Thread: Hey!! Who's pulling the Bandwagon????

Here's something I like to consider about the taxes - shouldn't market dynamics correct for any disparities in taxes?
In the most simplistic take at the end of the day if a person X gets paid Y and then Z is taken by the government they end with Y-Z. Their bottom line is actually Y-Z so if Z is too much or too little the market should be correcting the Y (which comes from the employer and then from the customers of that employer... just so that you don't think this is oversimplified).

So apart from politics the issue seems to be not so much the actual tax system, but the fact that it can be tweaked relatively easy and the market corrections have a lag. In other words not allowing for the market equilibrium, but then the actual question is how does the difference compares with the fluctuations.

I suppose that got a bit too technical, but of course in the real world the politics is of immense importance, so like pretty much all posts so far mine's kinda silly for ignoring it.
Like somebody wrote recently on the subject, when 47% of the voters don't pay tax how does this affect the politics of more or less government spending?

Personally a tiered system imo is the only realistic approach.
A sizable number of people already live with at the threshold of poverty just staying alive. How on earth do you take taxes from them? You can't. They have nothing.

But even if you would magically overcome this problem and tax everyone at 10%, how would that fit the idea of being 'fair', hm? The only 'fair' would be if everyone paid the same absolute amount in dollars, not in percentage. And in that case you need to tax the low income for more than they make and own, to make up for the fact that the Rich are paying the same.

The major, number 1 goal of any system is that it works. No matter how much you want it to be fair, if it doesn't work, it is worthless. so far a tiered system ssems to be the only one that has a realistic chance of working. If someone has a better idea, that's fine, but it has to work.

Originally Posted by billyjeff2

So now I'm a socialist. Who knew?

I knew...and know!

We have a tiered system here in the UK, where you pay 20% on earnings below £37,400, 40% up to £150k and the 50% above that. You also lose the tax free allowance of £6475 once you go over £100k a year in tiers, so between £100k and £130k you're basically on 60% tax.

All sounds very fair right? The rich pay more, the poor benefit from income distribution and all that jazz.

The problem with it is that it totally kills any desire to better yourself and earn more money, because every time you step up the income ladder HMRC takes another slice of what you're earning. People on say £95k who step up to £110k when they get promoted are actually WORSE off after the pay rise!

Its also totally crazy to say to a poor guy "Hey, you're not doing so well, heres some income support, family tax credits and a load of other financial help so you can better yourself." and then go "Right, now you're a rich b*stard coz you earn more money, so now you get no tax credits, no income support and you're going to pay 40% tax" as soon as they do better themselves and earn more.

Again, wheres the incentive to put the work in? If you're working part time, earning £8k a year, but getting a load of income support and housing allowance that means you are basically getting a £20k a year salary, why would you go out and work full time to actually earn that £20k a year, but lose all the benefits you were getting? You wouldnt. Which is why a growing number of people here dont.

But the problem with that is that you just cant have a society where a few people are supporting everyone else. Eventually those few have had enough and go elsewhere, which is what we're risking in the UK.

The major industry in the UK is financial services, but our current collection of elected idiots have decided that its a vote winner to hammer the banks and the bankers with extortionate taxes to pay off the deficit that they ran up.

The problem is that eventually the banks and bankers will decide that 50% income tax and 40% corporation tax is far too high, so they'll relocate elsewhere. So our GDP will crash and we'll be left with a mountain of debt that we havent a hope in hell of paying off.

Their other "bright" idea has been to massively increase the number of public sector jobs, which has had two effects.

The first is that public sector jobs, whilst needed and necessary for the most part, dont contribute to GDP, instead providing a service like the NHS or road building. We absolutely need these things, but they dont actually create income.

The second is that when another party comes along saying that they will cut public sector spending (which we absolutely need to do by the way), Labour can claim that they are a load of rich toffs who just want to have all the poor people on the breadline. Not true, but basically anyone who's working in a slightly spurious public sector role is not going to vote for the party thats going to cut public sector spending. And so the cycle continues...

Meanwhile, the government is taxing the shrinking productive part of the economy to pay for the ever increasing non-productive bit. Somehow, I cant but feel that they are on a road to nowhere with this one.

In understand your sentiment, and there things I don't agree with in our system as well. It is not perfect. But it works.

I think we all agree that you simply can't tax the poor because they have virtually nothing. We can also agree that for a stable society to exist, the government needs to be allotted a certain amount of money. It is then a matter of coming up with a way to get that amount of money from the people.

Getting an equal dollar amount from all citizens is not an option because you simply won't collect enough to make society tick.
Getting an equal income percentage from all citizens is also not enough to cover the total amount.
That leaves a tiered system.

Also while the system is sometimes convoluted (tax credit, support, etc) it all boils down to letting the poor to middle class make enough money to actually live. As I said before, it doesn't matter exactly what system you have, as long as it allows for a stable society while collecting enough money.

It is also not correct that a tiered system does not motivate people to earn more. If a pay increase bumps me to a next tier, the new tax bracket only applies to the part of my income that is in that tier. My income below that tier is taxed according to the lower tier, all the way down.

