Promises promises

[teamsaint]

intereresting article here about the effects of increasing allowances.

http://leftfootforward.org/2013/03/the-10000-personal-tax-allowance-anything-but-progressive/

the chart in the article suggests what I think we can agree on , that the biggest benefit of raising thresholds goes to middle to high earners....the fifth to eigth centiles.

and here is an in depth report on the regressive nature of this policy.....pretty convicing stuff.

http://leftfootforward.org/images/2010/03/Think-Again-Nick-FINAL.pdf

BUT:on regressive taxation, despite our fascinating discussion, the real culprit taxes are elswhere, and the opportunities for progressive taxation might be elsewhere too.

http://anotherangryvoice.blogspot.co.uk/2013/08/regressive-tax-explained-what-is.html

Not sure of the provenance of this but looks about right , at a glance.

To my mind National Insurance is a disaster in this regard.


Edit: having worked at the Revenue in pre computer days, I can see why simplified income tax rate bands might be attractive. In our highly computerised age, I can't really see why we couldn't have a system of tax bands that started really low, and gradually increaese, with much simplified allowance and reliefs....in a progressive manner !!

[P. G. Tipps]

That first link was the one Flosshilde provided in #83 and which has now been thoroughly discredited!

[teamsaint]

That first link was the one Flosshilde provided in #83 and which has now been thoroughly discredited!

er, no it hasn't.

Its very simple. If you increase the personal allowance without some major jiggery pokery with tax bands, the effect of raising the allowance is to give people relief at their marginal ( ie highest rate).

This does EXACTLY what those charts suggest, which is to give the biggest benefit to 40% rate payers, and less benefit to the very wealthy, because of the tapering of of the allowance above £120k.
as we know there is zero benefit to the very poor, and benefit at basic rate to basic rate tax payers.

( sorry if I missed the link in Floss's post, been out at work).

[P. G. Tipps]

er, no it hasn't.

Its very simple. If you increase the personal allowance without some major jiggery pokery with tax bands, the effect of raising the allowance is to give people relief at their marginal ( ie highest rate).

This does EXACTLY what those charts suggest, which is to give the biggest benefit to 40% rate payers, and less benefit to the very wealthy, because of the tapering of of the allowance above £120k.
as we no there is zero benefit to the very poor, and benefit at basic rate to basic rate tax payers.

( sorry if I missed the link in Floss's post, been out at work).

The tapering of the allowance starts at £27,000 pa, then again at £100,000, before it is abolished at £120,000!

So if these people (the rich) end up with no allowance at all how can it possibly benefit them?

[teamsaint]

The tapering of the allowance starts at £27,000 pa, then again at £100,000, before it is abolished at £120,000!

So if these people (the rich) end up with no allowance at all how can it possibly benefit them?

The tapering, as AH pointed out, does mean that very wealthiest gain less than middle to high earners.

tapering at £27k to £100k is only for those with age allowance, where it is reduced down to the standard personal allowance.
Section 2 is very clear.

https://www.gov.uk/income-tax-rates/personal-allowances

"£10k .........It will be your allowance unless you were born before 6 April 1948 or your income’s over £100,000"


Edit: The credentials of those who wrote the " Think again Nick " document look pretty solid to me.

[french frank]

By any yardstick an Income Tax Personal Allowance increase can only be described as a progressive and not regressive tax measure as has been suggested by some.

Thank you for the elaboration - whereas I was merely considering it as neutral (rather than regressive) at the bottom end, the entire picture is indeed progressive. Though I presume that tapering would be applied anyway - regardless of what the actual amount of the personal allowance was. Meglio ancora!

[teamsaint]

Thank you for the elaboration - whereas I was merely considering it as neutral (rather than regressive) at the bottom end, the entire picture is indeed progressive. Though I presume that tapering would be applied anyway - regardless of what the actual amount of the personal allowance was. Meglio ancora!

FF, PG Tipps is wrong.

Ignoring those on over 120k, it is regressive for everybody else. ( the calculations on the effect of those on £100k plus would be complicated, not sure how they would ome out).

Those not paying Income tax do not benefit.

Those paying basic rate benefit at basic rate on the increased threshold.
those on higher rate , (up to 100k pa) benefit at 40%.

tapering ONLY affects those on over £ 100k, or , to a very small degree,those on age allowance, where there is a small reduction in benefit down to the level of the standard personal allowance.
there has been no change in the rate bands of any note over the last 2 years.

https://www.gov.uk/income-tax-rates/personal-allowances

for clarity: you benefit at the highest rate at which you pay tax.

