One-off contribution help - so unfair!!

zagfles

grey_gym_sock wrote: »

there's a real issue about whether richer/poorer/middling segments of society are paying too much/little tax. it's not something you can prove - different ppl will have different views, even if they agree about the data - but data is relevant.

Data measured correctly is relevant. For instance income taxes should be measured against income, spending taxes should be measured against spending, and wealth taxes should be measured against wealth.

IHT actually turns out to be a very regressive tax if measured against income. People who die young, say while they're earning and have a job and mortgage, would pay less typically than someone who dies when old, mortgage paid off, on a lower (pension) income. Because the old typically have greater wealth but less income.

But you don't hear arguments that IHT is regressive, do you? Because no-one is daft enough to measure it against income, it makes no sense. It's a wealth tax so should be measured against wealth.

Yet people do argue that VAT is regressive, because they measure it against income not spending!

in some ways it would be more informative to measure the taxes somebody pays over their whole lifetime as a percentage of their earnings over their entire lifetime, instead of for a single year. or perhaps not over a whole lifetime - after all, some ppl are significantly richer or poorer at different stages of their life - but over (say) 5 or 10 years.

It would have to be over a lifetime for it to make any sense. And again, even income over a lifetime isn't everything. If someone's house goes up in value, they are likely to end up paying more IHT than someone whose house didn't go up as much, or who rents.

i would be interested in any data on those lines. however, the single-year data - if that's all we have - is far from useless.

for a start, most ppl don't have wildly fluctuating incomes. i would imagine it's most common among the self-employed, who are still vastly outnumbered by the employed. and most self-employed ppl in fact have low incomes. the number who are swinging from very high to very low incomes in different years can't be that great. ppl who make more from their own business are more likely to operate through a company, in which case they are probably deliberating smoothing their own taxable income if necessary (when deciding how much salary + dividends to pay themselves each year).

Nobody will have a stable income all their lives. For instance while at school/college/uni, they will spend (student loans etc) but have a low income, when they retire they will spend savings but have a lower income than when they were working.

Plus even while income is stable, doesn't mean spending is. People save up and make one-off large spends eg go on a world cruise or pay for a daughter's wedding.

if you followed the IFS line, you'd conclude it was impossible to decide whether rich/poor ppl are paying their fair share of tax. but the reality is that we know that shifting the tax burden away from income and towards VAT and council tax is regressive. the only question is precisely how regressive. i think the data in this table is not a bad way to start to answer it.

No, that's the point. VAT is not regressive when measured against spending. Poorer people will spend a higher proportion on VAT free stuff such as rent and most food. VAT only appears to be regressive if measured against income.

Council tax is different. It's a tax on property and so should be measured against the value of the property, so to argue it's regressive you need to show that it doesn't go up in line with property value. Which it probably doesn't, so is likely to be regressive. But not against income. That's as meaningless as measuring VAT or IHT against income.

(the data also reflects different kinds of income being taxed more heavily than others, generally earned income being taxed more heavily than investment income, which again favours richer ppl.)

But taxing investment income is often a "double tax", ie taxing something which has already been taxed (eg people who put earned income into an investment). This doesn't apply to pensions, ISA's etc.

the income figures in the table will also tend to understate real incomes for the richer deciles, much more than for the lower deciles, because they leave out things like capital gains, company profits which haven't been paid out yet, and even (for a few ppl) income retained within trusts. so the table will tend to overstate the effective rate of tax paid by wealthier deciles.

That makes the point. They'll have to be paid out at some stage, usually when income is lower. Making, like VAT, it appear to be regressive when it isn't. Understate the tax when income is high, and overstate it when income is low.

it's true that the advantages to health of discouraging smoking do need to be weighed against the regressive effects of the tax. i would be inclined at least to end the practice of increasing tax on cigarettes by more than inflation every year.

But the point is it shows how ridiculous trying to measure all taxes against income is. Excise duties are very regressive when measured against income, IHT is very regressive when measured against income. But you rarely hear people complaining about these taxes being regressive. Yet they do complain about VAT being regressive when measured against income, when it is far less so than excise duties or IHT.

It's inconsistent political rubbish. VAT is not regressive when measured properly, nor is IHT. Yet you get people claiming VAT is regressive when the same measure of regressiveness would prove IHT is regressive.

