Promises promises

[Flosshilde]

I still don't quite get your figures.

I knew it would be a waste of time explaining it to you. ts's figures are perfectly clear, except to someone who doesn't want to understand. You must have driven those poor Jesuits to despair, Scotty (although you've learnt other lessons from them to perfection)

[Flosshilde]

(Mr Hinton won't help, he is a composer, so has an army of people doing everything for him so he can gaze out at the sky imagining :wink: )

Makes him sound rather like Fotherington-Thomas (which I'm sure he's not :smiley:)

[MrGongGong]

Makes him sound rather like Fotherington-Thomas (which I'm sure he's not :smiley:)

I'm expecting the next work to be called

"Hello birds, Hello sky"

;-)

[P. G. Tipps]

I knew it would be a waste of time explaining it to you. ts's figures are perfectly clear, except to someone who doesn't want to understand. You must have driven those poor Jesuits to despair, Scotty (although you've learnt other lessons from them to perfection)

Scotty & The Jesuits, eh? This tax threshold thing is beginning to sound very sinister indeed or it may just be the name of an old Sixties pop group?

T's figures may be perfectly clear to you, Flosshilde, but they bear little relation to the relevant ones on the gov.uk website!

[french frank]

Quite; that's why it's a red herring as far as helping the low-paid is concerned - but then that's not really what the present government wants to do.

It is a fact that it helps the 'low-paid' to keep more of what they earn. That helps them. But it has diminishing benefits as more people are lifted out of paying tax, moving the bar up from the 'lowest paid' to the 'low paid' .

It's been of greater benefit to people at the top end; therefore it's actually regressive.

But surely, it's exactly the same benefit in cash terms? The savings as a percentage of income are peanuts to people 'at the top end' but mean more to those at the lower end.

The article ts quotes says: "The poorest 10% lose on average approximately 43% of their incomes through various forms of taxation whilst the richest pay only 35% of their incomes." They are arguing that the tax system on the whole is "regressive". The increase in personal allowances will mean the poorest pay a smaller percentage of their income on tax - so that policy itself is not "regressive".

[Richard Barrett]

that policy itself is not "regressive"

Yes but it doesn't really make sense to separate one non-regressive policy from a tax system which, all things taken into account, has for a whole been becoming more regressive. It's the aforementioned 43% that's important to poor people, not which part of it might be the result of one policy or another.

[ahinton]

If you earn 50k a year your top rate is 40%. On your last 1k your marginal rate is 40
%. Therefore, if the threshold is raised 1000 by your tax bill reduces by £400 PA, because you have 1k extra completely free of tax, and you gain at your highest rate.

But if you are on 20k, your marginal rate is 20 %, so if the threshold goes up 1000, you gain by only £200 pa.

I don't think that this is correct, actually. The problem with what you write here is that you appear to be selecting the "last 1k" earned by the 40% taxpayer, whereas I think that it should be the first 1k of taxable income (i.e. the first £1K above the Pesonal Allowance figure) which is, of course, taxed at 20%, because the order of income tax rates from lowest to highest is
Zero (income below Personal Allowance)
20% (income from Personal Allowance up to c.£31,800)
40% (income above c.£31,800)
45% (income above £150,000)
There is in addition a progressive reduction of the Personal Allowance for incomes between £100,000 and £120,000 (I think those are the sums that apply to this), so anyone with an income in excess of £120 pays income tax at 20% on all income up to £31,800 whereas those on incomes below £100,000 pay no tax on their income up to the Personal Allowance figure.

If you are already below the threshold level, earning say £10k, you benefit by zero. So the better off you are, the bigger the benefit.

The first sentence is obviously true but the second isn't, especially given the depletion to zero of the Personal Allowance on incomes between £100K and £120K above which the Personal Allowance does not apply at all.

That said, your assertion that the lower paid generally pay a higher proportion of their income in tax is nevertheless true, because what you're referring to in so saying is not just income tax but taxes in general. The smaller the income, the greater the likelihood that a larger proportion (or indeed all) of it gets spent and some of that spending will inevitably include VAT; someone on, say, an income of £150K+ might well spend a far smaller proportion of his/her income and therefore pays a great deal less in VAT, so the proportion of his/her income that attracts taxes of any and all kinds is likely to be lower than that of someone on a low income who has no choice but to spend it all. Another example of top end benefit is that of the self-employed sole trader whose taxable profit exceeds c.£42K, at which point Class 4 NIC tax drops from 9% to 2%; likewise, above that same figure, employees pay no additional NIC1 taxes, so an employee whose income puts him/her in the 45% income tax bracket pays the same NIC1 tax as one whose employed income is £42K.

[ahinton]

The article ts quotes says: "The poorest 10% lose on average approximately 43% of their incomes through various forms of taxation whilst the richest pay only 35% of their incomes." They are arguing that the tax system on the whole is "regressive". The increase in personal allowances will mean the poorest pay a smaller percentage of their income on tax - so that policy itself is not "regressive".

