The proposals are misleading in that they are quietly cutting tax at the same time as reorganising it. Any flat tax that has a rate of less than 40% will bring savings for the highest earners.
Will: Any flat tax that has a rate of less than 40% will bring savings for the highest earners.
That's not quite true, it will only bring savings to all 40% payers if the FT rate is the same or less than the current middle band rate. If you are just above the 40% start point, and the FT rate is a bit more than the middle band, you could end up forking out more tax.
My only problem with the flat tax proposal is that it's quite obvious that the marginal utility of £1 when you earn, say, £50,000 is less than when you earn say £15,000. (i.e., if you have a lot of pounds, earning or losing one of them doesn't matter so much to you, but if you have only a few pounds in the first place...) This is the justification for stepped tax bands. However if the tax-free allowance in the FT system is high, say £12k, the "marginal utility" effect is largely offset. I suspect the actual proportion of individuals earning higher amounts such as £100,000+ is pretty small and therefore those for whom there is a significant difference in "marginal utility" will be small in number. Hope that makes sense.
I hope the Tories propose that the tax-free allowance of your non-working spouse/partner is transferable to your income...
Tim: That's not quite true, it will only bring savings to all 40% payers if the FT rate is the same or less than the current middle band rate. If you are just above the 40% start point, and the FT rate is a bit more than the middle band, you could end up forking out more tax.
That's why I said "the highest earners". It's the most rich who get the first tax cut from a flat tax below 40%. As the rate decreases, it's the next richest who benefit in comparison to now.
Love the spin that the poorest will do worst in a flat tax. Except of course for the really poorest who pay none at all. I think the ASI plan is rather good its similar to one that I developed for Statism Sucks! 2.0 in the early 00s.
8 comments:
It is nice to think that the Tawdries will still be around then!
of course it will be a tory policy..it taxes the poor more and gives back to the rich.
Fivelive had 3 examples this morning:
14k would pay £100 more
30k would pay £300 more
60k would save 3k!
On an example of starting to pay tax at 7k and at 25%
Pah, bloody tories.
I suspect the Tories commission will advocate a starting threshold above £10,000 - which would skew it much more equitably.
The Adam Smith Institute (who are the wonks really pushing flat tax) are I think advocating a tax starting > £12,000 @ 22%...
The proposals are misleading in that they are quietly cutting tax at the same time as reorganising it. Any flat tax that has a rate of less than 40% will bring savings for the highest earners.
Will: Any flat tax that has a rate of less than 40% will bring savings for the highest earners.
That's not quite true, it will only bring savings to all 40% payers if the FT rate is the same or less than the current middle band rate. If you are just above the 40% start point, and the FT rate is a bit more than the middle band, you could end up forking out more tax.
My only problem with the flat tax proposal is that it's quite obvious that the marginal utility of £1 when you earn, say, £50,000 is less than when you earn say £15,000. (i.e., if you have a lot of pounds, earning or losing one of them doesn't matter so much to you, but if you have only a few pounds in the first place...) This is the justification for stepped tax bands. However if the tax-free allowance in the FT system is high, say £12k, the "marginal utility" effect is largely offset. I suspect the actual proportion of individuals earning higher amounts such as £100,000+ is pretty small and therefore those for whom there is a significant difference in "marginal utility" will be small in number. Hope that makes sense.
I hope the Tories propose that the tax-free allowance of your non-working spouse/partner is transferable to your income...
If the bloody poor start paying more tax it will make up for all the ciggys and Lager they have enjoyed at our expense over the past few years.
Tim: That's not quite true, it will only bring savings to all 40% payers if the FT rate is the same or less than the current middle band rate. If you are just above the 40% start point, and the FT rate is a bit more than the middle band, you could end up forking out more tax.
That's why I said "the highest earners". It's the most rich who get the first tax cut from a flat tax below 40%. As the rate decreases, it's the next richest who benefit in comparison to now.
Love the spin that the poorest will do worst in a flat tax. Except of course for the really poorest who pay none at all. I think the ASI plan is rather good its similar to one that I developed for Statism Sucks! 2.0 in the early 00s.