Virtually any measure would show excise duties are regressive, but there's no political call for lower cigarette or alcohol tax. In fact they are deliberately regressive, politicans think they need to be expensive to prevent people spending too much on them.

grey_gym_sock

zagfles wrote: »

Data measured correctly is relevant. For instance income taxes should be measured against income, spending taxes should be measured against spending, and wealth taxes should be measured against wealth.

and by that argument, a poll tax should be measured against number of people, and so a poll tax (providing it is a flat amount per person) is neither regressive nor progressive, by definition. which is ridiculous.

there is a more general principle involved here, which is (something like) how much tax ppl pay should depend on their ability to pay. you could argue about the best way to formulate this, but some principle on these lines is one of the main things a tax system should be aiming at.

it's not the only aim of the tax system. other aims include encouraging/discouraging certain activities which are deemed beneficial/harmful. hence higher taxes on tobacco and alcohol, and differential taxes for more/less polluting cars, and so on.

aims can conflict. so a tax (e.g. on tobacco) may be regressive (which is unfortunate) because that's unavoidable in order to discourage a harmful activity (smoking tobacco). that is fine; we live in a messy world - sensible aims can conflict with one another, and you have to make a judgement about which should give way.

but a tax on spending is not based on ability to pay (nor on any other principle that i can think of). suppose i have £50,000 income, and i only spend £20,000 of it. which is a better way of assessing my ability to pay, my income or my expenditure? clearly, my income. spending is some evidence of ability to pay, but my unspent income is even better evidence. clearly some of that unspent £30,000 could be used to pay some tax. perhaps some of the spent £20,000 could also be used to pay tax, but that might involve cutting the actual expenditure (before sales taxes).

income is simply the best crude measure of ability to pay tax. though it is flawed - many things are excluded from it. and arguably, you might want to look at capital as well as income, i.e. to have some taxes on capital, as well as some on income. but the reality is that a small proportion of the tax take comes from tax on capital, and that is always likely to be the case. so income is the best place to start measuring ability to pay. and that's what is meant when discussing whether taxes are progressive or regressive.

IHT actually turns out to be a very regressive tax if measured against income. People who die young, say while they're earning and have a job and mortgage, would pay less typically than someone who dies when old, mortgage paid off, on a lower (pension) income. Because the old typically have greater wealth but less income.

But you don't hear arguments that IHT is regressive, do you? Because no-one is daft enough to measure it against income, it makes no sense. It's a wealth tax so should be measured against wealth.

well, taxes on income and spending are paid annually (or more frequently), and IHT is paid once per lifetime. so IHT isn't (AFAICS) even included in the ONS table i referenced, which is about annual amounts.

both capital and income are, to some extent, relevant to ability to pay, so it is legitimate to measure IHT against capital.

Council tax is different. It's a tax on property and so should be measured against the value of the property, so to argue it's regressive you need to show that it doesn't go up in line with property value. Which it probably doesn't, so is likely to be regressive.

council tax is paid by the tenant, not the landlord. so it's a tax on living in a property (a kind of consumption tax), whether or not you own the property. as a consumption tax, you might want to measure it against rental value of property - which would make it regressive.

if you measure it against property value, it would still be regressive.

and if you measure it against income - which is relevant, because it is about ability to pay the tax - it's regressive, too.

(so there's can't be much argument about whether council tax is regressive.)

But taxing investment income is often a "double tax", ie taxing something which has already been taxed (eg people who put earned income into an investment).

nonsense. you're only taxed on the gain from the investment, not on the original amount of net earned income.

This doesn't apply to pensions, ISA's etc. That makes the point. They'll have to be paid out at some stage, usually when income is lower. Making, like VAT, it appear to be regressive when it isn't.

er, no in both cases.

gains in ISAs are excluded when measuring income. i know my income would be significantly higher if income in ISAs were included. this is just one example of how wealthier ppl tend to have various sources of money which don't count as income, but have the same effect as income. so if measuring taxes against income looks regressive, in reality it's even worse.

pensions have a smoothing effect on incomes. so that is already in the figures. (though some wealthier ppl hope to never pay out the money in their pensions, but to pass it on to future generations. so in this case, we have another example of a kind of wealth which escapes the definition of income.)