Hacker News Reader

Comment by graemep | Hacker News Reader

Would you apply that in other areas?

For example, the highest income tax rate in the UK is 45%. If I estimate that it should be 60% can I truthfully say that right people are getting a 15% (of pretax income) income subsidy? There is 0% VAT on books, if I think it should be the standard 20% can I truthfully say the government is subsidising the purchases of books? When people were campaigning to abolish the 5% VAT on tampons and STs would it have been a valid counter argument to say they were being subsidised by not being subject to the 20% rate?

View on HN

Yes the government is subsidising the purchases of books when it puts a 5% VAT on it, where its substitutions are not. The state is financially supporting the product in order to incentivise its use. A tax incentive is an example of a subsidy.

Marginal tax on income is far higher than 45% in many cases. For starters there's national insurance, but then there's also extra tax for people earning between about 50 and 60k pushing marginal tax for many above 60%, even 70% (and that's assuming they didn't go to university)

A graduate with 3 kids on 55k, with their employer spending £1138 on a bonus, gets

* £138 on NI (employer)

* £20 on NI (employee)

* £90 graduate tax (student loan payments which in the UK are income based)

* £400 income tax

* £290 child tax (the uk government give one parent about £1k a child per year, but then takes it away for those earning between 50 and 60k. Two parents can earn 50k each and receive the full amount, but a single parent on 60k gets nothing)

Leaving them with just £200, or 17.5% of the money their company spent on them.

For those of us earning 150k, who have paid off that student loan, have been fully taxed for the kids, get to keep about half of that £1138.

All true, but not relevant to the point I was trying to make. There are far too many quirks in the tax system to take account for everything, so my example is 45% but you think it should be higher ceterius paribus.

If you are suggesting the tax system is unfair or that NI is a way of disguising the fact that earned income is taxed at a higher rate than unearned income I agree with you!

I don't think it should be higher at all, I'm pointing out that it is higher, but only for the lower paid.

Reply on news.ycombinator.com