Latest news with #incometax
Times
2 days ago
- Business
- Times
We all should worry about this underhand attack on wealth
By the end of the decade 1.7 million of us will be earning more than £125,140. Great news on the face of it but in reality it's much better news for the chancellor than it is for us. Put your tiny violins away for a minute, for this surge in earners paying the top rate (45p in the pound) of income tax is simply illustrative of a much wider and insidious political tax trick. And it's one that Rachel Reeves will surely soon deploy in her budget. When Alistair Darling introduced the additional rate in 2010, about 236,000 people paid it — fewer than the population of Wigan. It was truly a tax for the country's very wealthiest. Yet now it is becoming a problem for the middle class to contend with. It shows us just how a tax grab that starts life as a raid on the very richest can be used to tax those with much more modest incomes within a few years. I am, of course, talking about fiscal drag, the phenomenon that sees the tax take rise as inflation pushes up wages and prices, exposing more taxpayers to higher rates and devaluing allowances and thresholds. It's the same thing that has led to colossal rises in savers paying tax on their nest eggs as well as rising numbers of bereaved families having to pay inheritance tax. Last week a think tank warned that Reeves now has a £50 billion black hole to deal with in her autumn budget. Tax rises are inevitable. The only question that remains is just how will she do it? As always, her best option is the one that is the most politically palatable — one that many of us won't notice or even understand. • How much one year of Labour has cost you Fiscal drag has become a chancellor's most useful tool. Politicians had dabbled with this before but it was Rishi Sunak who really went to town when, as chancellor, he put tax thresholds into a five-year deep freeze. Inflation then proceeded to rocket and the Treasury sat back and watched the money flow in. Jeremy Hunt then happily extended this freeze for a further two years, up to 2028. Forget black holes, Labour inherited a stealth tax gold mine from the Tories. Many of you will not object to raising taxes but my point is that this is an underhand way of doing so. We should not lightly accept such significant changes because they are made gradually. Inheritance tax has become far more pernicious thanks to fiscal drag. A house price boom and a bout of high inflation has meant that, all of a sudden, many more unsuspecting families are being told to pay 40 per cent tax on their loved one's life's work. Take the £3,000 annual gift allowance, the sum you can give away that will be instantly free of inheritance tax. That limit was introduced 44 years ago. It should now be worth approximately £11,500. Such an increase would spare thousands of families from the grief caused by the death tax. • 'My reward for being a good saver? A £1,000 tax bill' Everyone should be furious about the unashamed abuse of stealth taxes. Failing to upgrade allowances and thresholds is a direct raid on your earnings and wealth. Workers typically receive annual pay rises, while the state pension and public sector pensions are guaranteed to keep up with the cost of living. Taxes should stay proportional too. Since the freeze began in 2021, more than seven million people have been dragged into paying a higher rate of income tax. The number of higher rate taxpayers has risen from 4.4 million to seven million, while millions of pensioners are now being asked to pay a higher rate of income tax. It all underlines the fact that our tax system is far too complicated for our own good. Taxes should be levied in real terms. If pay rises, so should tax thresholds and allowances. • Read more money advice and tips on investing from our experts But fiscal drag is not just a sly way of collecting more tax, it's a damaging inertia that has allowed governments to become increasingly unaccountable when it comes to raising taxes and profligate spending. We obviously need to pay tax to sustain our public services but the way in which we are doing so is no longer open and honest. Every tax rise should be justified and come with the expectation that your money will be spent wisely. More and more of us now know what fiscal drag is but not nearly enough. Although I suspect that by 2030, the impact of Britain's stealth tax binge will be impossible to ignore. Johanna Noble is away
Forbes
3 days ago
- Business
- Forbes
Obama's Flirtation With Supply-Side Economics
