It might be worth our giving a little explanation to The Guardian about how tax systems work. We impose taxes upon certain things. Activities, transactions, even at times unsuccessfully upon mere existence as with the poll tax. These taxes are then paid by those who indulge in such activities, perform such transactions, have the temerity to exist. If we then decide to cut the tax rate or level on an activity, type of transaction or mode of existence then it will be those who formerly paid the tax on such who benefit from the tax cut on such. This shouldn’t be all that difficult for people to understand but we do seem to have an entire newspaper devoted to not grasping the point:
If you are earning £50,000 a year, the chancellor has just handed you a £860 income tax cut – or six times the £130 that will go to someone who earns £12,500 a year – as the centrepiece of a mildly giveaway budget haunted by the prospect of Brexit and anaemic economic growth.
The income tax cuts will cost £2.7bn next year and line the pockets of the better off far more than those on lower incomes. The 20% tax band currently starts on earnings above £11,850, and when that rises to £12,500 next year someone earning around that mark will be better of by £130. That’s because they can earn another £650 without paying tax at 20%.
But the big increase is in the point at which higher rate, 40% tax, will begin. This will jump from £46,350 to £50,000 from April. So if you earn £50,000, that’s an extra £3,650 that will be taxed at 20% rather than 40%, which adds up to a £730 cut. Together with the £130 gain from the basic personal allowance that is a total giveaway of £860.
There is that objectionable idea that not taxing something is a giveaway. The root presumption there is that everything belongs to the State and we’re lucky it allows us to keep anything to deploy as we desire and not as those who stay awake in committee do*. This is not an assumption that leads to a free country nor populace, nor a liberal society.
But it’s also to miss that logical point, that if income tax is to be reduced then it must be those currently paying income tax who benefit from not doing so in the future under the new rates.
A surprise £3bn income tax giveaway worth £860 a year to high earners was the centrepiece of Philip Hammond’s third budget, but tax experts said it would leave low earners with little or no gains.
The chancellor brought forward the Conservatives’ election pledge to increase the basic personal allowance to £12,500 while raising the threshold for the 40% higher-rate tax to £50,000.
The rises in personal allowances – which are the starting points for paying 20% and 40% income tax – translate into significant tax cuts further up the income scale. For someone on £12,500, the increase is worth £130, but for those on £50,000 salaries it is worth £860 a year, although this is reduced to £520 once national insurance is taken into account.
The low paid cough up hardly anything in income tax. Therefore the low paid gain hardly anything from income tax being reduced. This should be obvious.
There is also the point that it is I, me and myself, behind that rise in the personal allowance to £12,500. A decade back I started pointing out that the difference between the living wage and the minimum wage was simply – and only – the amount of tax that was charged to those lowly paid. If the minimum wage was free of income tax only – in the early years – and national insurance – later on – then the net in hand income of someone on that minimum wage would be the same as that of someone on the living wage being taxed under the current system at that time.
Thus, raise the incomes of the poor by refusing to tax them so damn much. An argument that got picked up and thus that pledge that has been achieved.
The reason that the poor don’t gain much from income tax cuts is that the poor shouldn’t be paying income tax in the first place. Something that we’ve – largely – put in place. Good, innit?
*Worstall’s Law- any and every organisation will end up being run by those who stay awake in committee.