Intergenerational Foundation – A 40% Income Tax Rate Is Much Too High

The Intergenerational Foundation has released a report concerning student loans, interest rates and repayments. It’s all most unfair they insist. In the course of this assertion they tell us that income tax rates in Britain are much too high. Much, much, too high. For they tell us that one of these unfairnesses is that those earning more than £25,000 a year face a 40% or so marginal income tax rate as they pay off their student loans. They also insist that this is unfair, the system must be changed to prevent this.

Well, OK. We can work with this idea. Do note what they’re really talking about here, not the income tax rate but the tax rate upon income. So, in the UK system, that’s income tax plus employees’ national insurance. Sadly, they fail to note that employers’ national insurance is also a tax upon wages received by the worker but let’s work with their calculation.

Those earning below £25,000 aren’t paying off their student loans. Those making more than £25,000 and less than, what is it these days, £40,000 or so are paying 20% in income tax. Plus that 12% or so in employees’ national insurance. Add the 9% student loan repayment and we get to that 40% marginal tax rate upon income being complained about:

One in 10 students in England ‘rich enough to avoid big debts’
Richest undergraduates escape hefty fees by paying for university in one go, study reveals

OK.

“The government should treat all students fairly and that means reducing the interest rates charged while at university, reducing fees, reintroducing maintenance grants, and lowering the repayment rate so the average young person does not face a marginal tax rate of more than 40% for the next 30 years of their lives.”

40% is too high a marginal income tax rate – or as they’re really saying, marginal total tax rate upon income. OK, so, as above, we can work with that.

They’re insisting that we must become a lower tax society overall, aren’t they? For a 40% marginal tax rate is too high. Therefore we must reduce marginal tax rates to under that 40%. Or, at least, we mustn’t allow marginal rates to rise above that 40%. Presumably, therefore, that top rate of income tax, that 45%, must come down to some 30%. As should the 40%. National insurance is charged upon gross pay so, no, we can’t just add the 12% of whatever it is and get to a 28% income tax rate or lower.

But it is true, isn’t it? That if a marginal rate above 40% is unfair then we must reduce the vacuuming of our wallets to a rate below that 40%. Wonder if they’ve told everyone else on the left of this interesting finding?

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