Should The More Wealthy Pay More?

[Captain Tancredi]

I would imagine that a proportion of top-rate taxpayers are either entrepreneurs (in which case they will have structured their pay and remuneration for tax efficiency- it's not difficult if you run your business empire through a limited company which pays you a salary and in which you own all or most of the shares) or high-level company directors and chief execs, in which case you write your own contract on your accountant's advice.

The people who do less well are self-employed professionals like doctors, vets, architects and so on, who are dependent on having a good accountant who's on the ball.

[Andrew Curnow]

Look at your taxation system:

Lower rate 10%- £0 - £2440
Basic rate 20%- £0 - £37,400
Higher rate 40%- over £37,400
Additional rate 50%- over £150,000

Now look to Australia:

$0 – $6,000 Nil
$6,001 – $37,000 15c for each $1 over $6,000
$37,001 – $80,000 $4,650 plus 30c for each $1 over $37,000
$80,001 – $180,000 $17,550 plus 37c for each $1 over $80,000
$180,001 and over $54,550 plus 45c for each $1 over $180,000

Incidentally, tax in Australia includes Tax, National Insurance, Medicare, and the TV License. We do have VAT (called GST) of 10%, which is on everything expect fresh food (ostensibly under the example that cooked chicken pieces require more service than raw chicken pieces).

It's only really a numbers exercise, but since I do the wages at work I feel I ought to just come back on this.

Assuming I'm reading the Australian system right, then it's 15% between 6K and 37K, then 37% up to 80K, and then 45% over that. However, we do have tax free pay in the UK - it varies depending on individual's tax codes, but the basic is currently 647L, in other words you can earn £6475 before you start to pay tax. That's around $10500 in Australia. Also, the top limit of our 20% bracket works out to about $60500, so comparing the two countries there would be incomes which would attract a higher rate in the UK (20% as opposed to 15%) but also vice versa (20% as opposed to 30%).

Mind you, although our tax includes our equivalent of Medicare, it doesn't include NI which is another 11% on top so we probably should consider emigrating anyway!

[Andrew Curnow]

I do take Si's point though - if you're earning, say, 500K a year then, yes, it's a lot and, yes, most people might consider that rich. But you're very likely still matching your expenditure to your income (or maybe exceeding it, but that's another argument). You're not going to have 480K extra just sat in the bank doing nothing, in comparison to a person earning 20K a year - so the argument that the rich "can afford it" is a bit simplistic. Yes, 'they' (whoever 'the rich' are) can probably trim back their outgoings without getting near the poverty line, but they're unlikely to be able to do that overnight.

So, if I was one of 'the rich' and had been paying 40% on much of my earnings last year, I think, actually, I would be a bit p***ed off at suddenly having to pay 50% on it this year.

Frankly it would probably make me stamp around my luxury yacht in a real fury, and I wouldn't enjoy my champagne and call girls much at all, curse you Cameron!

[WhiteCrowNZ]

Last time I checked though Austalia still contained a load of Australians. I mean a whole country of 'em. Yuck! Scarey thought ...

[Lissa]

You're not going to have 480K extra just sat in the bank doing nothing, in comparison to a person earning 20K a year - so the argument that the rich "can afford it" is a bit simplistic. Yes, 'they' (whoever 'the rich' are) can probably trim back their outgoings without getting near the poverty line, but they're unlikely to be able to do that overnight.

It sounds like you're advocating a system where people should be taxed at a rate that lets them spend whatever they like and only pay tax in relation to what's left over. On that basis I shouldn't pay any tax at all when HMV has a sale on.

The levels at which people are considered "rich" and the bands at which income tax increases may not be right as the cost of living changes around the country but making the top fraction pay 10% more on earnings over £150,000 which can't be fiddled and hidden away by their accountant is still a better and fairer way of raising revenue when it is needed than by making people whose idea of desperation isn't having to drive a year-old Mercedes pay more.

[brandynigma]

It sounds like you're advocating a system where people should be taxed at a rate that lets them spend whatever they like and only pay tax in relation to what's left over. On that basis I shouldn't pay any tax at all when HMV has a sale on.

This reminds me of an episode of the fine satirical series, The Games:

"So, how do the rich avoid paying the same proportion of tax as the poor?"
"Well, say a rich man earns $1,000,000 dollars a year. Now, that's more than enough to live on, but under what you're suggesting, half of that would go as tax. So, the rich man decides to buy a yacht instead, for $350,000 dollars, and lists it as a business expense. Business expenses are tax free. Then, he only has to pay tax on $650,000, which is a lot less tax."
"He's still earning $1,000,000! He should pay half of that in tax!"
"But then what would he buy food with? He's already bought a yacht!"

Incidentally, Medicare over here is an additional 1.5% tax. That's me told.

[WhiteCrowNZ]

Yeah and the argument goes "and because he bought a yacht, he's helped to support the economy. To which the counter argument is often "but it was made in Canada and birthed in Mexico for tax reasons".

One thing is the rich are also the powerful - so quite capable of looking after themselves. If you tax board directors an extra 10% they will find a way of increasing their pay by 10% to compensate if not an all out dodge.

People on lower incomes don't have that luxury of "setting their own pay".

And who benefits most from how tax is spent? Well with the recent bank bailouts from your tax dollars ... it's been a whole host of board of directors who've benefited a lot more than the man on the street who had to weather unemployment.

There's that great one in America where a bank was bailed out $4 billion ... and they spend a quarter on it on bonuses straight away ...