Simple Income Tax
This is a bit technical but sometimes it makes sense.
Everyone is getting upset about whether to raise the threshold before people start paying tax. The difficulty is if the threshold is raised the highest tax payers save the most, This is why when the threshold was raised they lowered the point at which 40% came in. This has now rebounded because of the rules about child benefits. There is a way round this which seems quite simple to me but then I am a simple minded mathematician.
Assume that you want no one to pay tax if they earn less that £10,000. At 20% that amounts to £2000. So rather than tax the income above £10,000 calculate the tax on all income and reduce it the minimum of £2000 or the tax calculated. So if someone earns £15,000 the tax would be calculated as £3000. so they would be asked for £3000-£2000, that is £1000. However if someone earned £5000 there tax would be calculated as £1000, this is less that £2000 so £1000 would be deducted and they would pay nothing.
This makes no difference to anyone not paying 40% tax. But for someone, say, earning £10,000 more then the threshold, the £10,000 tax free allowance would be worth £4,000 but under this system they would only save £2000. It might be politically tactful to adjust rates so that if there was no increase in allowances the new system would not make anyone worst off, but then future changes would not have the effect of giving more back to the better paid.
Everyone is getting upset about whether to raise the threshold before people start paying tax. The difficulty is if the threshold is raised the highest tax payers save the most, This is why when the threshold was raised they lowered the point at which 40% came in. This has now rebounded because of the rules about child benefits. There is a way round this which seems quite simple to me but then I am a simple minded mathematician.
Assume that you want no one to pay tax if they earn less that £10,000. At 20% that amounts to £2000. So rather than tax the income above £10,000 calculate the tax on all income and reduce it the minimum of £2000 or the tax calculated. So if someone earns £15,000 the tax would be calculated as £3000. so they would be asked for £3000-£2000, that is £1000. However if someone earned £5000 there tax would be calculated as £1000, this is less that £2000 so £1000 would be deducted and they would pay nothing.
This makes no difference to anyone not paying 40% tax. But for someone, say, earning £10,000 more then the threshold, the £10,000 tax free allowance would be worth £4,000 but under this system they would only save £2000. It might be politically tactful to adjust rates so that if there was no increase in allowances the new system would not make anyone worst off, but then future changes would not have the effect of giving more back to the better paid.
Labels: Equitable Taxation
posted by Unknown at
4:48 PM
|
0 comments
