Promises promises

[french frank]

I agree about tinkering, though, and the job is essentially done on the personal tax allowance.

But since D Cameron is now running with the ball ...

Finally. In tax matters: a tax may be regressive, a tax allowance is not a tax. It doesn't hit the lowest earners hardest, either as a proportion of income, or in cash. In certain income bands it could be considered progressive in that decreases the proportion of tax payable to its lowest possible level - 0%. No benefit to the better off will equal that tax rate, much less be lower. Other definitions may possible, but would be idiosyncratic.

[teamsaint]

But since D Cameron is now running with the ball ...

Finally. In tax matters: a tax may be regressive, a tax allowance is not a tax. It doesn't hit the lowest earners hardest, either as a proportion of income, or in cash. In certain income bands it could be considered progressive in that decreases the proportion of tax payable to its lowest possible level - 0%. No benefit to the better off will equal that tax rate, much less be lower. Other definitions may possible, but would be idiosyncratic.

...but changing the tax allowance affects tax paid, (or not), so even if it is not a regressive change by your definition, the benefits of the change are regressive in terms of tax paid.
The effect of a massive investment in reducing the allowance (estimated at £1.4 bn for a £500 per person rise) has zero beneficial effect on the very poorest. That looks very much like a regressive change, even if its not a regressive tax by your definition.

I suspect that you might see that "investment" spent in more progressive ways? I would, now that important work on raising the allowance has been done, and i think it is important that raising allowances is seen both as work that needed doing as well as being in essence, regressive.

Phew !!

[teamsaint]

Hmmm ... I don't know about French Frank but you haven't yet convinced me!

No one has said (as far as I'm aware) that those richer folk up to £120,000 don't benefit ... the debate has always been about whether they benefit more in real cash terms. I fail to see that they do and I think it's best we maybe agree to disagree on that point!

What is indisputable (hopefully!) is that those on lower incomes over the threshold gain proportionally more on their salaries than higher earners so that has to be considered 'progressive'?

Also, we are again rabbiting on about other factors and the unfairness of the tax system in general. That may well be true but we are supposed to be discussing an increase in the personal tax allowance alone. Of course the overall tax effect is what ultimately matters to people, but how to find a better and fairer system has wracked and baffled the best brains in the Civil Service for years!

What a particular person gains proportionately depends on where they lie on the income scale. Those on salaries that take them near, but not into higher tax, do less well proportionately than those at the bottom of the basic rate bands. It is a different figure for all.

Re the very top earners, we are agreed that they don't benefit the most. The taper deals with that, added presumably to reduce the double benefit of reduced top rate taxes and increased allowances.

[french frank]

I suspect that you might see that "investment" spent in more progressive ways? I would, now that important work on raising the allowance has been done, and i think it is important that raising allowances is seen both as work that needed doing as well as being in essence, regressive.

Yes, to the first question!

In fact, though, I was looking at some UK income tax tables which would suggest that the basic system is progressive (even if it would be good to see more squeezed out of the top earners)

[Hmm, have I switched off Images here? The format doesn't copy properly]

Page 2 http://www.tutor2u.net/blog/files/Re...e_Taxation.pdf - How progressive is the UK income tax system?

It also says (page 1): "The progressivity comes from having
1.A tax free allowance for all tax payers
2.A stepped system of taxation comprising a basic and a higher rate

Re 1. The rate starts at 0% and rises the more you earn.

[teamsaint]

Yes, to the first question!

In fact, though, I was looking at some UK income tax tables which would suggest that the basic system is progressive (even if it would be good to see more squeezed out of the top earners)

[Hmm, have I switched off Images here? The format doesn't copy properly]

Page 2 http://www.tutor2u.net/blog/files/Re...e_Taxation.pdf - How progressive is the UK income tax system?

It also says (page 1): "The progressivity comes from having
1.A tax free allowance for all tax payers
2.A stepped system of taxation comprising a basic and a higher rate

Re 1. The rate starts at 0% and rises the more you earn.

I agree that income tax rates, taken in isolation , are progressive.

Actually though, you can't take them in isolation, when you include the myriad complex reliefs, (EG pension contribution relief). Reliefs tend towards regression, since those paying the most, and at the highest rates, have the most to gain from them.

I agree that, if you take income tax rates and the Personal allowance in isolation, that the tax free allowance is a progressive element. But changes in theose allowances and rates do not necessarily have a progressive effect, EG under current rules for a person earning £9k, who has benefitted from previous increases, but won't from future rises.

But, more fruitful might be to talk about ways to fairly and reasonably collect more tax from those who can pay. The current system is in crisis, as tax revenues are falling as the economy grows. Not clever.......

[P. G. Tipps]

What a particular person gains proportionately depends on where they lie on the income scale. Those on salaries that take them near, but not into higher tax, do less well proportionately than those at the bottom of the basic rate bands. It is a different figure for all.

Well, of course, a proportional figure will be a different figure for all. And even if you are correct that some on the 40% band gain more in cash terms due to some apparent anomaly that is still bound to be much less proportionally than those that the raising of the Income Tax Allowance is supposed to favour the most (proportionally) ... that is those at the bottom of the basic rate band?

