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Paul Lewis: Why I don’t believe in tax ‘burdens’

The tax burden. I was thinking about it the other day as I drove along the M25: a road which was, of course, built out of the tax burden. A year ago, I had an eye operation. That was paid for from the tax burden. My grandchildren go to various schools all funded (or underfunded) by the tax burden. As did my children. And me, of course.

So why is the tax that paid for all of that a burden? That money allows me to travel safely at 70 miles per hour, it stopped me going blind in at least one eye and it relieved my entire family from being illiterate. And every one of those things boosts the whole economy. A country does not get very far if its people walk along muddy tracks, suffering from undiagnosed illnesses and wondering what this thing called reading is.

So who pays this burden? And who does it sit most heavily on? Of course, I know my share of it from the deficit slashing self-assessment payment I send to HM Revenue & Customs each January and July. But where does this burden of paying for things we all need really fall?

By now, I was going round in circles (well it was the M25). I needed data. So when I got back to my office it was cup of tea and spreadsheet time. And in case you are wondering what else the Chancellor and I have in common, it was I who explained a few weeks before his Budget that self-employed people like me carried a lighter burden of taxation than employees. Or, put another way, we pay less of our income towards the roads, hospitals and schools we use than those who work for someone else. Both Hammond and I think that should be changed. A crucial dozen Tory MPs do not. Roll on the next parliament.

You may have read in several places recently that the richest 1 per cent pay 27 per cent of the tax. It is not true. What is true is the slightly less headline friendly: 27 per cent of total income tax receipts are from the 1 per cent of income taxpayers with the highest taxable income. Those 2016/17 HMRC estimates are about just one tax – income tax – and refer to taxable income not wealth.

On my calculations from HMRC data, the average taxable income of this top 1 per cent is around £400,000 and the income tax paid around £150,000. For many of the richest, a lot of that income is from dividends taxed in their hands at much lower rates than earned income.

At the other end, the bottom quarter of income taxpayers have an average income of around £14,000 and pay about £500 of income tax. So while the top 1 per cent enjoy a net £250,000, the bottom 25 per cent struggle along on a minimum wage income. They work for a year to earn as much as the top 1 per cent earn in less than three weeks. So the top 1 per cent do – and should – pay more than a quarter of all the income tax. And they have done consistently since 2007/08.

Of course, income tax is only one part of personal taxation. Second to the £168bn income tax take is VAT, which brings in £115bn. Everyone pays that, though some essentials like food, children’s clothes and (in some cases) fees to advisers are exempt.

Close behind VAT is National Insurance contributions at £114bn. Those on more than £45,000 a year have a huge subsidy because they pay a lower rate of just 2 per cent on earnings above that level, instead of the 12 per cent on earnings below it. That is a subsidy for the top one in seven earners that costs taxpayers close on £10bn a year. Those lucky enough to have unearned income pay no NICs on it. Nor do the UK’s two million landlords pay it on their rent receipts, saving them at least £1bn a year (and probably rather more).

In fact, if there is a tax burden it falls on the poor. Calculations by StrongerInNumbers policy and research consultant Michael O’Connor using Office for National Statistics data show the bottom tenth of non-retired households by income spend 38 per cent of their £11,000 gross income on taxes. The top tenth spend just 32 per cent of their average £120,000 gross income paying taxes. So the bottom tenth are the most taxed in terms of the percentage lost. The least taxed are the second to bottom tenth, who lose 26 per cent of their gross income to tax.

The highest rates of tax on income are also paid by those on the lowest incomes (the one exception to that being people with six children or more and an income between £50,000 and £60,000 who can pay over 100 per cent marginal rate).

From April, people on low incomes who work, pay tax and get their low wages topped up by universal credit will face an effective tax rate of 80 per cent. And before you tell me that is a withdrawal of a subsidy, not a tax, I use the Chancellor’s word from the Budget announcing a slight cut from 2017/18 in the reduction in universal credit as income rises:

“The universal credit taper rate will be reduced in April from 65 per cent to 63 per cent, cutting tax for three million families on low incomes.”

That taper rate – or tax, as Hammond classified it – is applied after deductions for income tax and NI, and before withdrawal of help with council tax. Those three take the new marginal rate to 80 per cent – just one percentage point less than in 2016/17. In other words: earn £10, keep £2. Now that is a burden when you are on the minimum wage.

