George Osborne MUST now U-Turn 'Granny Tax'!

MonkeyMad

gadgetmind wrote: »

Why stop at flat rate? Why not having an amount of tax per year after which HMG says, "Look mate, you've already done more than your fair share, and one man's shoulders are only so broad, so why don't you keep it all for yourself for the rest of the year?"

We have that system already, its just that we don't all have the same date. The people who are least likely to be using much of the infrastructure they are paying for have to wait the longest.

Can't really wonder why they elected to give the latest round a miss...

jamesd

jamesd wrote: »

This doesn't mean that all pensioners are well off, though. The median income of the lowest fifth of single pensioners was £4,940 after housing costs. Around three quarters of those are women, many after the death of their spouse. The median of the next fifth was £7,124, much easier to live on. (page 51)

If there's need here, it's concentrated in those single pensioners with low incomes. And those have low enough incomes that their income is likely to already be completely tax free, with benefits paying for housing costs if not an owner, so this age allowance change isn't likely to affect them at all. Better to get rid of the general pensioner age allowance and concentrate the money where it's most needed.

zygurat789 wrote: »

In other words the burden should fall on the broadest shoulders as GO said.

Not necessarily the broadest, but broader. This does that. The normal personal allowance is currently £8,105. Looking at the numbers I quoted you can see that the poorest two fifths of single pensioners are already not paying tax. Increasing pensions, as has already been done, while reducing tax allowances is one way to concentrate the benefits on the pensioners with lower incomes.

This change also has another potentially useful effect, reducing a general tax advantage in time for it to affect most of the baby boomer generation. That generation is placing a higher stress on younger people than the baby boomer generation has suffered and it's useful to help balance the books across generations to reduce tax allowances that benefit the boomer generation.

zygurat789 wrote: »

So why did he reduce the tax rate on the rich from 50% to 45%?

Because there is a substantial possibility that even looking only at income tax and responses, it was costing more in lost tax than it was making. Add in lost VAT and stamp duty and other effects and the substantial possibility can shift to 45% and reinforcing it being a temporary tax to increasing revenue longer term, not decreasing it.

While this tax didn't affect me, I'm in a job where I can work wherever there's an internet connection. That means it's possible for me to move to avoid taxes, though for me the rewards aren't sufficient. For a business looking at the cost of hiring skilled employees who can work anywhere it's a more significant cost. Similarly for those on over £150,000, the rewards of saving 10% tax are at least £15,000 a year. That'll pay for a fair amount of travel cost into or out of the UK or relocation expenses into a less taxed area.

For me there's one easy observation. I can buy more holiday days by sacrificing pre-tax pay pro-rata based on my annual income. If paying 20% income tax the after income tax and NI cost is 68% of the gross cost. If the tax rate I pay is 40%, the cost to me of those extra days after tax and NI is 58%. If I was paying tax at 50% it'd be 48% of the gross. So a higher tax rate makes it cheaper for me to work less. That's an example of a behavioral response to higher taxes that can cause tax revenue to be lower than expected.

srcandas

Great post James :beer:

MonkeyMad

Surely you are not suggesting that if tax rates are too high, high-earners decide to work less so they earn less and pay less tax than before? Admittedly, I earn more than I need for my lifestyle, so have considered part-time work, but I mean how dare they do this - don't they know everyone else is relying on them to keep income tax rates down?

margaretclare

The normal personal allowance is currently £8,105. Looking at the numbers I quoted you can see that the poorest two fifths of single pensioners are already not paying tax. Increasing pensions, as has already been done, while reducing tax allowances is one way to concentrate the benefits on the pensioners with lower incomes.

No matter how much factual information there is available, how many times the above is pointed out in words of one syllable, we still get this inaccurate and emotive nonsense about 'poor pensioners being thrown into the street freezing to death' and similar. I have pointed out repeatedly that the poorest pensioners - according to AgeUK figures 1 in 4 of women over 80 - are not paying tax at all, so making up silly songs and quoting them as if they were gospel is not going to help them or anybody else. It just provides a smokescreen.

gadgetmind

MonkeyMad wrote: »

Surely you are not suggesting that if tax rates are too high, high-earners decide to work less so they earn less and pay less tax than before?

This is just one of many factors that cause higher tax rates to not only not raise as much as some might expect, but to actually have a negative effect on tax income.

Maybe read the report linked to in message 164 above?

jamesd

MonkeyMad wrote: »

Surely you are not suggesting that if tax rates are too high, high-earners decide to work less so they earn less and pay less tax than before? Admittedly, I earn more than I need for my lifestyle, so have considered part-time work, but I mean how dare they do this - don't they know everyone else is relying on them to keep income tax rates down?

I know it's most unkind of someone to retire early rather than pay 50% income tax but banning retiring might be a little hard on these new pensioners.

margaretclare wrote: »

No matter how much factual information there is available, how many times the above is pointed out in words of one syllable, we still get this inaccurate and emotive nonsense about 'poor pensioners being thrown into the street freezing to death' and similar. ... It just provides a smokescreen.

Maybe some of those people will look at the real numbers and at least improve the quality of their arguments. At least they start with some interest in the subject, so there's some hope that they will do some reading and learn something they didn't know.

MonkeyMad

@ gadgetmind, jamesd - You know I read that report really (we were having a Laffer). I can't resist being a little tongue in cheek that some seem surprised that others decide to reduce their amount of work when it all vanishes in tax. Probably a bit like the lower earners who decide they might be better off on benefits if they are being taxed to fund an age allowance .

A little out of date now, and quite heavy going, but read the attachment and see if you can tell whether France or the rest of our Euro chums really have an overall more generous pension system than the UK. Don't forget to include analysis of the contribution rates in your answers and recall that for the most part additional provision in the UK has been optional. For additional credit include critique on the level of compulsory contribution in the UK relative to the replacement rate compared to other countries.

http://ec.europa.eu/employment_social/social_protection/docs/isg_repl_rates_en.pdf

Mrs_Arcanum

Sorry, but of all the measures they have put in place this one hurts fewer people to a lesser degree.

gadgetmind

MonkeyMad wrote: »

A little out of date now, and quite heavy going, but read the attachment and see if you can tell whether France or the rest of our Euro chums really have an overall more generous pension system than the UK.

I've read similar reports in the past (and have just read that document over lunch), and have come to the same conclusion as before, which is that it's very hard to compare like-with-like. When the data globs together all earners across all sectors, the signal can get hidden in the noise.