[P. G. Tipps]

Ah yes, you are right there regarding the age-related factor ... I assumed everyone here was born before 1948!

I can see how the very wealthiest don't gain (as I've constantly said) but I still don't understand how those in between gain more than those near the bottom who earn £11,000+?

As French Frank says the income tax allowance is actually a fixed lump sum ... maybe a bit like the Winter Fuel allowance for the 'elderly', but which is paid indirectly rather than directly?

[teamsaint]

Ah yes, you are right there regarding the age-related factor ... I assumed everyone here was born before 1948!

I can see how the very wealthiest don't gain (as I've constantly said) but I still don't understand how those in between gain more than those near the bottom who earn £11,000+?

As French Frank says the income tax allowance is actually a fixed lump sum ... maybe a bit like the Winter Fuel allowance for the 'elderly', but which is paid indirectly rather than directly?

no, its not a fixed lump sum, really. Its effect is to raise the level at which you start to pay at particular rates, and critically , at your highest rate.

Increased Allowances ALWAYS give you benefit at the highest rate at which you pay tax, UNLESS there is some other feature added in, such as , in this case, the taper at over £100k , (which in itelf is offset by the reduction in top rate to 45%). there is no such feature added for those earning between 10k and 100k that I am aware of, except for the reduction in the relatively insignificant age allowance.

[teamsaint]

ok, don't want to be pedantic, but to (almost) prove it:

use this calculator.

https://www.gov.uk/income-tax-rates/personal-allowances

put on salaries of £20k and £60k for both 2013/14 and 2014/15

you will see that Mr Basic rate gains from the £560 increas in Personal allowance by £112, wheras Mrs Higher rate benefits by £195.

these figures are only affected by miniscule changes in the rate bands.

Hey, lets talk about how to soak the rich, now that we have this sorted !!!

[teamsaint]

ok, don't want to be pedantic, but to (almost) prove it:

use this calculator.
http://www.listentotaxman.com/index....ulate+Taxes&vw[]=yr&vw[]=mth&vw[]=wk

put on salaries of £20k and £60k for both 2013/14 and 2014/15

you will see that Mr Basic rate gains from the £560 increase in Personal allowance by £112, wheras Mrs Higher rate benefits by £195.

these figures are only affected by miniscule changes in the rate bands.

[P. G. Tipps]

But the allowance is the same whatever rate of tax you pay! I concede your point that lower non age-related taxpayers are no better off in real cash terms than those who earn up to £100k, though obviously they gain in percentage terms.

If we take special factors like age out of the equation:

A person on £30k with a £10k tax allowance on a 20% rate saves £2k
A person on £60k with a £10k tax allowance on a 40% rate above the higher rate threshold still only saves £2k.

So where's this mysterious gain for the latter ..?

[teamsaint]

But the allowance is the same whatever rate of tax you pay! I concede your point that lower non age-related taxpayers are no better off in real cash terms than those who earn up to £100k, though obviously they gain in percentage terms.

If we take special factors like age out of the equation:

A person on £30k with a £10k tax allowance on a 20% rate saves £2k
A person on £60k with a £10k tax allowance on a 40% rate above the higher rate threshold still only saves £2k.

So where's this mysterious gain for the latter ..?

Not sure how you work that out. For a £60 k earner they are £4k better off because of the £10k allowance compared to where they would be with no allowance.

Instead, look at the effect of an extra £1k allowance, assuming that rate bands don't change.

If you earn £30k, your highest rate is 20 %. So you pay tax on £1k less income at 20%, which is £200.

At £60k, you pay tax on £1k less at 40% , which is £400.

UNLESS something else is changed, it really is that simple.

[P. G. Tipps]

Now I didn't know that ...

So you are actually saying that at 40% tax rate the tax allowance is effectively doubled? Surely when the tax allowance kicks in everyone is at the 20% rate?

I'm not lucky enough to be earning £60k so I have no first-hand experience of that being the case.

Certainly, there is nothing to indicate such a thoroughly regressive system on the HMRC website!

[french frank]

Certainly, there is nothing to indicate such a thoroughly regressive system on the HMRC website!

No, I can't see that either. Unless you assume that the £10,000 reduces your total income ... ?