Paul Lewis is a freelance journalist and presenter of BBC Radio 4’s ‘Money Box’ programmeYou can follow him on Twitter @paullewismoney

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  1. Scott Gallacher 6th April 2017 at 11:29 am

    Somewhat questionable to claim that dividends are taxed at a lower rate than other income as this ignores the Corporation Tax paid before you receive your dividend income.

    • Paying via dividends is still effectively taxed at a much lower rate since you don’t have to pay either employers or employees national insurance which can add up to about 25% just on its own.

    • Quoting 7.5% as the tax (which I didn’t do) ignores the Corp Tax paid. But if those profits were not taxed at 19% – say it was 0% – the profit would be greater but would the dividend be greater to reflect that? Unlikely. Not all profits are distributed in dividends. In the hands of the recipient dividends are taxed at a lower rate than income from other sources. Show me the arithmetic that says they are not?

    • Good point Scott – 20% off profits before you get paid, funding employers NICs for your employees plus company owners often put their house, shirt and life on the line and pay the ultimate price when a business fails. No wonder over 94% of those working prefer simply to be employed.

  2. Paul, you have an unusual view on tax. Take your NI comments as an example, how does anyone earning over £45,000 “save” 10% tax on earnings above that? How is that a huge subsidy? The fact is that everyone pays at 12% from the lower income threshold up to the £45,000 and then 2% above that. You could argue that figure might be higher, but stopping or reducing the level of tax above a certain figure does not constitute a huge subsidy. You are effectively saying that the State has a right to take a certain percentage of every single penny that someone earns with no cut off point at all – why? What right does anyone have to collect more tax than is necessary? Again you could argue that the figures should be altered to reduce the burden on the lower paid and I have no issue with that, but there has to come a point where we say that enough is enough and the State has no right to levy more than that. However you look at it though, it is not a huge subsidy to stop collecting tax above a certain figure.

    • Nicholas Pleasure 6th April 2017 at 2:16 pm

      The upper earnings rate on NI is a really interesting one and I’ve never quite understood how it is justified. When you become a higher rate taxpayer suddenly your NI falls so you are actually not paying much more tax. It’s another example of how the tax system is pretty kind to the rich whilst harsh on the poor. I agree that it is not a subsidy, but Paul was right to highlight it.

      • Originally, long ago, when originally envisaged, NI was a national insurance system designed to pay for a (minimal) state pension and health care. As such, it was a contributory system for a defined ends. Those at the bottom paid in a bit less and those at the top a bit more, but it was all meant to produce a fund for specific purposes with specific benefits. But in that context it made sense to have a cap on contributions as, after all, the benefits were universal and the same for all. A certain amount of cross-subsidy within the system made sense, but this was never meant to be an extension of income tax.

        There is, indeed, still a notional national insurance fund, and it produces accounts. That NI (employee and employer) contributions are now seen as a just a form of general taxation and not some sort of (mandatory) pension and healthcare insurance is just the way the system has been distorted from how it was originally expected to be operated by the post-WW II Labour government.

        Of course, as the whole idea that it is actually an insurance scheme is now largely a myth, it’s long overdue that the whole income tax/NI system was reviewed as a whole, but no political party wants to take that one on as it would undoubtedly create a mass of losers who would complain bitterly.

        https://www.gov.uk/government/publications/national-insurance-fund-investment-account-2015-to-2016

  3. Your numbers are wrong again Paul, so look again, more importantly why SHOULD the higher rate tax payer pay more, your words. My highest rate was 50% back along, my kids went to private school, I used private health so not a burden on the state so why should I have paid more?
    By the way where are your Financial Services qualifications?

    • Do you drive on the roads? Take trains? Are your properties constantly broken into due a lack of polce force or judiciary? Do you have employees? Do you expect them to have basic education, perhaps literacy skills? Numeracy?

      Everyone gets something out of having a civililsed society in some way.

    • Perhaps you could help readers by setting out the numbers that are wrong.

