60% income tax rate

thelawnet

JayScottGreenspan wrote: »

For those high earners bleating about marginal taxation rates, the marginal taxation rate faced by a typical 2+2 family with one adult working, with a typical rent and typical savings varies with gross pay as follows:

The left-hand-side of your graph is about benefits, not tax. And where are you getting 90% from? And why is the 60% part of the graph not vertical? What benefits are you factoring in?

And how is it that you are showing a high marginal tax rate at what looks to be less than £5000?

I think you have got your numbers wrong

The basic benefits you are looking at are:

Child tax credit child element: £4470
WTC: £3750
Possible 30 hour element: £775

= £8995

Child tax credit family element: £545

Then threshold for withdrawal is £6420 at 39% for first three, and at £50,000 at 1/15 for the last.

Tax is 31% from £6475 and 41% from £43875.

Up to £6420, nothing is lost. From £6420 it is 39%, from £6475 to £29484 it is 70%, from £29484 to £43875 it is 31%, from £43875 to £50,000 it is 41%, then from £50,000 to £58,175 it is 47 2/3 %, then from £58,175 to £100,000 it is 41%, then from £100,000 to £112950 it is 61%, then from £112950 to £150,000 it is 41%, then from £150,000 and up it is 51%

But other than that, I agree with your point if you end up taking home less than half of your earned income, you may very well not bother. Many people do just that. 16 hours a week.

Rochdale_Pioneers

thelawnet wrote: »

Why on earth do you think I care about Labour's wavering voters?

You said rich, I said not so. Comfortable yes, rich no. I suggest losing the chip on your shoulder.

I really think you're not listening to what I am saying. I have no chip on my shoulder against "the rich". I've just said that compared to about half the population (and almost everyone in my family) I am well off. I've argued on other threads that middle class is a red herring, that the three classes are the no-interest-in-working underclass, the working class (everyone with a job) and the landed class (who don't need to work). Why would I have a chip on my shoulder against people who work just as hard as I do.

So listen to me very carefully. Definitions are relative. One man's rich is another man's poor. If you're on £100k a year and looking up at someone on £500k a year then you are relatively poor. But when you consider that just 1.5% of the population earn £100k or more then I think it entirely reasonable to use the term "rich" - compared to the vast majority you are exactly that.

lostinrates

thelawnet wrote: »

There's not just PAYE. A lot of high earners earn through limited companies and other schemes. The way to avoid PAYE taxation is obviously to get paid less.

Sure there is not just PAYE: but some of the 100k earners are PAYE.

In my household I'd like to say we do not seek to avoid tax, but all our non tax free savings are held in my name. That's about as complex as it gets really.

thelawnet

mitchaa wrote: »

Incorrect im afraid.

NI is only 1% in the higher taxation band. (It is 11% in the basic 20%)

So max taxation as it stands at moment is 41%

Technically speaking higher rate earned income taxation is:

1% employee's NI
40% income tax.

PLUS 12.8% employer's NI, paid as a percentage of the gross

So on a marginal £100 of earned income, the total paid by the employer is actually £112.80. The employee receives £59, or 52.3% - 47.7% tax.

With the 50% band that will be 56.6% tax.

And with the 60% band it is 65.4% tax.

Of course without employer's NI the money could be paid straight to the employee, so it is in reality a tax on the employee, just the same.

The principal reason that employment is so punitively taxed, despite its obvious good, is that the money is too easy for the government to get its grubby hands on. Milton Friedman was one of the inventors of withholding tax, to his eternal regret, as it vastly increased the amount of tax taken, and size of the government.

lostinrates

Pennywise wrote: »

I work with small businesses all day, every day, .... I work as few hours as I need to keep myself below the HR threshold .

LOL, I'm sorry, I haven't digested your post yet, this just made me smile, its not ajibe, just a smile.

lostinrates

I'd really like it if someone could give a verbal interpretation of the graphs please,- JayScott?

JasonLVC

mitchaa wrote: »

Having a close friend as a championship footballer earning around £8kpw i can confirm he is taxed through PAYE.

