Sunday, 7 September 2008

A flat rate of tax

It's not popular, and to be honest, it's never going to happen but I believe in a flat rate of income tax.

There. I said it.

I know almost no one agrees with me, and I know that I'll take pelters for this, but to me, a flat rate of income tax is the fairest way to do it. The TUC has said tax the rich more, but to me, that's just a shit idea which furthers Britain's mindset of "let's punish those who are successful".

I won't go into the details of it all, because I'm not introducing a bill with this, though the numbers pretty much stack up, but all in all, I say...

Make the first £12,000 of someone's wages tax free.

Everything above that £12,000, should be taxed at 38%.

This would do three important things.

1) people on the lowest wages, would be helped the most.
2) it is fairer, as everyone would be paying an equal share of their disposable income.
3) I'd be slightly better off, and so would you probably.

Do the math yourself, both for your own wages, but also for the poorer people in society, and tell me this isn't at least worth considering.

I don't believe the rich should get taxed more, I believe that as a citizen, I am just as responsible for the 'upkeep of society' as someone with £50million sat in the bank, and if 38% is what keeps it at current spending levels, then I'm all in favour.

I know I'm in the minority on this, but I can't see how?


Malc said...


I'll leave it to others to rant. Just one question:

Why £12,000?

Isn't that just an arbitrary number?

Political Dissuasion said...

£12,000 was deemed to be what was classed as enough to live off, covering all the essentials and the odd luxury, giving someone an 'acceptable' standard of living.

So instead of taxing at £5k, give the poor a break, and let those who can afford it, super-rich or not, take the strain.

Jeff said...

Yes, I'm still struggling to argue against it.

I do like the idea of targetted taxes. Those who drive cars pay for roads via petrol tax, road tax etc.

Those who harm the environment pay for it with a tax on long haul flights.

Mind you, i'm struggling to think of others. Why do we have VAT again? "Value added tax", where does the value come in?

Ok, flat tax then, where do I sign....

Peter said...

OK, the next question is, how did you arrive at 38%? My instinct is that 38% of income over £12k wouldn't be enough to make up for the loss of tax raised in the current system. But I could be wrong.

What would you say if the marginal rate had to be 45% or 50%?

Political Dissuasion said...

Peter, first off, thank you for not baulking at 38%, as most people do when they talk about this.

You want to talk about going further. Hell yeah!

I don't have the exact figures, but there was a report a while ago and I did some (basic) number crunching earlier this year.

Assuming everyone agreed on the figure of £12,000 being enough to 'get by' on, then to match current spending, the figure would have to be around 38%, though remember, this doesn't include in any way, the National Insurance contributions we would have to make, the possible additional 3% local income tax, student loan repayments etc etc, so your figure of 45 or 50% may not be too far off the total wiped off a paypacket.

But if that's what it took, then yeah, I'd be more than happy to rubber stamp that idea, as long as we had a REAL, effective lower limit to aid the poorest and above that, everyone paid the same. Screw it, if it reached 60%, as long as it's fair, but we'd probably have to be invading the U.S to need that much of an increase!

(Just had a wee thought...To me, if less people are poor, or the poor are slightly better off, then there will be a decrease in how much in benefits is paid out, a saving that I hadn't taken into account so far.)

Peter said...

OK then, now for the bad news. I did a quick check[1] and it seems to me that everyone earning between £20k and £180k would be at least £1000 worse off pa. People earning between £40k and £60k would be £3.5-4k worse off.

No wonder Jeff couldn't find anything to argue with! On the other hand, I don't see how you could justify punishing people earning in the professional/manager salary range while helping the super earning banker-types...

[1] I used the tax calculator here: if you want to check my figures.

Political Dissuasion said...

Are you sure about those figures because without going into too much personal detail, I earn somewhere in the £20,000-£30,000 bracket and on my calculations, I work out at just over a grand better off.

So quite confused by your last entry.

I am, however, certainly willing to concede one major point (and this is why flat tax will never happen).

Based on my numbers under a flat rate of tax, those at the lowest end of the wage line would be better off and those at the very top, would be better off.

The ones that would lose out would be the ones we (and political parties like to) call Middle England.

Whether it's fair or not, show me a Party Leader who's willing to tell Middle England (or Scotland, Wales or N.Ireland for that matter) that they want to introduce a policy that will hit them hard in the pocket, and I will show you a politician with a doomed career.

Will check some numbers and get back to this...
(by 'check some numbers' I mean phone my bro who's an accountant, maybe he can help me make sense of this)

Peter said...

This is my working:

Currently, person with gross income of £30,000 has taxable income of £23965: tax at 20% is £4793

In the flat world, £18,000 would be taxable at 38%, giving £6840.

Which makes that person £2047 worse off.

Peter said...

To be pedantic, I should add that these figures don't take into account age/blind person allowance, income tax credit and other such circumstance-dependent shenanigans all of which would reduce the income tax currently payable and increase the differential from the flat tax system.

And as you point out, you're unlikely to get MPs to vote for a tax system that specifically targets their income bracket!

Political Dissuasion said...

Peter, be pedantic as you wish, and please point out any flaws in my idea. I've said all along, I don't know the figures inside out and if there's a good reason why it shouldn't be considered, I'd genuinely like to hear one, but so far, nobody's given me one.

Yeah, the numbers for £30,000 don't look too hot (I won't ask what you're on Pete), but I have no qualms with that. If we're going to make changes to the tax system and keep the total collected at current levels, someone's got to lose out. In this case, it's 'Middle England'.

But two things I must pick up on...
1) You said "I don't see how you could justify punishing people earning in the professional/manager salary range while helping the super earning banker-types..."

I don't see it as "punishing" anyone, I think it's just what we have to pay to make sure everything's fair and everyone's getting treated equally while trying to do someting useful for the poorer people in society - at the expense of those with more luxuries, mega-rich or not.

I just believe this system is fairer.

And 2) At no point Peter, have I read anywhere you saying you disagree with my idea. Yes, you've tested my (at times not great) maths on the matter, and you've queried how far I would take it, but yet there's no "bottom line is PoliticalDissuasion, this a poor idea".

As others have tried, and failed to crush my thinking on this, you won't be alone in saying loud and proud, that Peter believes in a flat-rate of income tax!

Adopted Domain said...

If I had an income of around £11,500 derived mainly from various benefits, there would be zero reason for getting a marginally better job. Progressive taxation should at least ease people out of the poverty trap, and incentivise people into work. A flat tax of that size would provide a pretty big disincentive for everyone with an income of £11,999 to keep it that way.

Peter said...

Maybe the effect of this discussion is to show the effective subsidy that Professionals (with a capital P) get from the rest of us :-)

Anyway £30k is not a massive to be earning after a few years' work

Back to the point: I was just working through the numbers - it always amazes me how far these debates can go without anyone working through the arithmetic.

I feel it's difficult to say anything meaningful here since I don't know where to find figures on the numbers of taxpayers by income, so I can't make any concrete suggestions for alternatives (though like the nerd I am I have played around with options on a spreadsheet).

For what it's worth though, I basically agree with adopted domain's point: to lose almost 40% of your additional income as soon as you think about getting a proper jobs is not a great incentive.

I would also say that people in the very high income bracket (earning over £100k) could cope with a 50% marginal rate, and I'd love to use that money to raise the personal allowance nearer the £10-12k mark.

So there! ...I'm not in the flat tax camp, but simple tax rules are generally a good thing, and make things 'fairer' since there are less loopholes to exploit. The current setup is a mess.