    • Pricilla McHugh 6th April 2017 at 7:12 pm

      I dont go out at night, why should I pay for street lighting? Tax is for everyone- how do you make your money? is it by using skilled, educated, well transported employees who do work for you that you charge your clients/customers for but take your “slice” before giving some money back to your employees? or do you make every penny yourself? do you claim your kids private education costs as “charitable donations” and request you pay less tax because of this charitable largese? large amounts of the wealth you are earning is off the backs of generations of tax payers, yet you are sulking because you are doing so well and being asked to contribute to future generations- can you not get by and have a good life on what have now? what would you do with that extra money? stop your moaning and pay your dues

  4. For once, I don’t disagree with anything Paul has said!

  5. Neil F Liversidge 6th April 2017 at 11:56 am

    For once we are largely in agreement Paul. My son had his bilateral vocal cord palsy fixed shortly after birth at LGI funded by the tax burden. Last year my daughter had a major spinal operation also at LGI similarly funded. Driving through the Arizona desert in 1996 I pulled in for gas in Yuma. The young kid working the gas station, on hearing my accent, exclaimed “You’re British!” He then asked “Say – how much do you earn?” I told him my then salary, around £30k at the time. “So how much do you pay in tax?” he asked. “Altogether around £10k” I answered, not wanting to baffle him with the mix of tax and NICs. “Wow! That’s a LOT of tax!” he said. “Yes”, I explained, “but we have socialised healthcare, so when my daughter was born last year we didn’t get a bill from the hospital. Likewise, if one of us gets sick or suffers an accident we go to the doctor or hospital and they fix it. Our tax pays for it.” He thought for a moment and said “You know, that’s actually a pretty good system. We should have that here.” I don’t remember his name but I’m hoping that one day when the USA has recovered from its single most massive episode of collective mental illness since the enactment of prohibition, (i.e. Trump), that he becomes the next US President.

  6. Paul talking hogwash as usual – why should the self employed pay the same NI as an employed person when the only get half the benefits?
    We dont get sick pay, holiday pay, double time on bank holidays , 5 weeks holiday a year, security or a basic wage. We were never part of SERPS either, we have no employer contribution to our pensions. Need i go on?!

    • Are you for real? NI contributions have nothing to do with holiday pay, double time on bank holidays, employer contributions into pensions, or holidays. SERPS has also been knocked on the head. Meanwhile the self-employed have been given an increase of over £30 per week in their State Pension and an NI cut (Class 2 abolition).

  7. Paul, The answer is simple – make a voluntary donation to HMRC. I assume this is possible? I will not be joining you!

  8. Big state or little state – the choice is yours. If we all pitched into a nice, uncompetitive social model, we could relieve ourselves of school fees, Private Medical Insurance premiums, pension contributions, etc. and rely on Westminster to be there for us just when we needed. On the other hand, the NHS would crumble, there would be even fewer school places and Jeremy Corbyn wouldn`t be able to pay for universal school meals by imposing VAT on private education …. so up go direct taxes again. Laffer minute.

  9. They get almost identical benefits. Sick pay etc is paid by employer not NI Fund. The only NI benefit they do not get is contributory Jobseeker’s allowance for 6 months. The main benefit for which 92% of the money goes to is an identical (now) state pension. Taking account of the actual benefits they do not get would make a ‘fair’ rate 11.98% rather than 12%. I am not sure what hogwash is but if anyone has the figures wrong it is you. A moment’s research would discover that. But in case you don’t want to do it check my paullewismoney blog and look at 11 March.

    • South London IFA 6th April 2017 at 1:59 pm

      Paul, surely you are missing a fundemental point here; people need to be incentivised to work for themselves.
      No company lasts forever and so we need to constantly encourage people to start new ones, the private sector is the lifeblood of our economy.
      What is wrong with using some tax breaks to encourage people to take the extra risk, that will drive our long term economic prosperity and give others jobs?

  10. Paul – higher rate taxpayers pay a penal surtax on dividends just in case you didn’t realise…. they also don’t receive the universal Personal Tax Allowance – something I think is wrong as a principle, even if a higher rate of tax elsewhere for them compensated for the loss.

  11. It is interesting to see that no one has tackled the elephant in the room: because of the complexity of UK taxation and benefits, it costs nearly as much to collect and distribute this largesse as is paid out. One wouldn’t expect socialist-leaning commentators to point this out but without doubt taxpayers would complain less about the tax burden (which is due to rank inefficiency) if it was reasonable. Perhaps if people like Mr Lewis
    campaigned for this instead of muddying the water, we would all be better off.

