Is Income Tax Fair?

Discussion in 'Politics, Religion, Social Issues' started by mpw, Jul 13, 2005.

  1. mpw Guest

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    #1
    Prompted by a comment in another thread I was wondering who thinks “Income Tax” isn’t fair.
    As I understand it in theory someone earning a good wage, and therefore paying the top rate of Income Tax(IT), in the UK is paying 40% in IT. Therefore if they’re working a standard 5-day week they don’t actually earn anything for themselves until Wednesday as Monday’s and Tuesday’s earning go straight to the taxman.
    Should there be an upper limit to your tax bill?
    Why should a hard working individual pay so much more than someone who can’t(through no fault of their own perhaps) earn as much?
    Is the high tax burden down to centralized Government trying to provide too many services to too high a standard?
    Should people be forced to take more responsibility for themselves?
    Who should pay the most in taxes, the wealthy because they can or those who use or cause the need for the services provided by tax receipts?
     
  2. pulsewidth947 macrumors 65816

    pulsewidth947

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    #2
    Heres my 2¢.

    My mum was recently offered a promotion, which would (on paper) have given her an extra £10k a year. She didnt take it as that would have put her in another tax bracket, where she'd still be earning the same as what she's currently earning, but with a much more stressful job.

    I do agree that people that get paid more should pay more tax, but I think there needs to be more levels of tax, for the above reason. Also the tax should be related to the work you do, although this could never happen for a few reasons.

    Another example - (correct me if i'm wrong) but someone quoted to me that Tony Blair gets a salary of £150,000 pa. Minus tax that ends up being £90,000. For a very stressful job, thats not a lot of money (of course he gets other benefits to make up).
     
  3. iGary Guest

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  4. mad jew Moderator emeritus

    mad jew

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    #4
    If done properly I agree with it but getting the right balance between social security payments and tax thresholds is tricky (glad I'm not the treasurer :p ) and doesn't necessarily work. Like so many things, it's great in theory...

    Nevertheless, I'm glad I live in a country with income tax. Admittedly that's easy to say since I'm a poor student. :(
     
  5. Lyle macrumors 68000

    Lyle

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    #5
    A lot of young people think redistribution of wealth via the income tax is a grand idea until they get out into the working world and start making some money. ;)
     
  6. mad jew Moderator emeritus

    mad jew

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    #6

    Only a few more years and I'll know what you're talking about. Ahh... You've gotta love tertiary education. :D
     
  7. Kushiro macrumors member

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    #7
    Tricky one. I think it's fair that someone who earns a larger salary should pay more in taxes (in terms of the amount of money that actually changes hands), but I think tax brackets are inherently evil (ok, perhaps just not very nice). I've always been a proponent of flat taxes--people who make more will pay more, but there would be no more "I can't take the promotion/raise because I'll end up loosing money" sort of situations. Also, it would simplify the tax code and perhaps force some of the truly rich to actually pay their fair share. C'mon Gates, show me the money!
     
  8. wordmunger macrumors 603

    wordmunger

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    #8
    In the U.S., income tax isn't fair because anyone earning over $50,000 pays as much or more than the 400 wealthiest taxpayers in the nation. That's what's unfair about income tax, not the concept of income tax in general.
     
  9. dobbin macrumors 6502a

    dobbin

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    #9
    :D ha ha I like that. Stealing. Thats exactly what it is :D

    Actually, I think the current tax system is fair enough, that the more you earn, the more you pay. Once you get to the higher rate bracket (approaching £40K pa) then you are reasonably well off and should easily be able to afford the tax burden if you manage your finances well.

    If we had the same level of tax for everyone then I guess (and it is only a guess) that it would be about 30% and that would really hit people on low incomes very hard, whereas higher earners would be £1000s better off. Thats never going to happen. The only change I can foresee happening in the near future is a small increase on the lower level (~1%) and maybe a slightly larger increase in the higher level (maybe 2-3%).
     
  10. Applespider macrumors G4

    Applespider

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    #10
    Hang about, you only pay the 40% on the earnings over the threshold so she should have still had at least £6K more a year.

    Income tax is a necessary evil to keep society functioning. After all, if the rich don't pay their taxes, then a lot of essential services would disappear.

    Income tax isn't particularly fair around that 40% threshold bracket which is increasingly easy to hit if you live in London. I'd like to see a London weighting to your tax allowance so that you're allowed to earn an extra £5-10K before you get whacked with the 40%.

    If not, then I think those between the current £35K to £60K should pay no more than 35%, those between £60-250K pay the current 40% and the super-rich earning more than £250K should pay 45%. After all, thanks to the super-rich being able to afford top accountants and invest to avoid lots of taxation, they generally end up paying a smaller % of their overall income than the rest of us!
     