In his first term as president, Barack Obama extended the reduction in the top rate of the income tax to 35 percent through 2012, two years past the 2010 expiration date that his predecessor, President George W. Bush, had set. Obama presided over the lowest estate tax rate since Herbert Hoover's time, 35 percent in 2010 and 2011. (In one year, 2010, the estate tax rate was zero for those who elected to take it.) And Obama temporarily cut the payroll tax rate by about fifteen percent. In our new book Free Money: Bitcoin and the American Monetary Tradition, we ask why gold peaked after a phenomenal rise, as Obama got going, and why Bitcoin, though founded in 2009, took into Obama's second term to sport extreme price appreciation. We ask why the Great Recession bottomed early in 2009 and never came back (though the recovery was slow). A big reason for these things is that Obama was coquettish, 2009-12, toward supply-side economics. The marginal rate of the income tax, the top estate tax rate, and the payroll tax are three classic targets of supply-side economic policy. These tax rates are to be cut as the top priorities of supply-side economics. The theory is that each of these tax rates distinctly discourages the production and the seizing of initiative in the economy; therefore, cutting them enhances economic activity to an uncommon degree. The primus inter pares of supply-side economics is the marginal rate of the income tax. In a graduated tax system, the marginal rate is that which hits only earners of highest income. Cutting this rate encourages economic activity in two distinct ways. First, a cut in the top rate is the most powerful among all possible rate cuts in a graduated scale, on a simple percentage basis. A cut of 4.6 points from 39.6 to 35 percent (that of the W. years), for example, increases marginal after-tax 'take-home' income from 60.1 cents to 65 cents on the dollar—an increase of 8.2 percent. In comparison, a cut in the bottom rate of 10 percent (that of the W. years) by 4.6 percentage points to 5.4 percent increases marginal take-home income from 90 to 94.6 cents on the dollar—an increase of 5.1 percent. Given progressive income taxes, equal rate cuts mean more at the top than at the bottom. Second, those who are subject to the highest graduated rates—the highest earners—by definition have the most ability and desire to avoid, legally, those rates. High earners do not even need the money. They can decline to earn, change the way they earn (taking advantage of lower rates elsewhere in the tax code), the timing, shelter the stuff, whatever. The highest earners are most adept when it comes to making money. They can slip the top rate because they have the savvy and inclination to do so, and because the tax code gives them ample opportunity to represent income beyond declaring it ordinary. (Forget about closing these loopholes without lowering rates—an inevitable lesson of tax history.) Obama maintained a cut in the marginal rate of the income tax through the entirety of his first term in office. Undoubtedly, this was a central component of this president's strategy to get re-elected. When the Republican opponent in the 2012 election, Mitt Romney, made his gaffe about 47 percent of the electorate's not having to pay any income tax, Obama must have smiled. Obama had ensured that by keeping the top earners' tax rate reduced, top earners paid an outsized share of income taxes. Low top tax rates, high top-earner tax revenue—he knew the verity would hold. Let us be clear: keeping top tax rates down got Obama to a second term. The estate tax is another classic supply-side target. Work and earn your whole life, have the government take it away: a major disincentive to acquire. A reduction in the estate tax prompts, once again, precisely those who are capable of succeeding greatly at enterprise to do just that. Lots of people succeeding at enterprise spells a good economy. Obama took the estate tax to zero. If one took the zero rate, heirs did not get the step-up basis in capital gains. If one did not take the zero, again Obama's rate (of 35 percent) was the lowest since 1932. Supply-side essence, from President Obama. Obama cut the employee portion of the social security tax. For decades, supply-siders have identified the social security tax as one of the best illustrations of the problem facing modern tax-heavy economies. Social security taxes, paid by employer and employee, are a 'wedge' that interposes itself at the place where employee and employer would normally meet to contract labor. Cutting the rate leads to greater employment, and greater returns to both parties, employer and employee. The Obama cut would have been more purely supply-side if it had included the employer side as well (and been permanent), but a rate cut is a rate cut. More people contracted to work because their take-home pay was greater because of the policy. And employers could settle at slightly lower wage rates because their employees were taking more home after-tax. Barack Obama giving a clinic on supply-side economics! One can say that tax cuts are Keynesian. It is true that every tax cut makes the beneficiary spend more than before. But the effect is the absolute least at the marginal rate, and the least in general when the cuts are in rates of a progressive tax system. The JFK tax cut of 1964 that reduced progressive tax rates remains an exemplar of Keynesianism—actually it doesn't, thanks to Kudlow and Domitrovic, JFK and the Reagan Revolution—because of misinterpretation. A cut in progressive rates disproportionately has supply-side, not demand-side effects. Obama maintained cuts in progressive tax rates. Obama did much of this without Republicans forcing his hand. The Tea Party sweep of 2010 brought in a new Congress in 2011, after Obama had settled on most of his accommodations of supply-side economics. Politicians in foxholes—which is to say facing re-election—may talk a Keynesian game (it soothes the chattering classes). But when they act, they take supply-side economics into their confidence.