    • Nicholas Pleasure 6th April 2017 at 2:23 pm

      I’m absolutely with you on this. The tax system is now so complex and there are so many loopholes and allowances that there is a sense that the wealthy can pay pretty much what they like. A simple income tax, combining income tax and NI would remove a lot of these anomalies instantly. Applied to everything it would mean that rich pensioners, landlords, self employed, company directors and those living off savings would all pay the same. By bringing more people into the tax pool, the increase could be bearable. A simple, sensible tax rate would be paid by more people and would be harder and less socially acceptable to avoid.

    • It is just not true that it “it costs nearly as much to collect and distribute this largesse as is paid out.” Which is why I don’t point it out, it’s not true. Or do you have figures I have missed? Please share them.

  12. A rather one eyed view for someone who makes a point of thanking the system for having sight in both eyes!

  13. To me at least, the very obvious answer is a flat rate tax system, with everyone paying the same rate whether they are employed, self-employed, living off their investments, or living off benefits. It would remove much of the complexity and would (I think) be perceived as fairer. I gather that a flat rate of about 28% (to include NI) and a personal allowance of about £15,000 per year would leave the treasury in about the same position. Bad news for accountants maybe…

  14. I am sure you will agree, Paul that it takes all sorts. As a capitalist red in tooth and claw I of course don’t agree with what I consider to be your left leaning view in the slightest.

    Indeed I consider ALL tax a burden. After all I pay tax so that the less fortunate can benefit. That in my view makes tax compulsory charity. For the little that my tax buys me I could (and often do) get it a lot cheaper on the open market.

    As you have offered your own experience, perhaps a look at my own may balance things out. We don’t have children, so my tax is a charitable donation to yours. I have private medical insurance. So the part of my tax that goes to the NHS is a charitable donation.

    Such wealth as my wife and I have accrued is the result of bloody hard work. I have done my best to ensure that we pay as little tax as possible both before and after retirement – but notwithstanding we still pay far too much when you weigh up the meagre benefits we get for the money. When we die our estate will be liable for IHT and on top of that the new iniquitous Probate Tax. If that isn’t a tax burden I don’t know what is.

    As you know the UK has the longest and most tortuous tax code in the world and much of that tax is wasted. Not everyone is delighted with the amount we give away in ‘Foreign Aid’ – better described as commercial bribery.
    From ‘modest’ waste:
    Scotland Yard has spent nearly £10m providing a 24-hour guard at the Ecuadorean embassy in London since Wikileaks founder Julian Assange claimed asylum there.
    To outrageous waste: NHS computer: Mistakes that have cost taxpayers over £26BILLION. The biggest waste was a £12.7bn plan for the NHS to start using new electronic records. Fewer than 200 out of 9,000 health organizations are using the technology despite the fact that the money was spent on it.
    So please don’t get me stated on tax!

    • Mate, you sound like an utter knob.

      Driven on roads lately? Walked on illuminated streets? Had your refuse collected? On the subject of your private health insurance, tell me, who paid to educate and train the doctors and nurses that work there? Who paid to educate and train the builders and architects of the buildings that the doctors and nurses work in? Who paid for much of the research that developed the therapies and drugs you have access to? For crying out loud, you posted this message on the internet, a publicly funded invention.

      None of this is charity, it’s part of a civil functioning society.

      • I can answer you and most of the others too. In my borough we pay heavily to have our refuse collected. Not only through council tax, but we also pay a further levy to have our garden waste collected. Our streets. Worse than third world. The roads around here that are private are in far better condition to the ones that are public. Builders are trained by apprenticeships offered by building firms. Many nurses (if not the majority nowadays) come from abroad as do a good few doctors and indeed the NHS is recruiting heavily from abroad.

        Sure some taxes are used for necessities. I admit my piece was full of intentional hyperbole to make a trenchant point that seems to have been entirely missed and taken far too literally. But it doesn’t take away from the basic premise that tax is a burden.

        PS And as to references to Hitler and Stalin, which I consider just as fatuous as some of my own remarks, presumably that only applies to Europe. There is always emigration – as thousands (if not millions) are currently demonstrating. But in general I do agree that, as I have mentioned above, certain contributions to tax are worthwhile. The police immediately spring to mind. But that too doesn’t detract from the fact that taxes are far too high and for most are burdensome.

