ktlight
20th August 2011, 16:57
...hand over as much as 40p in the pound
FYI:
Basic rate taxpayers are losing up to 40p in the pound to the Inland Revenue, according to a report that lays bare the true burden of taxation.
Headline rates of income tax are hiding the real amount that hard-working Britons hand over to the Chancellor, it claims.
When National Insurance contributions are added in, the top rate of tax paid by basic rate payers is 40.2 per cent – double the rate of 20p in the pound.
Those who pay the higher rate of income tax, levied at 40p in the pound, actually lose 49 per cent.
Things are even worse for those on high incomes. Those earning between £100,000 and £114,950, whose headline rate is 40 per cent, have a marginal tax rate of 66.6 per cent of their income. The marginal tax rate is the rate paid on the top segment of income.
Those earning more than £150,000 are effectively taxed at 57.8 per cent, even though their headline rate is 50 per cent. The Centre for Policy Studies report – How Much Tax Do You Really Pay? – calls on George Osborne to scrap the 50p top rate of income tax on high earners.
It also argues that the Chancellor should press ahead with plans to merge tax and National Insurance in the interests of transparency.
Those at the lower end of the income scale also face significantly higher marginal tax rates, since benefits and tax credits are withdrawn as income increases and individuals repay student loans.
National Insurance was originally set up as a separate ring-fenced tax designed to pay for pensions and the National Health Service.
But it is now widely accepted as a crude tax on income that is solely there to swell the Treasury’s coffers. The report includes the employer’s rate of National Insurance in the calculations since economists argue that the money paid by employers to HM Revenue and Customs would otherwise be added to employees’ pay packets.
Even without the employer’s contribution, the tax rates are far higher than income tax rates would suggest.
Adding just personal National Insurance contributions leaves basic rate taxpayers with a real tax rate of 32 per cent, while higher rate taxpayers would pay 42 per cent, those on between £100,000 and £114,950 would pay 62 per cent and top rate taxpayers would pay 52 per cent.
The rate for those on just over £100,000 is so high because for the first £15,000 over £100,000 taxpayers lose 50p in their personal allowance for every extra pound they earn.
Some Tories believe that coming clean with voters about what they really pay would help David Cameron justify tax cuts ahead of the next election.
Mr Osborne has ordered Treasury officials to work on plans to merge the two taxes in the long term. He has indicated that he wants to scrap the 50p tax rate because he believes it is ‘uncompetitive’ and won’t raise much extra, since it will drive wealth creators out of the country or into tax avoidance schemes.
Centre for Policy Studies director Tim Knox said: ‘We should stop talking about a 20, 40 or 50 per cent tax band and accept that the real marginal rates are much higher.’
source
http://www.dailymail.co.uk/news/article-2027698/Ever-wondered-tax-REALLY-pay-Even-basic-rate-taxpayers-forced-hand-40p-pound.html
FYI:
Basic rate taxpayers are losing up to 40p in the pound to the Inland Revenue, according to a report that lays bare the true burden of taxation.
Headline rates of income tax are hiding the real amount that hard-working Britons hand over to the Chancellor, it claims.
When National Insurance contributions are added in, the top rate of tax paid by basic rate payers is 40.2 per cent – double the rate of 20p in the pound.
Those who pay the higher rate of income tax, levied at 40p in the pound, actually lose 49 per cent.
Things are even worse for those on high incomes. Those earning between £100,000 and £114,950, whose headline rate is 40 per cent, have a marginal tax rate of 66.6 per cent of their income. The marginal tax rate is the rate paid on the top segment of income.
Those earning more than £150,000 are effectively taxed at 57.8 per cent, even though their headline rate is 50 per cent. The Centre for Policy Studies report – How Much Tax Do You Really Pay? – calls on George Osborne to scrap the 50p top rate of income tax on high earners.
It also argues that the Chancellor should press ahead with plans to merge tax and National Insurance in the interests of transparency.
Those at the lower end of the income scale also face significantly higher marginal tax rates, since benefits and tax credits are withdrawn as income increases and individuals repay student loans.
National Insurance was originally set up as a separate ring-fenced tax designed to pay for pensions and the National Health Service.
But it is now widely accepted as a crude tax on income that is solely there to swell the Treasury’s coffers. The report includes the employer’s rate of National Insurance in the calculations since economists argue that the money paid by employers to HM Revenue and Customs would otherwise be added to employees’ pay packets.
Even without the employer’s contribution, the tax rates are far higher than income tax rates would suggest.
Adding just personal National Insurance contributions leaves basic rate taxpayers with a real tax rate of 32 per cent, while higher rate taxpayers would pay 42 per cent, those on between £100,000 and £114,950 would pay 62 per cent and top rate taxpayers would pay 52 per cent.
The rate for those on just over £100,000 is so high because for the first £15,000 over £100,000 taxpayers lose 50p in their personal allowance for every extra pound they earn.
Some Tories believe that coming clean with voters about what they really pay would help David Cameron justify tax cuts ahead of the next election.
Mr Osborne has ordered Treasury officials to work on plans to merge the two taxes in the long term. He has indicated that he wants to scrap the 50p tax rate because he believes it is ‘uncompetitive’ and won’t raise much extra, since it will drive wealth creators out of the country or into tax avoidance schemes.
Centre for Policy Studies director Tim Knox said: ‘We should stop talking about a 20, 40 or 50 per cent tax band and accept that the real marginal rates are much higher.’
source
http://www.dailymail.co.uk/news/article-2027698/Ever-wondered-tax-REALLY-pay-Even-basic-rate-taxpayers-forced-hand-40p-pound.html