The Sun
4 days ago
- Business
- The Sun
Workers could see wages shrink by £320 due to Labour's stealth tax rises – check how your pay could be affected
EMPLOYEES could see their wages shrink by £320 due to Labour's stealth tax rises. The government recently said it will not commit to lifting the freeze on income tax thresholds or national insurance (NI) in the next Budget - a move that would force millions of Brits into paying a higher rate of tax. 1 Workers would be pushed into higher tax brackets as their wages rise with inflation - a concept known as fiscal drag. The tax thresholds were frozen under the Tories, and are set to be lifted in April 2028. It has now emerged that people could see their wages fall by £320 under if the freeze is extended by Labour. According to wealth manager Quilter, if the freeze is extended by two years, a worker earning £30,000 could end up paying an extra £106 in income tax and national insurance in 2028-29 and an extra £214 in 2029-30. Someone earning £60,000 would pay an extra £317 in 2028-29 and an extra £643 the following tax year. Meanwhile, someone on £150,000 would pay an extra £354 in 2028-29 and an extra £718 the following tax year. The freeze to income tax brackets means almost 2.9 million more people will pay the basic rate of income tax - which is 20% on earnings between £12,571 to £50,270 - in 2025-26 compared to 2021-22. Over 2.6 million more will pay the higher rate - which is 40% on income from £50,271 to £125,140. If Rachel Reeves does decide to extend the freeze on income tax brackets in her autumn Budget, it will mark yet another Labour U-turn. The Chancellor previously ruled this out in last year's Budget, saying extending the policy would "hurt working people". Millions of workers to get pay rise as Rachel Reeves reveals income tax changes But economists believe Ms Reeves will be forced to renege on her promise, as she struggles to fill a £5billion black hole in the public finances. The Chancellor also needs to find an extra £1.5billion to pay for winter fuel following another U-turn by her party. TaxPayers' Alliance head John O'Connell told the Telegraph: 'This is the sad but inevitable result of successive governments' assortment of anti-affluence tax policies, which penalise aspiration and success. 'The UK is now trapped in a doom loop with the Chancellor desperately scrabbling around for more cash to fill the fiscal black hole and increasingly finding her only option is to come after the middle classes. 'Rachel Reeves needs to now show some humility and reverse the policies that have done so much to drive away high earners.' The prime minister last month refused to commit to lifting the income tax freeze in 2028. He only pledged not to increase National Insurance, income tax, or VAT. Tory leader Kemi Badenoch criticised the stealth tax, saying it would hit "struggling pensioners" who would be dragged into paying income tax for the first time ever. A Tory Party spokesman said at the time: 'The PM wouldn't repeat the promise his Chancellor made in the autumn to lift the freeze on income tax thresholds. "He also refused to rule out a retirement tax and wealth taxes. "The only reasonable conclusion is that a toxic cocktail of Labour tax rises are coming in the autumn budget.'
Telegraph
5 days ago
- Business
- Telegraph
Middle-income workers shoulder biggest tax burden increase
Middle-class workers are shouldering the biggest increase in the tax burden thanks to a stealth raid on thresholds, analysis suggests. The share of income tax paid by those who earn between £43,000 and £61,900 rose from 15.1pc to 17pc between 2021-22 and 2025-26, according to the TaxPayers' Alliance. During the same five-year period, the share of income tax paid by the top 1pc, those earning more than £201,000 a year, fell from 30.7pc to 26.6pc, the pressure group found. It comes as Chancellor Rachel Reeves faces a £50bn black hole in the public finances and declining tax revenue as high-net-worth individuals look to move abroad. Analysis by the Financial Times this month revealed there had been a 40pc rise in directors moving abroad since Labour's autumn Budget. The Taxpayers' Alliance report found the proportion of total income tax receipts increased for every group except for the top 1pc of earners, thanks to a series of stealth taxes first introduced by the Conservatives. Income tax thresholds, including the £12,570 tax-free 'personal allowance', were frozen at the 2021 budget by then chancellor Rishi Sunak until 2025-26. A year later, his successor, Jeremy Hunt, extended the freeze until 2027-28. Despite promising not to raise taxes on working people, Sir Keir Starmer has not ruled out extending the freeze further to 2029-30. Keeping thresholds frozen means earners lose a larger share of their incomes to tax, as inflation pushes up wages in a process known as fiscal drag. The stealth raid means almost 2.9 million more people will pay the basic rate of income tax in 2025-26 than in 2021-22, while over 2.6 million more will pay the higher rate. Including other rates, almost 6 million more people are forecast to be paying income tax than in 2021-22. John O'Connell, chief executive of the TaxPayers' Alliance, said: 'This is the sad but inevitable result of successive governments' assortment of anti-affluence tax policies, which penalise aspiration and success. 