however there's a big chunk of income exempted for most people working. So the bottom 20% marginal tax rate is unlikely to be 70 percent. According to ONS the bottom 20% of households earn less than the single person's allowance. Indeed according to the ONS the bottom 60 % of households benefit even after taxation such that their net household income is higher than their original income. Please see
http://www.statistics.gov.uk/cci/article.asp?id=2022
for informed statistics.
Anon, let's agree for sake of argument that the benefits that the bottom 60% receive are more than the income tax they pay.
That is not the point! The point is that the additional post-tax, post-benefits withdrawal income of millions of households with some earned income is barely higher than the benefit-only income of households with no earned income.
If you look at the DWP's Tax Benefit Model Tables, you'll see that a household with (say) £200 per week earned income is only (say) £60 better off that a household with no earned income whatsoever.
That's what I refer to as an effective tax rate of 70%. I'm not against welfare payments as such, I am against savage benefits withdrawal rates for low or average earners.
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