Additionally, even top premiership players are. Top Liverpool player on £1.5m+ pa

http://www.metro.co.uk/sport/football/article.html?in_article_id=73705&in_page_id=43

Clearly PAYE aswell.

Thanks for the corection mitchaa.

thelawnet

lostinrates wrote: »

I'd really like it if someone could give a verbal interpretation of the graphs please,- JayScott?

See my post. I think his graph is wrong. (There are other benefits, housing benefit, council tax benefit, income support, as well as certain other entitlements that you get for being in receipt of WTC (such as cheap council leisure activities) but they tend to interact with each other, such that you might not get any of the aforementioned benefits because you are receiving tax credits, so it's best to just look at tax credits.)

Basically speaking you get lots of benefits for having children (£5015 for 2), and you also get lots of benefits for going to work for 16 hours a week (£3750 for a single parent family or a couple). For every pound you earn above £6420 you lose 39p (39%) in benefits. You are also taxed at 31% from about that level. So effectively for every £1 you earn, you are only 30p better off, until you lose all the benefits except for £545, at around £28k. Above this level you keep 30%.

The benefits culture created by this encourages two behaviours:

1. single parents especially working 16 hours a week in low-paid work - if they do this they get the £3750. They can also get 80% of their child care costs paid.
2. people on low incomes, especially parents, not working more than 16 hours a week, or attempting to progress beyond a certain point, because any increased income will mostly be lost (16 hours/week at £7.72/hour is £6420/year, above this level you're going to lose 70%).

The government's ideological determination to extend the welfare state as far as possible retains £545 child 'tax credit' (in reality, it's a benefit) for all people earning up to £50k. Beyond this level you lose it at a rate of 1/15, which is relatively insignificant, but means that around this level you lose income at a rate of about 47%.

The other areas are the 61% just above £100k, the 51% above £150k, the 41% for higher rate tax payers unaffected by benefits, the 31% for income between about £28k and £41k (by which point most families would have no further benefits entitlement), and zero, for incomes below about £6000 (there is a NEGATIVE 'tax' here - on NMW for 16 hours per week, you earn £4767.36, but get £3750 in benefits, which could be described as a -78% tax rate. Although that's not strictly accurate, because you get no WTC on 15 hours per week, so you could equally well describe it as a -1200% tax, or even a -4.2 million% tax if you want to get silly and compare with working 15 hours 59 minutes 59 seconds per week).

JayScottGreenspan

thelawnet wrote: »

The left-hand-side of your graph is about benefits, not tax. And where are you getting 90% from? And why is the 60% part of the graph not vertical? What benefits are you factoring in?

And how is it that you are showing a high marginal tax rate at what looks to be less than £5000?

I think you have got your numbers wrong

The basic benefits you are looking at are:

Child tax credit child element: £4470
WTC: £3750
Possible 30 hour element: £775

= £8995

Child tax credit family element: £545

Then threshold for withdrawal is £6420 at 39% for first three, and at £50,000 at 1/15 for the last.

Tax is 31% from £6475 and 41% from £43875.

Up to £6420, nothing is lost. From £6420 it is 39%, from £6475 to £29484 it is 70%, from £29484 to £43875 it is 31%, from £43875 to £50,000 it is 41%, then from £50,000 to £58,175 it is 47 2/3 %, then from £58,175 to £100,000 it is 41%, then from £100,000 to £112950 it is 61%, then from £112950 to £150,000 it is 41%, then from £150,000 and up it is 51%

But other than that, I agree with your point if you end up taking home less than half of your earned income, you may very well not bother. Many people do just that. 16 hours a week.

You're missing housing benefit and council tax benefit.

Housing benefit is withdrawn at a rate of 65% and council tax benefit is withdrawn at a rate of 20%. Both start being withdrawn at very low wages because the income threshold involved includes tax credits.

Test it out here for yourself with some plausible rents and council tax bills:
http://www.entitledto.co.uk/

JayScottGreenspan

lostinrates wrote: »

I'd really like it if someone could give a verbal interpretation of the graphs please,- JayScott?

For your average family claiming tax credits, housing benefit and council tax benefit, every extra pound they earn makes them about 10p better off.

This is the case up to about £30k gross pay.