MSE News: Savers lose nearly £18 billion a year

Glen_Clark

oldvicar wrote: »

OK you win. There is a 10% starting rate for unearned income above the basic tax free allowance, but it's only on a narrow band (just over £2K) of income, so worth just over £200 p.a. at best. Interestingly it was created by a Labour Chancellor (Gordon Brown) when he messed up the abolition of the 10% income tax band. It mainly applies to a small number of (generally wealthy) non-working people.

The starting rate threshold for the jobs tax is about £7k
The starting rate for inheritance tax is £325k - with plenty of loopholes for the very wealthy to avoid it altogether. Thats why it raises so little - and why we have a tax on jobs to make up for the shortfall.
I don't want to get embroiled in politics, and I don't like paying taxes because so much is wasted - I also don't pay more tax than I have to.
Just making the point that taxing jobs more than inheritance is not doing the economy much good.
(Incidentally Brown was New Labour. We haven't had a Labour Government since 1979)

gadgetmind

Glen_Clark wrote: »

The starting rate for inheritance tax is £325k

What tax was paid on that £325k when it was originally taxed as it was earned?

oldvicar

gadgetmind wrote: »

This is the starting rate for savings income.

The definition of "unearned income" is best left to those who like to argue about such things as it has no relevance to modern taxation in the UK.

Absolutely. Just 'savings income'. I made a serious error implying it applied more widely.

oldvicar

Glen_Clark wrote: »

The starting rate threshold for the jobs tax is about £7k
The starting rate for inheritance tax is £325k
...

You could look at the £325K threshold as being the equivalent just under £4K per year of the average person's life. Or even about £7K per year of a full working lifetime.

Looked at this way it kind of matches the proportion of earnings the government thought it approprate to allow tax free in the first place, although I'm sure this wasnt the actual thought process in setting it.

(BTW Gordon wasn't 'New' Labour in his heart)

bigadaj

gadgetmind wrote: »

What tax was paid on that £325k when it was originally taxed as it was earned?

Unless it was inherited.

GeorgeHowell

Can any one explain why income tax is being deemed a "jobs tax", since this seems to be the basis for the argument that inheritance and wealth taxes should be set at levels with a view to raising more revenue than income tax does ?

The term jobs tax usually refers to a tax paid by employers in proportion to the number of people they employ, or the amount of their payroll. Income tax does not fit this definition because it it not paid by employers (they just collect it). The definition being used here must be a different one, and without understanding what it is it is difficult to respond sensibly.

gadgetmind

bigadaj wrote: »

Unless it was inherited.

Maybe, but it had to be earned at some time. Additionally, in the case of liquid assets, they will probably be spent again, which raises money via VAT and/or stamp duty.

grey_gym_sock

realistically, the lion's share of taxation is going to be raised from taxes on current economic activity (e..g. income tax, NI, corporation tax, VAT), rather than on transfers of capital (e.g. inheritance tax, stamp duty). that doesn't mean the latter taxes are a bad idea, though. inheritance tax is a great idea, because ppl need less money when they're dead. however, i would be more interested in closing the loopholes in IHT than in raising the rate.

earned income is taxed more heavily than unearned income (or than investment income, if you prefer), mainly because national insurance is charged on earned income. there used to be supplementary income tax on unearned income, which i think was a similar amount to national insurance, so overall earned and unearned income were taxed similarly. since then, the unearned income supplement has been scrapped, and national insurance has been increased repeatedly.

i think earned and unearned income should be taxed at the same rate.

i have no idea what should count as a "jobs tax", but i do find it bizarre that, if you consider that the money a company makes is divided between wages and profits, what goes to wages is taxed significantly more heavily than what goes to profits. e.g. at marginal rates, for a basic-rate-tax-paying employee, for every £100 salary, the employee pays £32 in tax (income tax + NI), but the employer also pays £13.80 employer NI, so in total there is £45.80 tax on £113.80 total cost to the employer, which is a 40% marginal tax rate. (and for a higher-rate employee, it's a 49%.) meanwhile, corporate profits are only taxed at 26% (or 20% for a small company) - if not distributed - and osborne plans to keep reducing that rate (while reducing capital allowances).

it would make more sense to raise corporation tax, while increasing capital allowances to encourage investment.

Glen_Clark

gadgetmind wrote: »

What tax was paid on that £325k when it was originally taxed as it was earned?

I don't want to keep going round in circles but you just don't seem to want to understand this.Your argument that the money has already been taxed is just a distraction.
£325,000 in my bank account has already been taxed. If I leave it to a billionaire who has done nothing to earn it he will pay no tax on it. If I pay it to as gardener as his sole income for a lifetimes work of 45 years, he will have to pay tax on it. Even though I have already paid tax on it. That is the way taxation works. Whenever money changes hands the Government normally wants a cut. The money in circulation will have been taxed several times. and it will be taxed again and again. If money was only taxed once the Governments would have no income.

Glen_Clark

grey_gym_sock wrote: »

realistically, the lion's share of taxation is going to be raised from taxes on current economic activity (e..g. income tax, NI, corporation tax, VAT), rather than on transfers of capital (e.g. inheritance tax, stamp duty). that doesn't mean the latter taxes are a bad idea, though. inheritance tax is a great idea, because ppl need less money when they're dead. however, i would be more interested in closing the loopholes in IHT than in raising the rate.

earned income is taxed more heavily than unearned income (or than investment income, if you prefer), mainly because national insurance is charged on earned income. there used to be supplementary income tax on unearned income, which i think was a similar amount to national insurance, so overall earned and unearned income were taxed similarly. since then, the unearned income supplement has been scrapped, and national insurance has been increased repeatedly.

i think earned and unearned income should be taxed at the same rate.

i have no idea what should count as a "jobs tax", but i do find it bizarre that, if you consider that the money a company makes is divided between wages and profits, what goes to wages is taxed significantly more heavily than what goes to profits. e.g. at marginal rates, for a basic-rate-tax-paying employee, for every £100 salary, the employee pays £32 in tax (income tax + NI), but the employer also pays £13.80 employer NI, so in total there is £45.80 tax on £113.80 total cost to the employer, which is a 40% marginal tax rate. (and for a higher-rate employee, it's a 49%.) meanwhile, corporate profits are only taxed at 26% (or 20% for a small company) - if not distributed - and osborne plans to keep reducing that rate (while reducing capital allowances).

it would make more sense to raise corporation tax, while increasing capital allowances to encourage investment.

The argument against increasing Corporation Tax is that Companies may relocate their tax affairs to a parasite state like the Isle of Man or Jersey where the tax rate is lower.
It would be more effective to raise tax on land and property as that cannot be hidden abroad. But the vested interests controlling the main political parties are against this.