You can now download the original Excel file from the DWP website and muck about to your heart's content.
Here's my effort for today, which shows the overall total tax/benefit withdrawal rate for three basic household types (assuming one earner working more than 30 hours a week). I worked out the rate by dividing [net income before housing costs if in work minus net income before housing costs if unemployed] by [gross earnings] and deducting the answer from 1. As it happens, it makes no difference whether you compare both figures before or after housing costs; the £ change is the same (click to enlarge):
To give a worked example of what this means: a couple with 2 children where one parent earns £800 (i.e. in the second-to-top decile of earners) have an overall tax/benefit withdrawal rate of 81%, i.e. they are better off by [19% x £800]=£152 per week than a couple with 2 children where both parents are unemployed.
So that's an overall effective tax bill of 81% x £800 x 52 weeks = £33,696. It gets worse of course:
The worker's employer also has to pay £4,593 Employer's National Insurance, giving us an overall tax bill of £38,289 against [gross earnings + Employer's NIC] of £46,193, giving us an overall tax rate of 83%
And if the employer's business is VAT-able, the employer has to charge and pay at least another £8,084 VAT on top of [gross earnings + Employer's NIC] just to break even on that employee, giving us a total tax bill of £46,372, against [gross earnings + Employer's NIC + VAT] of £54,276, giving us an overall tax rate of 85%.
Really, bearing in mind these tax rates and the massive burden of red tape, EU regulations etc, it amazes me that anything ever happens in this country.
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There are various other conclusions we can draw from this.
I'll do a few more tomorrow, but the obvious point is that we'd expect a family where the main earner is on £41,600 a year to be living in a semi-detached house costing approx. £367,000 (using my patented formula House price = [average earnings for area - £6,750] x 10.53 from an earlier post).
If we scrapped benefit withdrawal (i.e. had a Citizen's Income system) and replaced all taxes with a Land Value Tax of approx. 8% of the total value of land and buildings, this family's LVT bill would be approx. £30,000, which is a darn' sight less than any of the total tax figures mentioned above. For a double-earner family, the tax saving would be even bigger.
This is Why
1 hour ago
10 comments:
2 things occur to me on the LVT/CI proposal:
1) How would it be collected? At the moment most people never see the tax they pay. Its either removed at source as PAYE, or its hidden in the price of goods they buy as VAT & duties. If everyone got all their income free of tax, and goods cost less because of no indirect taxes, can you really see the average person, or more importantly, the lower half of people, managing to save enough from their new higher income to pay the LVT bill when it arrives? I can't. I see people dashing out to buy all the stuff they couldn't afford before, because they have the money in hand, and its all cheaper than previously. What would happen when the LVT bill came and they had no money to pay it? Can you really see a govt (made up of 'vote for me' politicians) evicting tens of thousands (if not hundreds of thousands) of people from their houses and selling them to get their LVT? Let alone the fact there probably wouldn't be enough equity in many peoples houses to pay it anyway. As far as I can see, given the hand to mouth existence of large sections of society, the arrival of bills totalling thousands of pounds would result in with people having debts they could never escape.
2) The CI idea is good. So good I wonder what the catch is. And I think the catch is this - CI is redistributive from the poorest to the richest. At the moment those at the bottom of the pile get a lot more than £3500 each (I think that's the figure you've mentioned). Under the CI idea thats all they'd get, period. Now you could think thats a good thing, in theory I agree. But the practicalities of removing large amounts of cash income from the people least able to deal with life as it is are catastrophic. You would literally have people with children begging on the streets I suspect. It all depends how hardline you (and any govt trying to implement such a system) wanted to be. Given the difficulties of the current administration to merely 'cut' spending in real terms over 5 years, the chances of pushing through such a reform is zero IMO.
Sobers, if in doubt apply common sense:
1) So how do (most) people manage to keep up with monthly rent or mortgage payments?
"Can you really see a govt (made up of 'vote for me' politicians) evicting tens of thousands (if not hundreds of thousands) of people from their houses and selling them to get their LVT?"
How do (most) self-employed manage to budget for the six monthly self-assessment tax bills? I trust you are aware that if Mr Self-Employed doesn't pay, the tax man can take a charge over his house and sell it?
Further, in a sensible world, LVT would be payable monthly or even weekly by Direct Debit from the same bank account into which the Citizen's Income is paid, so you only have to pay the excess of LVT > CI. So for the "lower half of people" the CI would be more than or equal to the LVT, and for the middle third, the net bill LVT - CI would only be a few hundred quid a month.
Or, being pragmatic, LVT could be collected via the PAYE system - if this family's LVT bill minus CI is £19,000 a year, that's £1,583 a month, so the working parent gets a tax code telling his employer to deduct £1,583 from a much larger monthly salary (in the medium term, wages would increase by the amount of the NIC and VAT cuts), the working parent trousers what's left and that is the end of the matter.
Or LVT could be treated as a preferred secured creditor, so the bank will make sure you pay it by adding it to your mortgage payments and paying it over themselves.
