Progressive Tax

I consider myself a liberal. I have some views, which I obviously thing are the morally correct, which would place me firmly as a conservative. I also hold some views that are positively communist. Overall though, I think I sit as a liberal for most things. Except maybe this.

As I think about it more and more I find it harder and harder to justify the higher income tax rate.

I think it is right that we pay a certain amount of tax. I also am happy to pay that tax. It goes (mostly) towards services that I consider for the good of society. It also seems obvious to me that to tax the lowest of earners would be wrong. We already know that a higher proportion of their money is spent on the basics. If we want a society with cheap goods and services we have to accept that we should support those lower earners.

Currently the government has a “basic” tax rate of 20% of income and also a higher tax rate of 40% for people earning above a certain threshold.

It is the higher 40% rate I have issues with. For a fair society we would ask that those who earn more, give more. This already happens if we tax people as a percentage of income. I don’t see that there is a need to tax the higher earners more. This seems very unfair to me. In fact I would think that this tax rate encourages people to investigate ways of lowering their tax bill. There are some people who have their own personal service companies and they receive a dividend from this which is quite plainly “income” but is taxed at a lower rate that the 40% they would pay if they took the money as they should.

If we had a standard tax rate the same for all people and a higher threshold for paying tax to help the poorer of society, then this would give all a sense of fairness and probably encourage greater payment of income tax.

Governments like to either raise or lower the higher tax rate. This looks either good or bad depending which side of the threshold you sit. In reality it doesn’t do a lot. The exchequer gets little extra or loses little because of these rate changes. It is a rhetoric gambit. A way of looking as though they are looking after the little man but with very little real impact. In reality the government has very little control over the economy but we don’t tell people that. We like to think that “someone” is in control and that things happen for a reason. The world economy is far too complex to be manipulated easily.

Make it fair for all. A single tax rate and relief for the lower earners.