        • I’ll happily agree that public funds are often wasted or poorly spent. I’ll agree that many taxes are unfair, and over complicated. But you took an extreme idealogical stance, and are now backing down. Too often online people espouse ridiculous rhetoric, without any consideration for nuance or even thought. And unfortunately because of this we now have politicians who deal in soundbites and populism, rather than well considered policy.

  15. Neil F Liversidge 6th April 2017 at 4:22 pm

    Harry, without tax to pay the armed forces you’d have grown up under Stalin. So much then for your aversion to leftists. Then again, thinking about it, without taxes in the UK Hitler would have swept the board and finished Stalin off, so make that “you’d have grown up under Hitler” instead. How is your goosestep? As for your private medical cover, if anything goes seriously wrong with you then sooner or later you will fall back on the NHS in some way. I’ve seen it happen umpteen times to the smug and wealthy who trot out the lines you’re trotting out until one day they bump their noses into the reality – the limits – of what their wealth can buy. Re’ the rest of your arguments, waste and inefficiency is a problem to be fixed; it does not make taxation wrong in principle.

    • I’m going to go ahead and assume that the private security firm that must be protecting his Lord’s manor, or maybe militia levied from the local serfs, rather than the police, would have saved him from either Communist or Fascist occupation.

    • Regarding your comments on the NHS and PMI, in your own experience (which in this case is definitely limited) you may well be correct, but I can assure you that many in my experience have had PMI until they died. My wife and I have had PMI since the day we got married and before that under our parents’ roof had private medical cover. My parents went privately until they died as did my wife’s parents.

      Indeed I had a serious road accident in my 20’s and unfortunately this was in the sticks in Norfolk,. I was in an NHS hospital for a week before being transferred by private ambulance to London to the private wing of UCH, where at least 2 months work was spent on undoing the botch from the NHS. I would give up almost anything to ensure I can still afford PMI. We also avail ourselves of a private GP when we don’t want to be ill by appointment and want to be seen immediately and efficiently. This is paid for out of our own pockets – gladly.

      True if the GP and the NHS were as good as they were in my teenage years, then things might be different. But they’re not. They are a very second class service in my opinion. You may have had better experiences and that’s great for you, but I’m afraid that is by no means universal.

  16. Neil F Liversidge 6th April 2017 at 4:28 pm

    If I’m wrong of course, Harry, private healthcare is the way to go. Oh, wait a minute – 643,000 people a year in the USA fall victim to medical bankruptcy – 62% of all personal bankruptcies in the US. If healthcare here was completely privatised Harry, you’d soon be waving bye-bye to that wealth you’ve accumulated through “bloody hard work”.

  17. Paul, The Tax Burden is on the poor from three different angles 1. The increased taxes 2. the deprivation and removal of NHS 3. The attack on benefits to our own UK citizens ( whilst chucking money like confetti elsewhere in the world ( a ) under and due to EU regulations ( b ) the Hammond writing off debts in Cuba after the visit of the most expensive slave ever Mr Obama By slave I mean, slave to his ( and his party ) Sponsors – who rule and control their party. Now ! just because Mr Trump has purchased his presidency the BBC ( the British Broadcasting CONservative Party propaganda machine – controlled by Hammond and his purse strings ) mean we cannot trust the propaganda. Auto Enrolment the new National Insurance Tax – the increases in the IHT tax bill form people who could not afford their council house and were given a 70% discount by Margaret Thatcher – then Community Charge often referred to as the Poll Tax ( replaced by the pole tax ? ). The poor quality of life under CONservative Party, a result of the worst Prime minister since Gordon Brown ( Skippy ) David Cameron his Wet Suit and surf bored.

  18. Paul I do not intend to correct your maths, your the hack that pretends to be able to offer financial advice, the least you can do from your left corner is get it right.
    I have no argument with paying tax, it funds the PSBR. It’s just that nerds like you want the hire rate payer to pay yet more. We are almost always the people who create the jobs in the first place, I pay enough to tax for 300 people making £40,000 per year, but I don’t mind paying a bit more say 3p on the basic rate just for the health service. Where are your financial services qualifications?

    • Someone on £40,000 pays £5700 this year income tax and £3820 NICs. 300 times the income tax alone is £1,710,000 tax which implies an income of £3.2m. Well done. Please enlighten the readers where my arithmetic is wrong (It’s not maths by the way.) Or is yours as bad as your spelling?