Sure, they'd be a few Home-Owner-Ists who'd try it on in the transitional period, but they'd be chucked out pronto presto pour encourager les autres and that would be the end of that.
And so on.
2) "I think the catch is this - CI is redistributive from the poorest to the richest."
Not really (that all depends on the £ amount and what taxes we raise to pay it). if we had a CI (even in absence of LVT) then there would quite simply be fewer 'poor people'. And there are plenty of tax breaks for the wealthy (primarily pensions tax relief) which could be scrapped as a quid pro quo.
The real reason we don't have it is because civil servants need to keep themselves in work, so they perpetrate the myth that a CI for all would be unaffordable. And of course, right wing authoritarians don't want to give people 'money for nothing' and left wing authoritarians don't want to give rich people money.
IF LVT replaces ALL taxes, there would be no income tax from which to relieve pens contribs.
All I know is that if I spend 45% of my salary after deductions on rent.
If I lost my job the government would pay this and leave me with the £70 a month change, and give me £60 a week JSA.
So really I work for £370 a month, or about £2.30 per hour. Does make you wonder why you bother when you look at it like that.
I see I've been meme'd - will get onto it tomorrow, have some drinking to do!
S, or we can just look at real life:
Business have to pay corp tax, PAYE and VAT. The total amount actually received by HMRC is between 80% and 90% of the expected amount because of fraud, evasion, bankruptcy etc.
They also have to pay Business Rates. The total amount actually received by local councils is about 98% of the amount demanded because they just pay it every month as a matter of course.
In the light of experience, "Can you really see a govt (made up of 'vote for me' politicians) evicting tens of thousands (if not hundreds of thousands) of businesses from their premises and selling them to get their Business Rates?" or do you think that businesses just pay up anyway?
L, correct. No disrespect to financial advisors, but tax relief for pension contributions is just rent seeking by insurance companies, so that'll go out of the window. Even in the absence of tax breaks for saving, LVT will encourage people to tuck money away in the good times just in case they hit bad times and need to pay LVT out of their savings; two birds, one stone.
SL, "I work for £370 a month, or about £2.30 per hour. Does make you wonder why you bother..."
That's what terrifies me, what if everybody did the economically rational thing and went on the dole?
SL, OK, that's a couple of million people in the South East with jobs as smugglers. What are the other thirty million people in the UK who are currently in work going to do to earn money cash in hand, and where will the government get the money from to pay the welfare?
MW - You disrespect my peer group all you like. A lot are completely ignorant of economics in any form and a lot more are also just rent seekers. And they trade on selling pensions for the 'tax relief benefit' - which I long ago decided was mostly bollocks. The best exmaple of the rent seeking by insurers and banks is the interest rate on cash ISA's. You can make a ready comparison between say a one year fixed rate bond and an ISA and just see them stealing your tax 'your' tax relief.
Mind you I'm also a rent seeker. I charge service fees that are usually paid out client's capital. But I do try very hard to deliver a real service for that money and I do do it for less than the TER on a the average retail priced UK Equity Fund.
I am out tonight with a group of lefty-ish friends. Hopefully I can get up all their noses with stuff like you've just posted. I am really looking forward to a good argument! They might not even invite me round again, which won't worry me - but Mrs L will give me Hell afterwards.
L, wishing you a pleasant evening, hope you and Mrs L don't come to blows!
S, OK, I have now appointed you Tax Collector General for Swindon (in future years, the post will be by local election, but hey).
Here's how it will work:
i. From the Generalised Land Use Database, there are 41 million sq yards of developed land in Swindon.
ii. You are tasked with collected average £24/sq yard and handing over 80% to the central government. Whether you collect the other 20% and give it to the local council to spend or use it up for discounts for your favoured groups (pensioners, people with big gardens etc) is up to you.
iii. So central govt expects you to hand over £787 million every year. In return, central govt pays each of your residents their CI (155,000 people, call it about £700 million in total) (plus health and education vouchers) and pay the council £500 per resident for general council-type stuff (coppers, dustbin men etc) = £78 million.
NB - Swindon is a low house price/high wage area, so in this town, LVT and CI really would net off to nil overall, it would be mainly London & South east who are net tax payers - exactly like under current tax system.
iv. If you are a big Home-Owner-Ist softie, who is desperate to be re-elected, and you only bother collecting £500 million, then I first dock your £78 million block grant (so no coppers, no dustbin men) and then reduce the CI entitlement of everybody registered in Swindon by (say) £25 per week.
v. If that is what people in Swindon are happy with, then so be it, i.e. if very low income people in small flats or houses are prepared to go without coppers, dustbin men and give up some of their CI so that you can go easy on your Home-Owner-Ist mates and you get re-elected anyway, well, what's the problem?
vi. Relative to other towns, Swindon will then rapidly become a ghost town, people and businesses will move away and so on, but what do the Home-Owner-Ists care?
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