'The UK is now trapped in a doom loop with the Chancellor desperately scrabbling around for more cash to fill the fiscal black hole and increasingly finding her only option is to come after the middle classes. 'Rachel Reeves needs to now show some humility and reverse the policies that have done so much to drive away high earners.' The respected National Institute of Economic and Social Research on Tuesday warned slowing economic growth, a weak jobs market and Labour's failure to commit to welfare reform meant Ms Reeves was on course to miss her borrowing targets by £41.2bn. When combined with the £9.9bn of headroom the Chancellor has committed to keeping, it means she is facing a £51.1bn deficit in the autumn that will either have to be solved by raising taxes or cutting spending. The study also underlined the importance for the Treasury's balance sheet to keep the highest earners in Britain. Despite the proportion of tax paid by the top 1pc of earners falling, the group still accounts for more than a quarter of all income tax receipts. Analysis of Companies House by the Financial Times found that 3,790 company directors had left Britain between October and July compared with 2,712 in the same period a year earlier. Significant names have included Richard Gnodde, Goldman Sachs ' most senior banker outside the US, Nassef Sawiris, the Aston Villa co-owner, and British property tycoon brothers Ian and Richard Livingstone. It comes after Labour launched a wide-ranging tax raid after coming to power last year. This included abolishing the non-dom status and tightening inheritance tax rules. Laura Suter, of AJ Bell, said: 'Government tax policy in the past few years has had the dual outcome of pushing some of the wealthiest to leave the UK and also landing more taxpayers with higher tax bills at the same time. 'Together, this means that an increasing proportion of the total tax bill of the country is paid by middle earners, rather than the super-rich. 'Looking ahead, any potential tax-raising measures that Rachel Reeves makes in her next Budget could exacerbate this dynamic further.' Trevor Williams, a former chief economist at Lloyds Bank, previously warned Britain was facing a millionaires' exodus. Mr Williams said: 'Since 2014, the number of resident millionaires in the UK dropped by 9pc compared with the world's 10 wealthiest countries' global average growth of more than 40pc. 'Over the same period, the US saw a 78pc increase in millionaires – the fastest wealth growth [among these countries].' The Treasury insisted that under its Plan for Change it would keep more money in people's pockets. A spokesman said: 'This government inherited the previous government's policy of frozen tax thresholds. At the Budget and the Spring Statement, the Chancellor announced that we would not extend that freeze. 'We are also protecting payslips for working people by keeping our promise to not raise the basic, higher or additional rates of income tax, employee National Insurance or VAT. That's the Plan for Change – protecting people's incomes and putting money into people's pockets.'
Irish Times
6 days ago
- Business
- Irish Times
The Irish Times view on influencers and tax: adapting old rules to a new era
The Irish tax system was designed for a simpler world. Much of it was inherited from the UK, though in important respects Irish rules differ, too. But like tax systems globally it is having to adapt to deal with ways of doing business and earning income which were never envisaged when the rules were drawn up. The decision by the Revenue Commissioners to issue guidance on VAT to social media influencers - following advice last month to the same group on tax on their income - is the latest evidence of this. The tax rules were drawn up in an era when income was earned as cash – from an employer or in pursuit of a trade. Its architects would not have considered somebody being gifted a few nights in a posh resort, or the use of a car for a year, in return for advertising the services of the donor. Properly accounting for this is important in terms of a key goal of the system – fairness. Those who see money deducted each month under PAYE need to see the system applied fairly elsewhere, as do small retailers faithfully filing their VAT returns. Tax rules can be applied to the world of social influencers, usually in a fairly straightforward fashion, albeit that non-cash transactions can involve some complications. But the basic structures of the tax system can adapt. And there is no excuse for full-time influencers or those using their fame to earn additional income, not to be compliant. READ MORE In other areas, however, the taxation system is showing its age. In corporation tax, in particular, the complexity of international trade is a world away from when the system of taxing companies was drawn up. Fairness is an issue here, too, as it is the biggest players who have more options to cut their tax bills. An OECD agreement which was due to set a minimum level of tax for these giant corporations now looks like it is being picked apart. As this story plays out, there will be important issues for Ireland, which has attracted investment for many years by charging multinationals at a relatively low rate. Ireland can lay down its own income tax rules for the modern era, but when it comes to big multinationals it is an international game.