  11. dobbin macrumors 6502a

    dobbin

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    #11
    I don't understand how this situation can arise :confused:

    [in the UK] you pay the lower rate on the amont below the threshold, and the higher rate on the amount above the threshold. Therefore any increase in salary, whether large or small, will mean in increase in your take-home pay.

    You don't suddenly get charged 40% tax on your whole salary if you earn £1000 over the higher rate threshold. You pay the lower rate on most of your salary and then 40% on the £1000.

    Or am I missing something?

    edit: Applespider beat me to it.
     
  12. Nickygoat macrumors 6502a

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    #12
    I think income tax isn't fair because I have to pay it:D.
    You're not quite right in the idea of paying 40%. It only applies to the top rate. Every year you have a tax free allowance (identified by your tax code - this year for most people it's 000489L), currently £4895. After that you have 10% to pay on the next £2020. Then 22% on the next £29380, then 40% over that. The higher tax bands only apply to money earned over that limit. So if you earn £50000 you only pay 40% on £18600 (50K - £31400).
    I think it's right that if you earn more you should pay more. Society has a duty of care to those less fortunate - it's what's supposed to make us civilised. This is why the tax rate changes periodically under different governments. Labour believes that all of us should pay to help the less fortunate, the Tories, generally, believe that lower tax rates encourage people to work by giving them more money in their pocket. The UK has seen a gradual reduction in direct taxation in favour of a move to indirect taxation - general tax rates have come down, to some of the lowest in Europe, but other taxes (road tax, fuel duty, tobacco duty, alcohol duty etc.) have gone up, to some of the highest in Europe. I don't have a car so why should I pay for the people who do is the general ethos. Some countries, notably Denmark, have managed to achieve the goal of having both high direct and indirect taxation without causing a revolution (remember the Poll Tax?).
    Yes there should be an upper limit on taxation. The Laffer Curve explains it prettuy well. It may now be discredited but the Labour government in the '70s put in eye wateringly high taxes and saw the collapse of business - who wants to work if 80% of your money goes to the government? It reduces incentive and encourages people to look at ways of avoiding tax altogether. Where that rate should be I don't know.
    EDIT: beaten to it multiple times - I should learn to type faster :p
     
  13. mpw thread starter Guest

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    #13
    Why is that fair?
    Does a person earning £50k cost the government more? I can't see how.
    Why should they be rewarded for all their hard work by being required to fund their neighbour's unemployment benefits?

    If you happen to be well paid but have poor management of your finances would you be allowed to reduce your tax burden because you bought a car instead of spending that money on taxes?
     
  14. rainman::|:| macrumors 603

    rainman::|:|

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    #14
    It depends on what you want from your government: A socialist union, where people are taken care of, and lots of services are provided, then yes it's fair IMHO. If you're a libertarian, government-should-be-nothing type, you'd say it's stealing, you work hard to take care of yourself and so should others. Simple as this whole concept is, Americans at heart are still debating whether our government should be a socialist union or a near-anarchy, it just gets disguised as other issues. Once that debate is settled, we can move on to income tax.
     
  15. kingcrowing macrumors 6502a

    kingcrowing

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    #15
    in some states (in america) theres no income tax, like florida, but other taxes are higher to make up for it, but since half the people who live there are either old and lived on a fixed income, or super, super rich and buy huge @ss houses and cars, it makes up for it...

    however i do believe its wrong the way they do it, because as said before, my dad (whose a sr. software analyst at General Dynamics) pays roughly the same % of taxes as bill gates and donald trump... now is that fare???
     
  16. mpw thread starter Guest

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    #16
    Yeah I do understand that you don’t actually pay the full 40% on 100% of income but was trying to play Devil’s advocate. ;)

    That said over here in Jersey that’s changing in a couple of years, in the name of progress (thanks to the EU), we’ll be taxed at one rate. The lower incomes will have an un-taxed allowance after which they’ll pay tax but once you earn over another level that un-taxed portion is to be eroded to a point at another level where you will indeed pay tax on 100% of your earnings.
    Figures aren’t set in stone but are going to be something like;
    £10k tax free then 20% tax on income from £10k-£40k. Then if you earn over £40k you’ll pay, say, 20% on income from £8k-£50K, then £6k-£60 and so on until you’re earning £80+ when it’ll be a straight 20% thank you with nothing tax-free.
    That’s partly why I started the thread ‘cause of these changes to my local taxes.
     
  17. CanadaRAM macrumors G5

    CanadaRAM

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    #17
    You can debate which formulae are fair and which are not.

    The real question is, what is the alternative? The government needs $X billion per year, week or hour to operate. How would it get that if not through income tax? High taxes on consumption (sales tax) simply create a black market economy. Head taxes (flat rate taxes) are wildly unfair to low income earners. Increased taxes on property and businesses increase the cost of living by inflating the price of goods and services.