Originally Posted by Bruno

Getting an equal income percentage from all citizens is also not enough to cover the total amount.

Why not?

I'm not sure but last calculation I heard was around 17% to cover the current operating budget of the US. Of course that was pre-Obama so It is probably higher now. Percentage seem the most fair to me.

My wife actually turned down a raise once because it put her just over the lip into a higher tax tier, her "raise" would have cost us 5% of our total pre-raise annual income. Her company wanted to reward her but was prevented from doing so because of the current tired system so she stayed stuck at the same salary level as all her peers, you know the ones who didn't stand up high enough to be noticed by either management or the government.

Originally Posted by Stubear

People on say £95k who step up to £110k when they get promoted are actually WORSE off after the pay rise!

This is a fallacy. The fact is, those tiered rates continue to apply to each tier within your basic salary. In other words, someone earning £110k pays zero tax on the first £6475, then 20% on the next £30k, then 40% on the next xxx etc. Even if you tick over into the next bracket by £1, you cannot be taxed more than you were on the salary you were on last year. The higher rate only applies to the monies above the respective rate. E.g. say there's a 10% increase in tier at £100k and I'm currently paid £99k, if I'm given a pay rise that takes me to £110k, I only pay the higher rate on the£10k above the 100k mark. Under that I still pay the lower rate. Sorry, I've not been very clear. But basically the tax tiers apply only to those brackets and not across your entire salary.

Originally Posted by Stubear

The major industry in the UK is financial services, but our current collection of elected idiots have decided that its a vote winner to hammer the banks and the bankers with extortionate taxes to pay off the deficit that they ran up.

The problem is that eventually the banks and bankers will decide that 50% income tax and 40% corporation tax is far too high, so they'll relocate elsewhere.

The bankers are not innocent parties here. And from what I can see of other financial centres around the world (US, Europe, Asia) they'll be hammered in one way or another. Where will they run to then? The threat of losing our best bankers is a hollow one.

Originally Posted by Stubear

Their other "bright" idea has been to massively increase the number of public sector jobs, which has had two effects.

The first is that public sector jobs, whilst needed and necessary for the most part, dont contribute to GDP, instead providing a service like the NHS or road building. We absolutely need these things, but they dont actually create income.

It's not as simple a picture as that. Public sector workers pay taxes on their income, and indeed if it helps to reduce overall levels of unemployment it reduces cash lost to benefits. But more importantly in times of economic stress, public spending has played a vital role it its recovery throughout history. Whether it's a sound argument is of course hotly debated by academics on both sides of the political spectrum. But my point is that saying public spending doesn't create income is a little simplistic if you're looking at the situation we're in.

Originally Posted by Stubear

The second is that when another party comes along saying that they will cut public sector spending (which we absolutely need to do by the way), Labour can claim that they are a load of rich toffs who just want to have all the poor people on the breadline.

Believe me, all three parties intend to make cuts to public spending. But NONE of them are giving us any detail as to what, how or when. That's because they're well aware that a general election has been called and none of them have the conviction to give us the bad news straight.

Originally Posted by Wildtim

My wife actually turned down a raise once because it put her just over the lip into a higher tax tier, her "raise" would have cost us 5% of our total pre-raise annual income. Her company wanted to reward her but was prevented from doing so because of the current tired system so she stayed stuck at the same salary level as all her peers, you know the ones who didn't stand up high enough to be noticed by either management or the government.

You will not wind up with less money by accepting a raise that puts you in another tax bracket. You pay the higher tax percentage only on the money you make at that level.

If your joint income is in the 25% bracket, that 25% is not applied to your total income. You pay 10% on income up to $16,500, then you pay 15% on income between $16,500 and $68,000, and finally 25% on any income you make over $68,000, assuming you don't hit the next level.

Did the company tell your wife that she'd be better off not taking the raise? If so then that's shady business.

Originally Posted by commiecat

You will not wind up with less money by accepting a raise that puts you in another tax bracket. You pay the higher tax percentage only on the money you make at that level.

If your joint income is in the 25% bracket, that 25% is not applied to your total income. You pay 10% on income up to $16,500, then you pay 15% on income between $16,500 and $68,000, and finally 25% on any income you make over $68,000, assuming you don't hit the next level.

Did the company tell your wife that she'd be better off not taking the raise? If so then that's shady business.

I just ran this by my wife last night (she is a tax attorney) and she said the exact same thing. Unless there is something screwy going on with the state taxes, you never end up with less money by taking a raise and shifting brackets. I have never been taxed on money I didn't make. After earning it, now, that's a different story.

-Rob

Originally Posted by commiecat

You will not wind up with less money by accepting a raise that puts you in another tax bracket. You pay the higher tax percentage only on the money you make at that level.

If your joint income is in the 25% bracket, that 25% is not applied to your total income. You pay 10% on income up to $16,500, then you pay 15% on income between $16,500 and $68,000, and finally 25% on any income you make over $68,000, assuming you don't hit the next level.

Did the company tell your wife that she'd be better off not taking the raise? If so then that's shady business.

Thank you. Your explanation was so much more coherent than mine.