You can download the main rates of tax on earned income at the HMRC website. The official basic rate of income tax has come down from 35% to 20% since 1975, but this is completely misleading, as this was merely offset with corresponding increases in every politician's favourite stealth taxes: VAT (currently 20%), Employer's National Insurance (currently 13.8%) and Employee's National Insurance (currently 12%).
You can't just add the rates together, the overall rate is (thankfully) not 20% + 13.8% + 12% + 20% = 65.8%. The more scientific approach is to ask, if you as a consumer spend £1 on the output of a non-monopoly, non-special-interest business, how much does the government take before an average employee can be paid?*
As we see, the overall effective rate has stayed pretty constant at around 50% since shortly after VAT was first introduced, so the benefits of the basic rate income tax reduction are only felt by certain favoured groups or certain favoured sources of income: 
* For illustration, using this year's rates, for every £1 you spend...
- VAT is not 20% of that, it's one-sixth of that, i.e. 20/120 = 16.7p goes in VAT;
- This leaves 83.3p out of which wages are paid. Employer's NIC is 13.8%, so Employer's NIC is 13.8/113.8 of the 83.3p that's left after VAT = 10.1p goes in Employer's NIC;
- This leaves a maximum of 73.2p to be paid out as wages;
- Employee's NIC is 12% of 73.2p = 8.8p goes in Employee's NIC;
- Basic Rate Income Tax is 20% of 73.2p = 14.6p goes in Basic Rate Income Tax.
Game Over
4 hours ago
8 comments:
Concerning VAT, do you have figures for what percentage of our basic rate taxpayer's expenditure actual goes on buying VATable items i.e. looking at an annual expenditure of £x. the VAT actually paid is what proportion of 20% of £x?
B, see here. As we well know, most monopoly income is VAT-exempt (land, banking etc).
Is there an argument for having a flat income tax at 50% with a smallish personal allowance and get rid of all the pretend-they-are-not-really-income-taxes?
BE, yes of course!
1. It'd be nice and simple and be far less distortionary than having infinite different tax rates on different types of income.
2. It would make people realise quite how high their tax bill really is.
(3. Having realised how high their tax bills really are, it's then a lot easier to explain that going to LVT would be a straight swap).
So three good reasons why politicians would never that happen.
X-(
The tax is higher than that.
The way to work it out is to work out how many hours the average worker would have to work to employ another average worker for an hour.
I think you have to work 3 hours to employ someone for an hour.
Just guess what harm this does to comparative advantage...
AC1
My thought is at least related to AC1's posting above (it may be the same but I'm not economist enough to tell)
Say something is made in this country--so IT+VAT charged as per yr article. Say 6 sub-contracted jobs are part of the manufacture--so IT+VAT on each of them. Then the item is shipped so IT+VAT again and it ends up in a shop who have costs of IT+VAT yet again.
Add the fact that almost every action of every employer depends on phones, computers, etc,etc all of whom are made more expensive by taxes (let alone regulation which is another kettle of fish that costs everybody, even the morons who pass 'em). it seems to me that 50% is far to low a figure of how much of our money the political filth end up with.
QP, indeed.
AC1, Mr Ecks, yes of course. To be fair, the 3-to-1 ratio is also because the employer has to make a profit margin as well, but in the absence of all these [stealth] taxes on income, goods and services would, relative to wages, cost half as much as they do now (by definition).
How much money the government collects and spends is a matter of public record. Now... if only there were a tax that were fair, easy to collect and which didn't create any such wedge..?
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