    Theres no good answer.

    In most countries, income taxes are progressive, so that the % rate of tax is lower at low incomes and higher at high incomes.
     
  18. iGary Guest

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    #18
    At least you get healthcare.
     
  19. Nickygoat macrumors 6502a

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    #19
    Not a very good one though ;) The UK govt has been underspending it's Income Tax revenues for the NHS for years - both Labour and Conservative (although the Tories were worse). The recent injections of large amounts of capital haven't yet had a massive impact.
     
  20. Don't panic macrumors 603

    Don't panic

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    #20
    yes, it's fair.
    but it should be based on a continuous formula, not on a 'bracket' system. that would avoid the paradox mentioned above
     
  21. Nickygoat macrumors 6502a

    Nickygoat

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    #21
    That bit wasn't aimed at you :p
    Are you in favour of the new tax rules or not? I hadn't heard about these so it's all new. And why is it to do with the EU?
     
  22. wide macrumors 6502a

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    #22
    That's true about Tony Blair, but once he is out of office he will make millions just by talking to corporate audiences and doing sponsorships etc. Look at Bill Clinton--he made $5 million last year (surely not all from being a lawyer). Heck, NYC's old mayor Rudy Giuliani made $3 million.

    Anyway, I thought that once you get into a higher tax bracket, only the amount of money you make that is in that bracket is taxed 40 percent. I know that's how it works with estate tax in the U.S.

    I'm not so sure I disagree with income tax...keeping a country running requires a lot of money. Estate tax, on the other hand, taxes money that has already been taxed. Hopefully it will be repealed in August.
     
  23. CanadaRAM macrumors G5

    CanadaRAM

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    #23
    These are the fundamental questions that differentiate a totally "free market" society and a social welfare society.

    (I'll digress a moment to point out that the "free market" proponents who want people who can't get jobs to pay their own way for medical and the fundamentals of life, don't blink an eye when asking for tax breaks and government funding for sports stadiums, automobile factories etc. and use any and all political, regulatory and legal (sometimes extra-legal) means to damage their opponents and maintain a competitive edge)

    So, one line of thinking is to "empower" people by "allowing" them to administer their own pension investments and medical coverage (incidentally creating additional profit opportunities for the private sector). For the 50% or thereabouts of the population without a positive cash flow, education about the financial system, dedication and self discipline, and access to honest and competent private financial services, just what do they think will happen?

    Think this through -- if our society insists that people "take more responsibility" (code word for "pay privately") for medical treatment, retirement benefits and social services, that creates a class of people who are not merely disadvantaged, but who will be literally starving and dying in our cities.
    Do we want tent cities beside our garbage landfills with 10,000 people whose hope for survival for another day is to find something not completely rotten or that can be sold for 10 cents? That's the reality in many countries.

    What about a user pay system? That implies a flat tax for everybody -- the wealthy pay the same dollar amount as the poor. Wait, that's too harsh, so let's say there is a means test so the poorest of the poor are exempt. Wait, what about legitimate exemptions for disability, children, etc. OK, we're back to essentially the same system most of us have now, exept the primary objective of this approach is to have the wealthy pay less by removing the progressive % applied to higher earnings. Simple math. If the wealthy have their dollar amounts rolled back, the poor pay more. Who do you think that will benefit/injure the most, someone who saves enough for a new set of tires for the Escalade, or someone who has to pay an extra 30% of their disposable income (after rent food and the essentials of life, which are not tax deductible, unlike the likely business expense deduction of that Escalade)?

    The concept of the people who "cause" the expense for hospitals, social services, pensions, education having to pay for these in greater proportion to those who don't "cause" the expense is social Darwinism at its worst.
    It's not like having to pay airport user fees to board a plane to my vacation spot; the necessities of life are not options.

    Do the wealthy who propose this type of measure (and I have yet to hear a member of the working poor suggest that they should be shouldering a larger share of the tax load) seriously think that they have paid their fair share of the roads, airports, schools and universities, and community services that they and their families consume and enjoy? What a laugh.
     
  24. mactastic macrumors 68040

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    #24
    I think the more appropriate question is: Is it fair that the fire department shows up at your house when it's on fire?
     
  25. Dros macrumors 6502

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    #25
    I make a good salary and I'm happy to pay income tax.

    I appreciate what that money does to make society better. And I feel a responsibility to help those less fortunate than myself. The government tries to manipulate monetary policy so inflation is low. They do this by slowing growth, making sure that the number of unemployed competing for jobs keeps salary increases to a minimum. So our healthy economy comes at a cost - some people are unemployed. While some are 'lazy', many are not and it could happen to any of us. So I appreciate the safety net, as well as all the other services the government provides.

    Sure, I wish the government could be more efficient about it, and think it is worth pushing for reform.
     

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