    • John, for someone who is making a stance on ‘having financial qualifications’ your arguments are poor and ill thought out, your position on tax (from your first post which you now seem not to acknowledge) is frankly disgraceful and your arithmetic is shameful.

      Maybe these financial qualifications aren’t all they’re cracked-up to be?

  19. Sally Anderson 6th April 2017 at 9:33 pm

    I agree entirely with what Paul has written. In general I am firmly in favour of voicing and hearing alternative arguments but I find it difficult to take seriously those who question Paul’s knowledge and ability and yet themselves display an inability to spell

  20. Stephen Sargent 7th April 2017 at 12:31 pm

    I totally agree in principle that taxation relieves us from burdens and actually makes us freer as individuals. I don’t want to have to worry about if any of my friends or loved ones (or anyone else for that matter) has the money to pay for good health care or a fire engine! But in reality, tax doesn’t pay for anything. The government does. Then, and for various reasons (equality, inflation etc.) a proportion of that spent money is taxed back to the government where it is destroyed. This whole idea that tax actually pays for ANYTHING is a falsehood left over from fixed exchange rates and the gold standard. This is not just some academic argument but actually how money works.

  21. Anthony Fallon 8th April 2017 at 8:28 pm

    Why I don’t believe in Paul Lewis’ “Articles” !!

    While I wholehearted believe that all in Society should socially contribute to help everyone, this article muddies the waters by confusing the withdrawal of Child & Working Family Credits (or any other welfare payment/subsidy) as some form of Tax. This is patently incorrect.

    The Dictionary definition of “TAX” is :- a compulsory contribution to state revenue, levied by the government on workers’ income and business profits, or added to the cost of some goods, services, and transactions. — No where in this definition does it mention reducing or withdrawing someone’s entitlement to any other credits/benefits such as the ones mentioned.

    Following on your comment “… the bottom tenth are the most taxed in terms of the percentage lost. The least taxed are the second to bottom tenth .. ” reminds me of the old quote “There are three kinds of lies:- lies, damned lies, and statistics.”
    In your article you mention an Income of £14,000 & tax of £500 – this equates to 3.57% tax rate and £400,000 income & £150,000 tax – this equates to 37.5% tax rate — so who pays the most “TAX” ??!!
    To suggest the “bottom tenth are the most taxed” because you found out about a percentage to justify your quote is quite frankly absurd !

    I agree a marginal rate of 80% (your description including loss of benefits) is not really satisfactory but, the bottom line is, they are financially better off and maybe there could be other non-financial “factors at work” such as, for example, the person’s self- esteem to moving away from benefits dependency – isn’t that where we want to get a lot of people to ?

    We all need to be stronger to stand up for the (real) people who are most in need in society. Successive Governments over many years have created systems that throw unsustainable amounts of money at society resulting in grotesquely encouraging huge swathes of the population to never want to better themselves, never want to earn (by working) even one extra penny that would reduce their dependent government benefits. Maybe, just maybe, the system is failing and needs to be reassessed to actually help the people who are in real need ?

    So, why shouldn’t any Government try to reverse this and start to encourage people to become more independent rather dependent ? How do we do this? Maybe by encouragement ? Maybe reducing their benefits ? Maybe increasing the nil rate allowance to encourage people to earn more money before they start paying tax ? Maybe another way ?
    We can all agree that the current system is not working properly and is not sustainable. What do we do if we have to decide how we prioritise our Country’s spending– for example – do we spend money on people encouraging them to stay at home and continue their lifestyle choices or do we need to spend that money within the NHS for peoples’ healthcare ?

  22. Ultimately, the reason we have taxes is because any free market system doesn’t provide people with earnings in proportion to effort, usefulness or need, there’s a great deal of luck, deception and monopoly involved in determining the level of earnings. Therefore, some form of balancing is needed between the rich and poor, or manipulative and deserving. It has to be seen a bit like a game where people get what they can off others, whilst making a variety of positive and negative contributions to society.

    For example, a sales executive might be very good at convincing others to buy stuff, generating enormous profits for his/her company yet could be selling something quite useless or even harmful to society. This doesn’t only include drugs, tobacco and alcohol but almost anything for which the consumer buys and doesn’t obtain an overall benefit. In fact rampant consumerism can generate net unhappiness, and it could be argued that people engaged in such activities shouldn’t earn anything but pay society! In other words, for them taxes should be more than 100% to discourage their activities.