Anyway, I have now flogged this issue to death ... good and interesting discussion, teamsaint!

[teamsaint]

Well, of course, a proportional figure will be a different figure for all. And even if you are correct that some on the 40% band gain more in cash terms due to some apparent anomaly that is still bound to be much less proportionally than those that the raising of the Income Tax Allowance is supposed to favour the most (proportionally) ... that is those at the bottom of the basic rate band?

Anyway, I have now flogged this issue to death ... good and interesting discussion, teamsaint!

I agree. Good discussion. Hopefully we have all learned something. I have.


Just to clear up though, the greater cash beneft obtained by those in the higher rate brackets is not anomaly, it is a result of the fundamental structure of the system.

ie:
Tax free allowance.
Set amount taxed at basic rate.
Rest taxed at higher rates.

Increase the tax free amount, and because the basic rate band is fixed, there HAS to be a reduction in the amount charged at top rate.



Unless you fiddle around elsewhere, (such as the taper).
Generally the more you play around, the more complex things get, and the more loopholes you allow, i would suggest.

More wealth taxes are what we need !!
What REALLY hurts those with modest salaries are marginal rates at 30% , when you include NI, and nearly 40% for those paying back student loans. Eye watering, compared to the new absolute top limit of 45% however rich you are.

[french frank]

But, more fruitful might be to talk about ways to fairly and reasonably collect more tax from those who can pay. The current system is in crisis, as tax revenues are falling as the economy grows. Not clever.......

Yes, another mess that the Lib Dems have fallen into is Mansion Tax, a tax on wealth - their idea, turned down by the Tories and now being picked up by Labour. Meanwhile, the (not wholly satisfactory) alternative being mooted is the changes to the council tax bands - so that the mansion owners are caught that way (I wonder if single occupants get their 25% reduction!). How that would integrate with general taxation, I don't know.

Other considerations about flat rate taxation are more 'political'. The lower paid tend to spend a bigger proportion of income on cigarettes and alcohol. Do you raise the taxes to discourage smoking, for instance - or must you face up to the fact that it would be a tax hitting the lower income people harder? That however high the tax goes on such spending, the high income earners won't be too inconvenienced?

VAT - high income earners will spend more in value, but probably well within what they can afford - they won't do without. But lower income people may individually spend less, but a disproportionate amount of their income on many things which are basic necessities (though not food and children's clothing, I think).

But, as we've said before, forget about the very high earners - as that table shows, there are comparatively very few and the revenue raised from upping their tax is not much more than negligible (but taxing them does make a clear political statement - which I would favour). Those somewhere in the 30K to 100k look to be the group from whom most could be raised. Income tax again? Or what?

On personal allowance what you can say is that the level at which it's set will be liable to lower some of the thresholds for the better off: there's a constant balance between who will save most and who will pay least.

[ahinton]

Given the cut and thrust of the last goodness knows how many posts in this thread, it must surely be clear to everyone that the entire tax system, regressive or otherwise, is nothing if not vastly over-complex! - in fact, the arguments and counter-arguments areperhaps as effective an illustration of that fact as there could be!

[P. G. Tipps]

Given the cut and thrust of the last goodness knows how many posts in this thread, it must surely be clear to everyone that the entire tax system, regressive or otherwise, is nothing if not vastly over-complex! - in fact, the arguments and counter-arguments areperhaps as effective an illustration of that fact as there could be!

Heavens ... it must be some thread to have made even you feel it was a bit long-winded, ahinton! <winkeye>

I agree though. Tax rates, allowances, tapering it's all a total mess.

At the beginning of the year I got a lump sum from the wind-up of one of my pension schemes. I paid the full whack of tax on it. A month ago I received a letter saying I had 'underpaid' tax for 2013-14 and the appropriate amount would be deducted this tax year. I noticed on the letter that my tax allowance had been reduced for the year by about £400 and, on phoning the tax office and after a bit of a shouting match from which I emerged heavily defeated, I discovered this was because my lump sum added to other pensions had crossed the old decrepit person's tapering threshold of £27000, or whatever it was last year.

I thought I knew the tax system pretty well, but it has this annoying knack of occasionally proving me wrong and providing some nasty surprises every now and again.

[ahinton]

Heavens ... it must be some thread to have made even you feel it was a bit long-winded, ahinton! <winkeye>

I didn't say that I found it long-winded; I said that it well illustrates the confusion and complexity inherent in the current tax system, which is not at all the same thing!

[P. G. Tipps]

I didn't say that I found it long-winded; I said that it well illustrates the confusion and complexity inherent in the current trax system, which is not at all the same thing!

Of course not, ahinton ... though I know even less about mountain bikes, I'm afraid!

[amateur51]

Of course not, ahinton ... though I know even less about mountain bikes, I'm afraid!

As fine an example of scotty's Last Word Syndrome as you're likely to find.

[P. G. Tipps]

As fine an example of scotty's Last Word Syndrome as you're likely to find.

Was 'scotty' really that good ... ?

[Flosshilde]

annoying knack of occasionally proving me wrong

Well, you could knock me down with a feather! Scotty, wrong?!!!!!!!