Saturday, 5 July 2008

Stealth tax

With each passing year, more people are falling into the higher tax band. Currently, almost 4 million tax payers are regarded as high income earners. That is about one taxpayer in eight.

Back in 1990, a little over one million tax payers found themselves paying the higher 40 percent tax rate. Every year since then, the threshold has trapped progressively more taxpayers. Currently, the threshold is set at just £36,000 after personal allowances. It is comfortable wage, but hardly a fortune.

The 40 percent band captured these additional taxpayers during a period of high growth. Today, the economy is slowing, and the treasury will be looking for new sources of revenues. With a little higher inflation, limited increases of the 40 percent threshold provides an ideal way of filling up those tax shortfalls.

Just wait, it will not be long before a majority of taxpayers will be labeled as "high earners".



Rightly considered, the AVERAGE wage earner is a 40% taxpayer. Consider the effect of employer's and employee's NI as well as income tax: the total deduction, expressed in relation to gross funds earmarked for employees' remuneration before all these imposts, is 40.6%.

Then you can add the effect of all forms of purchase tax, council tax etc.

No wonder we can't get anywhere, honestly.

Anonymous said...

And it's disgraceful that there's even a higher tax band. Why on earth should one person have to pay so much for for public services than anybody else? Might as well charge them more for food and energy too, just to make it clear its about discrimination.


dearieme said...

Someone straight out of university might find themselves paying at the margin: 20% tax, 11% national insurance, 9% student loan repayment and, say, 4% pension. Total 44%. Oof!

Mark Wadsworth said...
This comment has been removed by the author.
Mark Wadsworth said...

There used to be two separate sets of rules for taxing benefits-in-kind for employees.

The more stringent set of rules applied to 'Higher paid' employees earning over £8,500. This limit was introduced back in 1979.

The Income Tax Earnings & Pensions Act 2003 replaced these rules with two new sets of rules; a strict regime and a more lentient set of rules for 'lower paid' employees earning less than ....... £8,500.

Mark Wadsworth said...

"lenient" not "lentient", obviously.

Anonymous said...

So wages are taxed at 52% at the higher level whilst capital gains is at a flat rate of 18%, with perverse incentives like these no wonder we've experienced a housing bubble.