    On the other side of the scale we have those people involved in long term fundamental research funded by government tax funded projects in the fields of communication, transport, energy, materials, drugs. Only a small nuber of these are successful or yield useful results, but a few transform society. These are high-risk, high-reward activities which corporation can rarely afford. How much should reserch centres or Universities (or the indviduals involved) receive for the discovery of DNA, encryption, the Internet, the programmable coputer and so on? Tax should be thought of a royalty on the use of their discovery. Without taxes, commercial operators latch on to these discoveries for free.

    The most powerful reason for taxing the rich however is that earnings are influenced by size and turnover, even though the effort might be the same. The simplest case might be a gambler who makes the same decision to win a pound or a million pounds. In what reasonable sense can an executive be said to have earned his salary for simply taking a boardroom decision which could impact differently depending upon the sixe of the company? If earnings were proportionate to effort arguably, the same. In practice there needs to be some large scale balancing in salary between say the Chief executive of Ford motor company, and the owner of back street garage for example.

    • David Jordorson 11th April 2017 at 11:24 am

      You appear to be proposing socialism – it has been demonstrated not to work. Private companies decide what to pay their own staff, thanks, not opinionated bloggers. Unless the activities of the company are illegal – in which case there are sufficiently adequate mechanisms for addressing this – the remuneration of staff by companies which generate taxes through the risks taken and efforts of entrepreneurs are not a matter for public concern or the readers of the Guardian (unlike say, those of a local council for which we are all paying).

      Products and services are either competitive and successful, or they are not. The market – i.e. the paying public – decides. Therefore you’ll find that the free market does indicate value according to need/worth/usefulness. There is no shortage of unskilled labour, nor would we wish to encourage a further surplus. Whether you (or I) personally agree with the worth accorded by society or demand is another matter entirely.

  23. David Jordorson 11th April 2017 at 10:17 am

    Mr Lewis says – as if it’s some sort of trick – that the HMRC figures refer to tax paid on taxable income only. What would one expect? The government decides what is taxable and what is not, and the taxpayer merely follows the rules. And yes, we have a problem in that the income tax revenue – the largest income stream for the government – relies disproportionately on a tiny fraction of the population, the most mobile of them, like an inverted pyramid. It may be good politics, but it’s poor common sense.

    Instead of addressing this problem by moving to a flatter tax system with fewer exemptions, politics trumps economics and the govt. slices off the income at the widest point of the contribution pyramid, so increasing the dependency, like an elephant balanced on a pencil.

    Let’s face it, the tax system is a mess caused by endless tinkering and a sticking plaster approach, and a fear that any real change creates ‘winners’ and ‘losers’ – well, so what? No-one really knows what NI pays for any more, and the VAT system is a tangle of reliefs to placate special interest groups. Entitlements are ratcheted up endlessly (gluten-free bread on prescription, for goodness sake). NI is not spent solely on the health service, and road tax is not spent on the roads – it all goes into one big grab bag.

    Economies work best when the state acts least, and people know how to spend their money better than the government, which wastes many billions in every activity from defence procurement to foreign aid. This is the proper remit of the Public Accounts Committee, not attacking companies because tax legislation is so badly written.

  24. […] In Money Marketing, Paul Lewis wrote about how he doesn’t believe in the tax burden. […]

  25. Great article and valid points about how much tax is paid by high earners.

  26. Is MM short of articles? This is a very old one – as you can see – first published back in April.

    Anyway the burden of tax is about to get heavier!

  27. The points the article makes about the benefits of funding some services collectively and, as far as practically possible, equalising the tax “burden” between self-employed and employer for the same underlying economic activity are well made, if unoriginal.

    Two weaknesses though: first NI is not “tax” even if it has gradually been bastardised. It’s for the most part a payment in return for entitlement to benefits in certain conditions. It has become more “progressive” over time, but started life as a flat rate payment for flat rate benefits. It is now – largely – earnings related payments for flat rate benefits, though with some limited earning related benefits in run-off, and, on the other hand, some means-testing.

    Second weakness is that the article ignores transfer payments. “Tax credits” wipe out the tax “burden” for many people and need to be factored into to any discussion around “the bottom x% of the income distribution pay y”. No they don’t if they get it straight back in tax credits … .

    Oh, and I have the benefit of keeping some of my earnings – which perhaps for Mr Lewis counts as a third weakness.

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