That seems to make sense to me, although I don't quite get where the 35% comes from. The richest pay 20% income tax on all income up to c.£31,800, 40% on income between c.£31,800 and £150,000 and 45% on all income above £150,000, in addition to other taxes including VAT on all their VATable spending; those whose income is earned also pay NIC taxes.

[P. G. Tipps]

We seem to have (conveniently for some) veered off the issue of the Personal Income Tax Allowance to the perceived fairness or unfairness of Income Tax rates in general. That is a quite different debate.

My argument was with those here who continue to insist that raising the tax threshold assists the tax-payer at the top rather than him/her at the bottom.

Ahinton's official figures ... which were always available to anyone who took the trouble to check online ... demonstrates that that insistence (or rather the claim behind it) is quite false.

Now we can all move on!

[ahinton]

Makes him sound rather like Fotherington-Thomas (which I'm sure he's not :smiley:)

Indeed not! Fotherington-Thomas would be a rather odd name for a Scotsman and I didn't attend a prep school (although I did study with Searle, albeit not Ronald of that ilk)...

[ahinton]

We seem to have (conveniently for some) veered off the issue of the Personal Income Tax Allowance to the perceived fairness or unfairness of Income Tax rates in general. That is a quite different debate.

This is because the document that ts quoted raises the issue of the proportion of individuals' incomes that are paid out on taxes of one kind and another and therefore is not confined to considerations of "the perceived fairness or unfairness of Income Tax rates in general" because it deals with taxes as a whole and how they affect the lower and lowest paid.

My argument was with those here who continue to insist that raising the tax threshold assists the tax-payer at the top rather than him/her at the bottom.

OK, but doing this means that those at the bottom end of income tax liability will have a little more to spend as a consequence which, whilst obviously welcome insofar as it goes, will usually means that those currently on taxable earned incomes of £10K-£12.5K and will no longer have to pay 20% income tax on that £2.5K will only be better off by £500 minus the extra VAT (also at 20%) incurred as a consequence of the additional VATable spending enabled by that small amount of additional affordability; those who have incomes as low as that find themselves obliged to spend all of it whereas those on much higher incomes will have greater choice as to how much or little of their income they spend, so a smaller proportion of their income will go on VAT.

The point that you make about the effect of raising the income tax threshold is therefore not so much wrong per se but only part of the story and I think that the mistake that you therefore make is to try to see it in isolation in an effort to try to prove that point.

[P. G. Tipps]

Nobody's arguing with you, ahinton, certainly not me!

But we were talking about the Income Tax Threshold not the rates of Income Tax in general.

We were told on this thread that raising that threshold alone benefited those taxpayers at the top rather than the bottom. I simply said this wasn't true and the actual figures have fully supported my belief.

Check it out!

[french frank]

Yes but it doesn't really make sense to separate one non-regressive policy from a tax system which, all things taken into account, has for a whole been becoming more regressive. It's the aforementioned 43% that's important to poor people, not which part of it might be the result of one policy or another.

But what circumstances might bring about an entire rejig of a system that most people would agree was monstrously unfair and regressive? How can one single policy which, even if just a tiny morsel of non regressive policy, not make sense?

I don't think that this is correct, actually. The problem with what you write here is that you appear to be selecting the "last 1k" earned by the 40% taxpayer, whereas I think that it should be the first 1k of taxable income (i.e. the first £1K above the Pesonal Allowance figure) which is, of course, taxed at 20%,

Yes, I agree.

That seems to make sense to me, although I don't quite get where the 35% comes from

It is hidden somewhere in the detailed statistics of what is actually paid by the various income levels. It backs up what I assumed to be the case (though I wouldn't be able to guess the exact percentages).

[ahinton]

Nobody's arguing with you, ahinton, certainly not me!

But we were talking about the Income Tax Threshold not the rates of Income Tax in general.

But that's the point; it is misleading to consider the effects of the income tax threshold in isolation from the rates of income (or indeed any other) tax in general to the extent that this clouds the issue as to the proportion of each individual's income goes in tax, whether when it's received (or paid in arrears) or when VATable purchases are made.

[ahinton]

But what circumstances might bring about an entire rejig of a system that most people would agree was monstrously unfair and regressive? How can one single policy which, even if just a tiny morsel of non regressive policy, not make sense?

I'm not sure how such a goal could be achieved either - and certainly not as a consequence of anything other than such a compete rejig (but then I wouldn't, as I'm not a tax expert!). The question of what kind of appetite might exist for such a rejig is another matter altogether and I suspect that there may be those who would advocate such a move even if the result might not make the system less regressive, as well as others who would call for its introduction in order to reduce its regressiveness.

What the system does need - and desperately - is simplification and I imagine that, were this to come about, the extent of the system's regressiveness or otherwise would at the very least become more transparent. There's so much that the taxpayer doesn't understand and the sheer complexities of the current system are such that the margin of error for both taxpayer and HMRC are unacceptably high and the consequences of this makes tax inspection and collection vastly more expensive than it ought or needs to be (and we all know who funds it!).

I think that one problem highlighted by the perception of the income tax régime as regressive is that this is only ever likely to change if there's a complete overhaul and simplification of the tax system as a whole; reforming income tax only would not likely do the trick, the best will in the world notwithstanding.