Near Half Of Adults Don’t Pay Income Tax Says IFS – Good, This Is As It Should Be

The Institute for Fiscal Studies tells us that near half of all adults don’t pay any income tax. From this side of the fence – good, that’s the way things should be. We should be striving, in fact, to get that up to precisely half.

That is, we tax the poor too heavily.

Record numbers of adults are paying no income tax, an analysis by the Institute of Fiscal Studies (IFS) shows, as the burden increasingly falls on the top one per cent of earners. A unique IFS analysis of HMRC tax records reveals 43 per cent of adults do not pay income tax, up from 38 per cent in 2010. By contrast, the top one per cent of earners are now paying 27 per cent of the nation’s income tax.

The argument is that Adam Smith was right. The richer should pay perhaps more than in proportion. Which I take to mean that income tax should go back to what it was. Something that starts at about median income. And that should be NICs as well as income tax – that is, taxes upon income should only be paid by those making more than 50% of the country.

Another way to put this is that taxes upon income – rather than upon consumption, land, sins etc – should be something that the middle classes and above should have to worry about, not the working class. And for those who want to shout about how great it was when we had strong unions and a more equal society that is in fact the way it was back in the 50s and 60s.

There is, obviously enough, the counterargument, that peeps who aren’t paying income tax will be shouting for more freebies from those who do. But current middle and upper class tax rates are already at that peak of the Laffer Curve. That 54% on income – roughly enough – which maximises revenue. Not particularly because people planned it that way but because trial and error in feeding the maw of government led to Chancellors maximising their income tax take.

Limiting the depredations upon the pockets of the poor while maximising the pickings from the richer will lead to our just having to put up with less government. Something which in itself is a good thing.

My recommendation – absurd as it may seem – is that the income tax and NIC allowances should be set at median wage for the country. About £22,000 or so at present I think? Above that whatever that Laffer Peak rate is. Some 50% or so for all three taxes upon income, employers’ and employees’ NI and income tax together.

Nope, not done the sums although I’m sure it would mean less overall revenue. But it does strike me as being a just system. The richer should carry the greater burden, the poor none upon their income directly and if we need less government as a result well, whoop, whoop, eh?

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Matt
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Matt

Why the concern with laffer peak rate, government should be taking far less than that from us.

Reader
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Reader

“Why the concern with laffer peak rate, government should be taking far less than that from us.”
It depends on where you look. When the Guardian is not mocking the Laffer curve the discussion seems to assume that the “Optimum” tax rate is the same as the rate that gathers maximum tax.

Jonathan Harston
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Jonathan Harston

Rather amitious. I’m campaiging to weld tax allowance and minimum wage together. Small steps. Surprisingly, I get more opposition from “progressives”, a mix of “wah! but rich people will also benefit” and “but everybody should have skin in the game”.

timworstall
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timworstall

“Rather amitious. I’m campaiging to weld tax allowance and minimum wage together. Small steps.”

Well, yes, It’s just that 12 years ago or so, when I came up with the idea of welding the two together, that was ambitious too…..

Jonathan Harston
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Jonathan Harston

Not to take the wind out of your sails, you were the first place I ever saw the tax=minwage thing in print anywhere, but I first heard of it sometime in the late 1990s, soon after the minimum wage itself came about. I never heard or saw anything about it since then until your stuff. I *think* the conversation was along the lines of: abolishing means-tested benefits would be too complicated and controversial, wouldn’t eliminating income tax for people on minimum wage be simpler and more workable? I think it was laughingly odd-ball at that time with the personal allowance… Read more »